My first exposure to cost volume profit analysis was with cooking hamburgers. No, I’m not kidding you. As a teenager I had a job at a local fast food restaurant, and I quickly discovered that I could cook six burgers on the grill in about the same amount of time that I could cook just one. Admittedly I was more interested in girls, cars, and music in those days than I was in analyzing my work. But somewhere in the back of my mind I knew that the more I cooked in bulk, the more I was helping the profits of the restaurant.
When designing a printed circuit board, we can also help the bottom line by taking a look at the components that we are using on the board. It is possible that we’ve made part choices that are more expensive than they really need to be. By doing a cost volume analysis of the components that we are using, we may find ways to reduce the amount of money that it will take to manufacture the board. Less component cost translates to more profit, and that is something that should interest everyone.
Electronic Component Pricing in Cost Volume Analysis
The goal of analyzing the component costs on our circuit boards is to reduce the overall amount of money that we are spending on those components. Before we look at ways to do this, however, let’s first look at how components are priced. There are three types of pricing models that are associated with electronic components:
Book Price: This is the price that is paid by component distributors to the manufactures. The prices that you see posted online by the distributors are then categorized by volume levels. For instance, a component with a book cost of $2.00 may be distributed at $3.00 for 1-10 parts, $2.75 for 11-25 parts, and $2.50 for 26 parts or more.
Broken Price: For special circumstances, such as a high volume sale, the manufacturer may allow “breaking” the book cost that the distributor has paid. If the same component was being sold in a volume of 1,000 parts, the manufacturer would debit back to the distributer a portion of their cost reducing the book price from $2.00 to $1.00. After the distributor adds their profit margin onto the part, they would sell the parts for $1.50 each.
Direct Price: For regular orders of large quantities of parts, component manufacturers may sell directly to the customer without going through a distributor.
The majority of components are purchased through a distributor, and distributors are classified as; “authorized” or “unauthorized.” Unauthorized distributors are often referred to as “brokers,” and they are normally not connected to a specific component manufacturer. Authorized distributors, however, represent the manufacturers, and are usually referenced by the supplier as being “where to buy” on their website. Authorized distributors are allowed certain privileges that unauthorized distributors are not; the ability to rotate stock that isn’t moving, and the debit system that allows them to work with the component manufacturers to break the price.
There are a number of reasons why component manufacturers will break their book prices, with the two more common ones being region and strategic value. Some geographical areas are more price-competitive than others, and suppliers are usually eager to get competitive leverage into those areas with lower prices. At the same time, component manufacturers also want to align themselves with technology. To be the component supplier for the latest smartphone device can give them a lot of competitive leverage.
Different electronic components on a printed circuit board
The Best Component Selection for Your Printed Circuit Board
As we have seen, there are different pricing models that distributors will work with as well as the option for some customers to work directly with the suppliers themselves. All of these models will yield better results when buying components in volume, which makes designing PCBs with components purchased in bulk the lower cost option. Obviously, you still need to choose parts for your board that are the best components for the design according to their specifications, but there are some other choices that you can make which could help your bottom line:
Comparative Shopping: Although they are usually pretty close in cost, some suppliers and distributors will have lower costs than others. It pays to spend some time comparing costs between manufacturers of like components.
Shared Functionality: Some components will handle multiple functions while others will service these functions separately in different packages. If you need multiple functions, try to use combination parts if possible. Their cost may be higher, but will often be less than buying two different parts.
Don’t Over Do It: On the other hand, if you don’t need these separate functions, don’t spend the extra money on the multiple function parts. Choose your components wisely.
Bulk Purchasing: You are probably designing a board that will go through multiple builds during the life-cycle of the product it serves. Plan your design and it’s components to leverage the lower prices of bulk component purchases when possible. Obviously this is dependant on the shelf life of the component, but if done correctly you could lower your costs over time.
Beware of Obsolescence: The other side of building multiple boards over the life-cycle of a product, however, are parts that will become obsolete. It is important that you choose components that are not projected for obsolescence any time soon. Trying to find stocks of obsolete parts becomes dramatically expensive, and will force you to use unapproved distributors. Additionally, you probably will end up having to completely redesign the board at some point in order to switch the newer replacement parts.
Assembly Costs: Consider assembly costs along with the price of your components. For instance, although thru-hole parts may be less expensive, the surface mount assembly process is usually a lot less expensive than thru-hole assembly. By carefully following good DFM rules when you design, you will also help to lower assembly costs.
Advanced schematic capture tools can help your selection of components
Using Your PCB Design Tools to Help
Another way you can help yourself to lower component costs is to use your PCB design tools to their fullest capabilities. Use your circuit simulation tools to test out your design before you go to prototype builds in order to make sure that you are using the right components. This will save you money by having to redesign a board due to incorrect parts.
Also, use the design reuse features of your tools to reuse circuitry and components that have already been proven in previous designs. Another invaluable feature of your design tools to leverage is the library part selectors so that you are getting accurate component information while you design.
The PCB design tools that have all of these features and capabilities are already available to you from Cadence. You will find that OrCAD PCB Designer has everything that you need from library tools and schematic capture, to circuit simulation and PCB layout.
If you’re looking to learn more about how Cadence has the solution for you, talk to us and our team of experts.