When designing a printed circuit board, we can help cut costs by taking a look at the components 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 or are unavailable due to supply chain demand. 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. Let’s take a look at how to conduct a thorough cost volume analysis of your board parts to ensure you are saving as much money as you can.
Electronic Component Pricing in Cost Volume Analysis
The goal of cost volume analysis is to reduce the overall amount of money that is spent on circuit board components. With the problems the component supply chain has been experiencing, this is more important now than ever before. However, before we look at the steps of cost volume analysis, 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 manufacturers. 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 distributor 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 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
Selecting the Best Components 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. Bulk purchases also are the most advantageous for component manufacturers, as they have a positive effect on the contribution margin ratio, or the percentage of selling price that is available for fixed costs. 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 you can make that 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.
- Supply chain considerations: Like it or not, we are in an era where the best, most reasonably-priced part may end up not being available when you need it. The component supply chain issues that we are seeing today can sometimes force a choice of a more expensive part simply to avoid delays in production.
- 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 it 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 select components to leverage the lower prices of bulk component purchases when possible. Obviously, this is dependent 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 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 might end up having to completely redesign the board 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.
Using Your PCB Design Tools to Help
Advanced schematic capture tools can help your selection of components
Besides cost volume analysis, another way to lower component costs is to use PCB design tools to their fullest capabilities. Use circuit simulation tools to test out your design before you go to prototype builds to make sure that you are using the right components. This will save you money by preventing you from 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 is the Unified Search functionality, which provides you with accurate and current part information during design to help combat component supply chain problems.
By using cost volume analysis and Cadence design tools, you can carefully select the best components for your circuit board while saving on costs. If you’re looking to learn more about how Cadence has the solution for you, talk to our team of experts.