Challenges for High Tech Electronics Companies
High Tech Electronics (HTE) is one of the most competitive markets today. Whether you are a major global OEM headquartered in North America or a small injection molded plastics supplier in Malaysia, the pressure to adapt and evolve with constantly changing market dynamics is intense.
The three primary challenges for companies in this marketplace include:
- Fierce Global Competition
- Hyper Innovation Curve/Short Product Lifecycles
- Complex Global Supply Chain
In this kind of environment, it’s critical that OEMs get to market on-time at the right product cost. Margins are extremely thin, and the only way to drive profit is through the sale of large volumes of product units (e.g., each new iPhone model). Value or Current Product Engineering has a very narrow window of opportunity to affect profitability. So, if you don’t get it right the first time by hitting your target cost, the success of the entire product line could be in jeopardy before you even start to manufacture the first unit.
Essentials for Consistently Hitting Target Costs
There are two essential requirements for hitting target costs in HTE.
The first involves having complete transparency to product cost as a design evolves from concept to finished design. It requires understanding how each design feature, each choice of material type, each assembly technique impacts cost.
Today, most companies have virtually no visibility to cost during this critical pre-production phase of the overall product lifecycle. It is only possible at companies that have embraced the benefits of Product Cost Management (PCM) technology and strategies across their entire global enterprise. Furthermore, it is only available to companies that have embraced PCM platforms that are designed specifically for people that do not have a lot of experience costing components and products, and include features such as costing of 3D CAD Models, importing BOMs with costs from carryover parts, costing of catalog parts, costing of tooling – all in an automated fashion that is quick and easy to use.
For companies that embrace this approach, they are able to have real-time visibility to the impact of tradeoff decisions with each and every change they contemplate to their product design. As a result, designers with this kind of insight typically release designs to manufacturing that meet or beat target cost.
The second key component hinges upon conducting negotiations with your supply chain partners to yield the best possible pricing for your outsourced parts. In HTE, very few if any parts are manufactured or assembled in house, which makes supply chain negotiations critical for achieving profitability on a new product introduction.
Nonetheless, most companies still follow the age old strategy of sending a request for quote (RFQ) to suppliers with very little knowledge about what a product should cost in advance. If they have any point of reference, it’s typically an old part or product that is similar to the new one. This strategy is fraught with opportunity for errors.
With the price of materials, energy, logistics, seasonality and availability all playing a role in a final price point, using an old product price as a reference point will almost certainly put the sourcing manager at a disadvantage. The only true way to understand should-cost is to calculate that price mechanistically.
Again, the most advanced PCM solutions on the market today are able to mechanistically simulate the manufacturing process, simulate the cost of different routings through a factory, simulate the cost of switching from one supplier region to another, change volumes, change materials, change cycle times on different machines, change overhead costs, change profit margins, etc. This simulation can be done in real-time while the OEM is negotiating either in person or over the phone with the supplier.
What if YOU could do this right now?
How much better armed would you be going into a negotiation with your supply chain partners?
Companies on the leading edge of technology adoption are using advanced PCM systems to
- understand the cost of design decisions during the earliest stages of the product lifecycle
- enable more fact-based negotiations with their suppliers
Download our High Tech Electronics Case Study to learn how one of the leading manufacturers of communications equipment in the world is leveraging Enterprise PCM to stay ahead of the competition and ensure they get it right the first time on each and every new product introduction.