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Electronic new product introduction (NPI) feasibility vs. cost reductions and price erosion

By VentureOutsource.com Staff

Electronics hardware decision makers cannot afford to disregard product costs. Your product needs to be built at the right quality, at the right time and, so on, but OEM product cost remains important.

You have a cost objective and after your new product introduction (NPI) to the market that objective becomes your focus. But the expectation some OEMs retain is that somehow your product’s costs get managed. But how?

OEM products have continuous pricing pressure from your end markets. Continuous price reductions are being implemented and you try to counter these with new products and features/functions. But the reality is you have on-going price erosion. To stay profitable as a company you are constantly challenged to counter this.

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On the one-hand you counter by introducing new products and on the other and, you need to ensure you have cost reduction programs in place with your EMS providers.

When you talk about cost reductions, there is often the misperception the EMS partner is 100% accountable for all the costs included in the cost of your product. But the reality is that’s not always the case and small components/changes get designed into the product by the OEM from time to time.

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Then, there are also OEM price controls. Its important OEMs isolate and can highlight outsourcing program segments where you can keep your EMS partners accountable.

Determine which areas you expect cost reductions from your EMS partner and work with them on those areas – all while making sure your EMS partner team members are working accurately, timely and, productively to reduce costly workflow errors by highly paid indirect labor.

A lot of cost reductions, especially on box build and mechanical, but also on the other sections of your programs, will likely need design changes. Understand there is an R&D cost surrounding these and invest required OEM resources to establish and execute on your cost reduction targets.

Your trade-off then becomes: do you spend valuable time improving (reducing) the cost on existing products, or do you spend your scarce R&D time and money on introducing new products and in doing so you drop your marketplace price points (ASP) significantly. This trade-off is done all the time. (Price erosion)

It sounds simpler than it is. If you look at one or two product, this is relatively easy, but when you have 50 or 100 products you are evaluating at the same time (and take into considerations all of the different commodities for each program family) things becomes considerably more complex. But this process is one every OEM must go through knowing trade offs need to me made.

In such situations, many OEM decision makers tend to lean toward strategy for new product introductions over the cost reductions.

At the same time, you want to ensure you continue evolving your electronics supply chain, keeping your internal and external teams focused on where you can cut costs out the product. Ultimately, R&D investments are better spent on introducing new products.

Most OEMs will have lots of opportunities to introduce new products depending on several factors like how commoditized your market is, how aggressive your company is, financial stability of current EMS partners, program, sales and market growth, to mention a few.




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