But does that same idea apply for PCB assemblies as new features and technical advances cut the lifecycle of some consumer electronics products, in turn impacting profit margins for OEMs and their outsourced CEM partners?
So, is it better to go for the cheaper option? Or is it better to spend more on a comparable product or component that’s – presumably – better quality? Almost everyone will make a call on this basis each day. There are arguments both for and against, but the most sensible answer to this question is another question: how valuable is this purchase to my customers?
Let’s use a new computer purchase as an example. You might only need to use it for email and internet, and you’re not loyal to a particular brand. On the other hand, you may want to use the computer for a specific purpose, such as recording music, professional graphics, or to use it as a personal server. The first scenario will usually cost much less than the second, but quality and performance will be compromised. In other words, the return on your investment will be proportionate to the value placed on the product.
What does this have to do with PCB manufacturing and assembly? Well, a similar cost vs. value consideration is made when a CEM works on a board. The designers must determine how significant cost is to the overall build, and base this against the needs of the OEM and its target consumers.
When ‘designing to cost’ the aim is complete assemblies to the lowest possible price per unit by keeping the design simple and using inexpensive materials and components. Generally speaking, this method will not require specialist engineering and only basic testing to ensure the product is safe and ready for market. For a CEM, it’s relatively straightforward because the single overarching factor is efficiency from the moment a build is signed off.
Designing to value, however, is more complex. Cost is still a factor, but there are other PCB design considerations as the overall aim is to produce a more robust product. That means in-house engineers will mainly focus on reliability and longevity, while also accounting for specific OEM design requirements. At Offshore Electronics, this approach goes beyond simply choosing the ideal parts and materials for the job; the company will also consider board layout, how components interact and possible design weaknesses that could shorten a product’s expected working life.
Managing ROI and Shorter Lifecycles
Is it possible to determine if a PCB design should be designed to cost or value? For outsourced partners, the answer to this question lies with an OEM’s expectations for ROI, where the total amount of profit for a given time is offset against the total investment for R&D and production costs. Until these initial figures have been recovered by the OEM, profit will usually be lower than expected. It’s also why a product’s profit potential is directly related to the length of time it’s available to consumers.
ROI will be quicker when using the design-to-cost model, but because the product will be cheaper to purchase there will be a lower per-unit return in monetary terms. With design-to-value, a product will typically be more expensive for consumers, but will usually last longer and have the option for more features due to the higher standard of PCB installed. This may result in higher sales over time.
Both of these models are legitimate. Though it will depend if an OEM wants a product that can be ‘stacked high and sold cheap’, moving many units over a shorter period, or if it wants an item that can be priced higher and sold over longer periods for a smaller, more exacting market. Either way, there is value for consumers – which is why the ‘right’ approach will ultimately be decided by the end-users’ needs and expectations. It makes no sense to manufacture PCBs to cost if a customer’s buyers prioritise longevity above everything else; equally, it’s difficult to choose the other route if speed and volume are the main drivers.
These decisions make sense on paper, but there are scenarios where the logic is challenged. Some consumer products, such as computers and TVs, rely on technology that develops very quickly, creating pressure on consumers to upgrade to the latest models. If consumers want quality products but are keeping them for a relatively short time, where does that leave profit margins for OEMs and their outsourced partners?
When designing PCBs for consumer products with shorter lifecycles, cost-to-value must hit a ‘sweet spot’ between production requirements and consumer value expectations. That point is often called the ‘minimum viable product’ (MVP). The MVP has enough features and is of sufficient quality to satisfy the target consumer group, yet is marketed at a point that’s both affordable and competitive. Once a product is launched, the design can then be tweaked for better returns but also improved against consumers’ early feedback.
The same principle can be applied to PCB design, with a board being manufactured as an MVP in initial batches and then modified as the business reports back to its CEM. iD Porte, one of Offshore’s key clients, provides a good example of this process. One of the company’s main products is an RFID scanner that immediately identifies microchipped pets that have been lost or stolen. The first boards Offshore built used more expensive components to prove the concept worked. Once enough were built and working successfully, these were swapped out for parts with a better margin.
Efficiency and Strategy
Given how supply challenges have reconfigured the market in recent years, it’s somewhat ironic to be discussing these differences. Steady supplies of product can no longer be counted on, and with parts placed on allocation or longer lead times it’s now up to CEMs to create viable work-arounds. Offshore’s engineers, for instance, now treat most of the ‘extras’ in the design-to-quality model as standard, simply because it would otherwise take too long for products to reach the market.
Ultimately, for CEMs to be competitive they must strike a balance between the cost and value of each board produced. This means using the best possible materials, components and manufacturing processes, while still hitting the OEM’s desired price point. This sounds simple in principle but is only achievable with the right kind of in-house experience and knowledge – something that cannot be guaranteed with every outsourced partner.
There is a lot to consider in PCB production as the design and manufacturing process moves through key phases in development, from prototyping and pre-production to procurement and manufacturing, on to test and validation, and finally OEM customer support. Each stage impacts the cost-value relationship, which is why it’s so important for OEMs to work with a CEM that’s in-tune with the demands of today’s electronics industry.
Author details: Dan Attewell is Technical Sales Director at Offshore Electronics.
