Who doesn’t want to reduce costs? Reduced costs lead to either increased profits or a lowered unit price for your customers. Both situations are great for Original Electronics Manufacturers (OEMs). Here are seven creative ways that might help you make considerable cost reductions whilst continuing to make your customers happy.
And while the seven cost-saving ideas are great, value engineering is the method that really works. It is an intelligent cost reduction strategy that uses a systematic process to increase the value of products for end-users and profitability for manufacturers. Here are some ideas to make your business more profitable.
7 cost-saving ideas for Original Electronics Manufacturers
Reduce the number of clients you have
Many businesses prioritise getting as many customers as possible. But what they could do is focus on the right type of customers—the ones who value your services and are willing to pay for them. You know, the ones who want to work with you and contribute to your growth as well as theirs.
Cutting out the customers who make the lowest contributions to your profits is one way of doing it. But maybe you’re not quite ready for that drastic measure.
Focusing the majority of your efforts on your best customers and giving them rewards and special attention is a way of sending a message to customers that are not so great. They either step up, which is ideal, or perhaps they leave on their own accord.
You could also stop offering benefits to customers who don’t keep their side of the bargain.
Use lean manufacturing initiatives
Prioritising lean manufacturing leads to your business continuously trying to improve itself. It removes non-value work in every area—from the office to the manufacturing process.
Removing non-value work should lead to reduced costs and increased product speed to market.
The key to lean manufacturing is identifying where the wastage is in areas such as creativity, overproduction, quality, inventory, waiting time, information, and transportation.
Lean manufacturing needs to be at the heart of every decision you make as a company, and the focus should always be on trying to find better ways of doing things.
Simplify your product
The more complex the product, the more the cost increases. Not only will you need to invest more time developing the product, manufacturing it will be a longer and more costly process. Any product with intricate features might need a more complex PCB with multiple layers, which could lead to an even longer lead time.
Designing simple hardware is one method of reducing costs, and this will also reduce the expense. Ask yourself whether the feature you want to include is a customer priority. If it’s not, then perhaps it’s not worth including. A standard finish might be good enough for customer expectations—and it will reduce the manufacturing cost.
Reevaluate size and materials
How big is your product? How much does it weigh? The bigger the number, the bigger the cost. Every product is different and will vary in terms of the level of technology, complexity, and customer expectation, so there is no one right answer. However, if you can economise on materials, do.
The smaller the product, the more you will save on production, shipping, packaging, and storage. So the product should be as small as possible—within reason. Making it too small could lead to making it more complex.
What is your product made of? Perhaps you could swap a premium material for a lower-grade one? The key is making sure the material protects your product’s features. If they are safe, swapping will not be a problem.
Innovative new materials are always being created, so it is important to watch out for new developments in technologies as well as price fluctuations.
Rethink manufacturing and assembly
Have your products been designed with manufacturing in mind? The simpler it is to assemble your products, the less chance there is for an error to occur, which might lead to re-work and the product having to be assembled again. However, this can become expensive if you are outsourcing production activities and being charged for design-related manufacturing issues.
Investing time in redesigning the product to avoid issues further down the line or in test can decrease future production costs. A good Electronics Manufacturing Services (EMS) provider will offer Design for Manufacturer (DfM) support and the earlier you can involve them in the design the better.
Embrace Industry 4 (and 5.0)
The Fourth Industrial Revolution changed manufacturers from being physical systems to a mix between cyber and physical systems. The concept behind Industry 4.0 revolves around cyber and physical systems communicating with each other via the IoT. This communication and the subsequent manipulation of data allows manufacturers to become adaptive, intelligent, and flexible.
Embracing Industry 4.0 means that manufacturers have decreased:
- Production costs by 10–30%
- Logistic costs by 10–30%
- Quality management costs by 10–20%
Industry 5.0 is made possible by deliberately focusing on research and innovation and putting technology at the forefront of the transition. It is characterised as being defined by a purposefulness that is more than just manufacturing goods for profit. Industry 5.0 focuses on human-centricity, sustainability, and resilience.
By embracing it, manufacturers can cut costs because:
- Sustainable manufacturing is promoted through circular production models, supported by advanced technologies that efficiently use resources.
- The focus on sustainability means industry becomes resilient against external shocks.
Invest in technology
Automating or consolidating repetitive manual processes means manufacturers can increase the quality of their products and potentially cut down costs.
Automation has been used in factories for the past 60 years, but today robots are more intelligent, versatile, flexible, and cost-effective than ever before. Embracing Industry 5.0 also means embracing cobots, which are robots that work alongside humans to get the best out of the human-robot interaction. Humans can direct robots to do work that is dangerous and ergonomically challenging.
Although investment to cut costs might seem counter-intuitive, you can improve worker safety and reduce times—which will almost certainly reduce costs. Even smaller companies that make modest investments in technology are seeing a positive ROI.
The one that works—Value engineering
Value engineering seeks to maintain and even increase the value of a product by uncovering and eliminating unnecessary costs arising in its design process and subsequent lifecycle. When working out how to value engineer products, ‘following the money’ will reveal where the potential for intelligent cost reductions lies.
Here are seven tips for using value engineering as part of your cost-cutting strategy:
- Keep focused
- Don’t rely on ‘hunches’
- It’s not a job for just one person or department
- It’s not about slash and burn
- Keep the whole team in the loop
- Liberate your thinking
- Make sure you follow through
Value engineering does have a bad name in certain circles. However, whilst doing it lazily will almost always lead to failure—doing it right can save your business money, and you will remain ‘loyal’ to the engineering. Read our blog on seven value engineering myths debunked!
One way of eliminating unnecessary costs could be to partner with an EMS. Potential benefits include:
- Outsourcing to an EMS can reduce costs as they simultaneously work with multiple companies allowing them to share 'best practise' advice when it comes to DfM/DfT etc.
- The EMS can pass along additional outsourcing cost reductions to the OEM because they provide labour services in a variety of geographies, some of which are low cost.
- An established EMS provider with a solid customer base can offer additional material savings to the OEM because they make purchases using economies of scale.
However, despite these benefits, your focus shouldn’t only be on reducing costs.
Your focus should be on finding the right EMS in the first place: one that you can trust to add value to your business.
Implementing just one of the nine ideas above could help make your business more profitable. But make sure never to cut costs at the expense of your product. Every dollar saved should be balanced with the end-users satisfaction.
The first nine ideas can save you money, but the secret to sustained profit and the longevity of your business lies in you. Only you know where the right places are to make savings and cut costs. Value engineering can be an excellent tool to help you look in the right places.