President & CEOEO
Humphrey Products Co.
Edited by Kenneth Korane
Engineers often think that assembling finished products from standard components is efficient — if they just look at the price of the parts. But look at the time it takes to bring a concept into production and you may see a whole different picture.
In a perfect world, engineers would build perfect designs using off-the-shelf components. But that usually doesn’t happen, especially when faced with trade-offs such as space constraints versus performance. While a “breadboard” design may be workable, it may not be possible to actually making standard components fit the required envelope. So the engineer begins a trial-and-error process of redesigning subassemblies, changing and relocating components, modifying circuits, and so on. And changes to one subassembly inevitably affects others. Eventually the engineer will build a workable prototype. But is this the most efficient use of time?
Assume that 10% of the project time is spent developing one particular subassembly. If, instead, the engineer partnered with a capable and qualified outside source to develop a custom solution, development costs would drop by 10%, saving time and money. The key to finding the right outside source is in defining the problem. If it’s a matter of modifying simple features — a standard component’s mounting holes, port sizes, or electrical connectors — almost any component manufacturer can produce a custom product. For more-complex problems — say, “squeezing” two components into a small space — you need a manufacturer with experience supplying custom components to your industry.
But isn’t it more expensive if a custom subassembly costs more than the aggregate price of all the individual parts? On the surface, yes. But look deeper into the actual costs of producing the finished subassembly.
Start by totaling the cost of purchasing individual components — everything from cutting separate purchase orders, to incoming inspection, and holding multiple parts in inventory. Then calculate manufacturing costs, including labor, benefits, workstations, and floor space devoted to building that subassembly. A custom manufacturer can turn subassembly production costs into a savings — adding directly to the bottom line. In many cases the cost differential between standard components and custom subassemblies not only disappears, it turns into a profit.
Now consider engineering time. Outsourcing just one subassembly probably won’t have much impact. But outsourcing several key subassemblies could save a considerable amount of time and bring the entire project to market faster. Of course, your engineers must still develop the initial design, select many components and packaging, and maintain control over the project. But now they are free to work on more projects within their expertise.
This effectively boosts the output of your engineering department, letting you introduce more products, better serve your customers, and increase revenue. Obviously, every company has its own cost structures and other factors far beyond the scope of this discussion. But when you begin calculating the time it takes to design, engineer, and manufacture your products, you will discover the real hidden costs of standard components.