It’s easy to overlook supply chain costs until it’s too late. Electronic design teams face a daunting challenge of meeting deadlines and cost objectives in rapidly fluctuating global markets. With ever-shorter time-to-market requirements, design teams need to understand and mitigate against supply chain risks during the design phase. This is particularly crucial since choices made during the design phase impact 70% of the life cycle cost of a new product¹. Another source estimates this impact as being even higher, in the range of 70-80%².
Product design teams often overlook supply chain risks. Even if they do focus on costs, someone on the team typically must enter data into an Excel spreadsheet for each individual component. With this approach, data entry errors will inevitably occur. The spreadsheet may also not include lead times, volume pricing, volume capacity, or logistics information.
Figure 1: Leveraged Effect of Design Phase on Life Cycle Costs Source: Military Electronics/Countermeasures, August 1990.
To gain and maintain competitive advantage, the design team needs access to real-time supply chain data to assess design choices with cost objectives in mind. This well-developed process is called “Design-to-Cost.”
What Is Design-To-Cost (DTC)?
A management technique
Part of the development and production process
A process that requires early establishment of realistic goals
A continuous process³
All of the above
According to Bill Williamson in his insightful 1994 Design-to-Cost paper, “All of the above” is the correct answer. At the time Williamson presented this paper, which remains relevant today, design teams lacked real-time access to supply chain data. Costs were developed based on printed catalogs, vendor quotations, or in-house spreadsheets. Today, procurement officers scour the Internet daily to obtain real-time pricing, volume, availability, and logistics information. Unfortunately, in many companies, such supply chain data remains “siloed” in business units other than engineering.
Design teams risk compromising their company’s competitive position if they fail to design to-cost. Even if a product is novel, competitors will inevitably arise. Further, customers’ financial requirements, such as ROI or other pricing parameters, may play a prominent role in their buying motivations.
As a management tool, DTC requires commitment to the process, which means that cost be addressed at all design reviews⁴. When originally developed, organizations committed to DTC did not have access to real-time data on each of the components in a design. Today, with effective collaboration between supply chain members, electronic design teams can have direct access to component costs and availability. What are the risks design teams face by not having access to real-time costs and supply chain data during the design phase?
Understanding Supply Chain Risks
The risks of not including real-time costs and supply chain data in the design process include:
Inability to identify and understand a product’s cost drivers
Unexpected actual component cost(s)
Failure to balance requirements and affordability
Creeping elegance filters into the design, increasing costs that exceed targets
Limiting creative exploration of design alternatives to achieve lower cost approaches
Vendor shortages or inadequate volume from component vendors⁵
Evaluate new product concepts solely on the basis of high performance at the expense and detriment of rigorous cost analysis resulting in a failed design in the marketplace
A commitment to DTC by the design team focuses increased attention on costs early in the design process, naturally driving down the overall product cost. In turn, this positively impacts the company’s cost structure, competitive position, and overall profitability.
Unfortunately, creeping elegance, if not contained, can result in costly wrong turns. As “elegance” creeps into the design, the engineer might unwittingly specify a challenging part. It might be difficult to source, have a high logistics cost, or may not be available in sufficient supply. Discovering these issues early in the design cycle will save considerable engineering time and cost on the project.
In turn, DTC empowers the design team to establish and execute against an accurate development timeline. With accurate and current cost information, the design team can initiate preventive action that avoids costly supply chain surprises downstream. They will also be able to quickly identify other potential supply chain issues involving availability or logistics in real-time. In addition, DTC motivates and empowers designers to creatively explore cost-saving alternatives that still fulfill design requirements.
Delivering Supply Chain Visibility to Empower Design Teams
Altium recognized that customers needed to establish common ground between their design and supply chain teams to implement the Design-to-Cost process. As a result, Altium Vault grants access to centralized real-time, ready-to-use, qualified electronic data for every component in the design. This includes all data needed to fabricate, load, and assemble boards.
The live, real-time supply chain data is available in a single view called “ActiveBOM”. In this view, the screen displays the components in the schematic of the design plus any other off-board components. Side-by-side fields compare actual BOM cost to target BOM cost before and during the design process, as well as other relevant supply chain information.
ActiveBOM with side-by-side fields to compare actual vs. target BOM costs.
Immediate knowledge of cost, availability, and lead times at early stages of the design process profoundly impacts design decisions. In turn, those decisions at the BOM level impact the overall life cycle costs of any product. This dynamic database incorporates real-time data from component vendors, eliminating data transfers from other departments, duplicated effort, and human error. The database provides design teams with with a direct link to access ERP/MRP-based supply chain data.
ActiveBOM dynamically maintains and updates the supply chain data for each component in the vault library. This establishes the ongoing cost parameters for the design. In addition, designers are often tasked with “BOM scrubbing”, a cost-focused redesign in the event that one or more design components are in short supply or about to become obsolete. With ActiveBOM, the team can revisit the supply chain data in the vault-based design. The database solution will immediately provide clear choices for suitable alternatives, eliminating much of the pain associated with sourcing replacement components.
Always Meet Cost Objectives with ActiveBOM in Altium Vault
ActiveBOM makes design-to-cost a living process. By dramatically improving the cost visibility of the BOM, design team managers can immediately assess the cost of a design change. As a result, the dynamic supply chain database delivers invaluable fact-based management decision support, facilitating Go / No Go decisions.
When the design engineering team implements ActiveBOM, they also can eliminate unexpected costs associated with seemingly simple revisions. As another exercise, the design team can quickly and safely launch a cost-driven evaluation to reduce the BOM cost to the benefit of product margins. In turn, improved margins drive increased corporate profits.
Want to find out more about how Altium Vault empowers engineers to Design-To-Cost? Download a free white paper on The Positive Impact of Supply Chain Visibility on Design-To-Cost today.
¹ Williamson, Ibid.
² “Nonstationary Root Causes of Cobb’s Paradox,” by Lt. Col. Joseph W. Carl, USAF (Ret.) and Col. George Richard Freeman, USAFR (Ret.), published by The Defense Acquisition University, p. 347. Available online at: http://www.dau.mil/pubscats/PubsCats/AR%20Journal/arj55/Carl_55.pdf
³ Williamson, Ibid.
⁴ Williamson, Ibid.
⁵ Crow, Ibid.
About the Author
David Haboud is a Technical Marketing Engineer at Altium. He studied electrical engineering with an emphasis in computer architecture and hardware/software design at the University of Southern California. David began his career as an embedded software engineer in the aerospace industry and has always strived to make it easier for hardware and software engineers to communicate. During his tenure as an embedded software engineer, he focused on firmware development and data acquisition for auxiliary power units. In his spare time, David hosts and performs in improvisational and stand-up comedy nights in San Diego, California.More Content by David Haboud