How to optimize production costs without affecting product quality?

In the current economic context, global supply chains continue to face many challenges in the post-pandemic era. The cost of raw materials keeps rising, placing significant pressure on production costs for businesses. However, this is also an opportunity for companies to reevaluate their production processes, seek opportunities to optimize production costs, and increase their competitiveness in the market.

The electronics industry is no exception. Each electronic product typically has a selling price 3-5 times higher than its production costs. Therefore, every 1 penny you can save on cost will make your product up to 5 pennies more affordable for the end-user. Reducing production costs not only helps increase a business’s profits but also enhances value for customers.

In this article, Prostech will share some effective strategies to optimize production costs, without sacrificing quality of the product.

1. Reduce or cut off materials that go beyond standard requirements

Every part in an electronic device has minimum required specifications. However, just because a product passes all the tests doesn’t necessarily mean it is the most suitable choice. Using materials with specifications that far exceed standard requirements can significantly increase production costs. Many businesses overlook this, leading to unnecessary additional expenses.

New materials are continuously being developed and updated in the market. To reduce production costs, engineers should reassess the materials currently in use. If it is found that the quality of the current materials exceeds what is necessary, businesses can contact suppliers or seek new vendors to choose more suitable materials, thereby optimizing costs while still ensuring product quality.

Cost reduction through material selection optimization not only helps save the budget but also enhances the competitive efficiency of the business in the market.

2. Localization of supply chains to reduce warehousing and transportation costs

Electronics manufacturing companies in Vietnam primarily import materials from abroad, which leads to additional costs related to transportation, import taxes, customs procedures, risks, insurance, and more. During the pandemic, transportation faced many difficulties, coupled with material shortages, causing prices to surge.

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3. “Same need, same solution”

“Same need same solution” means there is absolutely no reason to use a different component to perform the same task.

When a material can serve multiple purposes, businesses can save on storage and transportation costs, as well as reduce the time needed for new product development and production.

In the manufacturing process of certain products, try to use the same material for different components. For instance, in adhesive applications such as plastic to metal, plastic to plastic, or plastic to rubber, using just one CA adhesive can address all these needs.

Example of reducing production costs by using a versatile material:

In the case of products that are nearly identical, example taken from the automotive industry: The Renault-Nissan-Mitsubishi Alliance produces 49 different vehicle models. All their electronics, such as the displays, the radios, the safety devices, HVAC, etc., are 99% the same, the only difference is the logo. They do so to save NRE costs by integrating only one electronic device instead of 49. Also, they have a considerable volume effect by doing it, aiming at a significant product cost reduction.

We can see below two development boards from Microchip. Starting with the board itself, the architecture is made around an Atmega microcontroller. The purpose of both cards are not the same, but as much as possible they installed common components and if possible at the same place because this way they can reduce their production costs and manufacturing process, and then being more affordable for the users.

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4. Switching to larger packaging to reduce material costs

To lower production costs, large-scale factories can consider using materials with larger packaging instead of smaller sizes. For example, using cleaning chemicals in large containers can reduce the cost per unit by 20-50% without increasing transportation and storage costs. Combining this strategy with the localization of material sourcing will help businesses optimize production costs.

5. Shifting from manual production line to automative one

With advancements of technology, difficult and arduous jobs are transferred to machines. For large-scale manufacturing plants, automation not only reduces reliance on manual labor but also increases productivity, ensures consistency, and improves product quality. This shift shortens product manufacturing times, minimizes errors, and reduces cycle times. Although the initial investment in machinery may be substantial, it is a profitable investment in the long run.

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6. Outsourcing when machinery is not available

For smaller factories without access to modern technology machinery, investing in new equipment may not be cost-effective compared to outsourcing. Instead of making a large investment in new equipment and technology, businesses can leverage outsourcing services from partners who already have the necessary infrastructure. This approach saves on initial investment costs, maintenance, and operational expenses. Specialized outsourcing firms are equipped with the appropriate machinery and technology and can provide faster production times due to their high level of expertise, thus reducing costs.

For example, when protecting electronic circuit boards from harsh environmental conditions, manufacturers of electric motorcycle chargers might consider methods like potting or low-pressure molding. These methods require specific technical expertise and equipment. In such cases, they would turn to companies specializing in potting or low-pressure molding. This approach shortens production time and avoids the costs of investing in machinery and personnel.

7. Consult expert advice

Each electronic product consists of many different components. Each circuit board, capacitor, or type of material used in the product has numerous options available on the market. To reduce product costs and select the most suitable input materials, it’s essential to consult experts in each field. These experts can provide valuable insights, suggest improvements, and help businesses avoid costly mistakes.

As we can see, there is no perfect cost reduction formula, every small cost that is reduced contributes to the total profit of the company. The most important and difficult thing to do is to maintain the quality of the product. That needs engineers to invest expertise, time and effort.