I'm currently in the midst of a challenging design problem that is new in my career. One of my clients contracts their electronics assemblies overseas. Ideally I would design the product, it would go to the manufacturer for quote, tweaks will be made for manufacturability and price, and the design will be finalized. This allows for the majority of the design cycle to occur close to the company here in the US while gaining the benefits from low cost manufacturing of foreign suppliers.
My problem surfaced on a recent design that was very sensitive to assembly cost. When designing, I used sites like Digikey and various chip manufacturers' websites to find the best part given performance and price. The entire system architecture was defined, in a large part, based on the price estimates I was able to glean from my research. However the prices that I was quoted from state-side suppliers were different from those the manufacturer was able to quote.
Instead of getting a price drop that one hopes for from off-shore manufacturer pricing, I saw a price increase of approximately 10% for some components. I can think of a few things that could be going on here.
- There are additional tariffs or other transportation costs that the manufacturer sees that I do not.
- The supplier is using the BOM to pad their margins, or they are adding cost to account for the overhead of the procurement department.
- The manufacturer's supply chain may be more relationship-based and I am paying for my manufacturer's mediocre connections.
- Local demand is causing a price increase that I do not see from my US-based suppliers.
Regardless of the cause, the effect remains the same. If the product cannot hit the cost goal, it will not be viable in the marketplace and will be canceled. My next step is to determine if other lesser components can be used to lower cost without sacrificing too much performance. I can only hope that the cheaper components I find will net cost advantages with my manufacturer.
Another supply chain road block is my inability to see price advantages the manufacturer may get from a preferred vendor. Since the they almost certainly buy high volumes from supplier A over supplier B, they may be able to get better pricing on some parts but not others. It's impossible for me to know which parts will be able to leverage their volumes without having intimate knowledge of their purchasing habbits.
I worry that I'm leaving money on the table from not being able to see all pertinent information related to the decision at hand. Has anyone else confronted this issue on a price sensitive design? I'd love to hear your thoughts, problems, and solutions!