Having a Pricing Problem?
An article on the Chron states, “the best way to increase your profit margin in manufacturing is usually to lower the product's manufacturing costs rather than increasing the price of the product.”
However, how do you achieve a lower manufacturing price without jeopardizing quality?
Anyone who has purchased products from a factory knows the phrase “increase your order volume, and you will receive a discounted price.”
However, ask yourself, how will this help the client? What is the client to do?
Increasing inventory, only ties up cash flow, so they can’t invest into marketing and build the proper sales channels.
No, that’s a lose-lose for everyone.
An alternative is to work with a contract manufacturer (CM) with a qualified engineering team to achieve a cost down project. The process is straightforward and exercises the following steps:
What’s Your Target Price?
Before proceeding with a cost down project, you need to communicate your expected purchasing price. Don’t simply say you want to lower your price a lot…that’s not helping your manufacturing partner. Provide them with a specific amount you need it to be decreased by.
For example, if your current price is $15.00/unit, you can have a target price of $13.40/unit.
What’s the BOM price?
A BOM is crucial for any project, and will be needed before moving forward with any cost down project. You need to know what your costs are for each component.
For example, if your price is $15.00 for 20 components, you need to provide the price for each component.
Your CM will target the low hanging fruit or the most expensive price and go from there.
From here, the CM will gain responsibility of this project and will offer suggestions of what they can offer and provide you with more affordable pricing. Make sure your CM is not jeopardizing quality. A good CM will work with your current quality parameters opposed to a bad CM, which will make suggestions knowing the function or outlook would be exposed to quality issues.
Here are some things a CM will recommended to change:
Material:
Each material will have different grades.
For example, aluminum has many different series and grades. For aluminum, you have 5 series (5052), 6 series (6061), 7 series (7075) and more. However, knowing the properties of these grades will help identify which grade is needed for your application.
We had a client who wanted to cost down a project that involved CNC’ing aluminum 7075, a very high strength aluminum.
However, the application didn’t need such high quality requirements. The client only assumed aluminum 7075 would be best because of its strong properties.
While this is true, there was no reason to over-engineer the product. We were able to change the material to aluminum 6061, which decreased their quote. On top of that, because aluminum 6061 is easier to process, processing costs were also decreased.
Scrap:
The manufacturing process, will almost always result in some scrap. This will persist until 3D printing evolves to take over all production lines. However, there are ways in which we can minimize it.
To demonstrate, let’s say you have a piece of sheet metal that needs a part to be punched out. You can design the size of the sheet metal to maximize the amount of parts the machine can punch out. If you design this poorly, which happens often, your yield will decrease, similarly increasing your scrap which will increase your costs.
Process:
Failing to understand the manufacturing process can lead to inflated prices.
With so many materials and processes to choose from, how do you know which one is right for your product? Working with a CM can be a game changer and can save you significant costs in the long run, particularly when you’re under a tight budget.
The most common questions people have for processes are the following:
CNC vs Die Casting
Powder Coat vs Anodize
How to set up final assembly
A CM will be able to answer these questions and guide you in the direction, which can help reduce your costs.
Design:
A product’s design significantly influences the cost of the product. Oftentimes, products are designed to be stunning, yet difficult to manufacture at mass scale, which lead to a high defect rate and high cost.
When it comes to the manufacturing process, consider this. Each time a part is touched or processed, it will add cost. Therefore, it’s best to design the product with the fewest allowable parts so it can be assembled easily in the end.
A service based CM will be able to dig deep into your design and find ways to re-design or re-engineer your product to make it more cost-effective, while not jeopardizing quality.
Finishes:
The type of finish you choose will also strongly affect end costs.
Do yourself a favor and define your quality requirements to your CM and explain the environment your product will operate in. This will be extremely crucial and help determine your product's finish.
Some of the most common finishes are include:
Powder Coat
Anodize
Sandblast
Brush Metal Finish
Textured
Understanding the process to make these finishes and the requirements will help define which finish is right for you
If you are looking to decrease your cost get in contact with a CM that employs engineers that can provide you with options to decrease your manufacturing price.