High Tech

Rapid Product Obsolescence Creates Imperative to Meet Target Cost at Launch

Do High Tech Products Always Yield High Levels of Profitability?

 

high techaPriori works closely with companies from a number of different industry sub-verticals in what we collectively call the Electronics & High Tech marketplace, including Computing & Peripherals, Communications Equipment and Consumer Electronics.  The common thread between all these markets is that a high percentage of the products designed and manufactured by these companies consist of electrical/electronics components and software.  Furthermore, most of these companies manufacture products with extremely high production volumes, often numbered in the hundreds of thousands or even millions of units, and they have very short lifecycles in the market before becoming obsolete.

Currently, these companies are facing some intense challenges that require extreme attention to product cost detail so that an entire product launch is not rendered unprofitable before it evens launches to market:

  • Computing & Peripherals – The PC market has suffered as mobile devices overtake laptops and PCs as the computing device of choice worldwide. PC Shipments have declined nearly 7% YOY. However, companies that are counterbalancing a drop in PC sales with Tablet and Phone sales (e.g., Apple & Samsung) are reaping significant profits. Examples of companies in this industry vertical include: Hewlett-Packard, Dell, Samsung, Apple, IBM, Fujitsu, Hitachi, and Lenovo.
  • Communications Equipment – Although growth is expected to be flat to slightly up, the telecommunications industry is transitioning to networks combining voice, data, and video over high-speed links. This transition will require replacing a substantial portion of equipment, presenting an opportunity for equipment vendors. Examples of companies in this industry vertical include: Alcatel-Lucent, Ericsson, Nokia, Avaya, Cisco, Harris Corporation, and Hauwei.
  • Consumer Electronics – This is an extremely large, growing market sector that is comprised of products such as phones, tablets, set-top-boxes, audio & video equipment, electronic toys, etc. The output of US audio and video equipment manufacturing is forecast to grow at an annual compounded rate of 5 percent between 2014 and 2018.  Leaders in this market must constantly deliver innovative, cutting edge technology ahead of their competition.  Examples of companies in this industry vertical include: Apple, Samsung, LG, Microsoft XBOX, Leapfrog.

Key Success Factors in EHT

There are number of factors that aPriori has observed lead to success in these markets, including:

  • Fast time to market and time to volume:
    • Bring products to market before competition and achieve volume production quickly to capture market share
    • Products achieve higher margins in the early periods of the lifecycle
    • Early to market products capture larger portions of the revenue pie
  • Product Lifecycle Cost Reduction
    • 70% of product costs are locked down in the design phase of the product lifecycle. Therefore, costs can be reduced and supply risks minimized by making sourcing decisions early in the lifecycle.
    • In commodity markets, companies can achieve better competitive position, larger market share and higher margins by reducing lifecycle costs.
  • Profitable Management of Outsourced Design and Manufacturing
    • Outsourced design and manufacturing has clear benefits but companies have not realized the benefits because of adhoc business processes and infrastructure around product cost negotiation. Sourcing teams are most directly affected as they have no way of understanding what is a reasonable should cost for a new product design, and what the key cost drivers are for a new product.
    • The quoting process for new product design and manufacturing has significant delays built into the system. Any acceleration of this process has the potential to yield big gains in overall time to market and revenue realization.

Value Proposition for PCM

aPriori offers significant potential for companies to proactively address the current challenges in their market and provides capabilities within it’s core Enterprise Product Cost Management (PCM) platform that are essential to achieving the key success factors noted above.

 

Challenge Details aPriori Value Proposition
Rapid Product Obsolescence
  • The life cycle of computers, tablets, phones and other consumer electronics is extremely short
  • Obsolescence places a high demand on a very fast product development, release and manufacturing cycle. EHT OEMs must hit the target cost at the initial release to market or risk a significant profit impact for the company.
aPriori provides design teams with nearly instant feedback on status against Target Cost for NPI programs

  • Set a Cost Target at the beginning of a program, and aPriori will constantly monitor progress against this value. Any time an end user makes a change that causes the cost estimate to exceed the Target Cost, the system can be configured to send an alert to the user. This ensures that there are no cost surprises when the design is transferred to manufacturing.
Delays in meeting product launch and volume objectives
  • Unstructured and ad-hoc processes for managing product development, NPI, and changes
  • Inefficient communication with component suppliers leads to delays in release of final design to EMS partner.
  • Product lifecycles are extremely short; OEMs must get it right the first time, or miss a market window and suffer significant product losses.
aPriori helps decrease time to market for EHT OEMs

  • Providing a capability to generate quick cost estimates for design alternatives helps product teams stay on track and meet aggressive launch deadlines.
  • aPriori customers can create Digital Factories that represent an EMS partner; this lets them quickly understand the cost of design changes without waiting for a new quote. Staying on product schedule allows the OEM to reach the market on time and drive significantly greater revenues than the competition.
Missed Product Cost Targets
  • Most design/engineering teams have no visibility to cost of new product designs. This will often result in missed cost targets with no time in the schedule to go back and implement design changes.
  • Sourcing as a process is performed serially after designs are locked down (70% of the products costs are locked down during design)
aPriori reduces product costs and improve gross margins

  • aPriori automated costing enables everyone on the product team to quickly and easily generate a cost estimate to understand design changes, material changes, production volume changes, supplier changes, at any point in the design/sourcing process. This avoids surprises and helps Product Teams hit Target Costs the first time.
Challenges in Negotiating Cost of Outsourced Relationships
  • Lack of structured processes and systems to manage dynamic product cost information between organizations within the OEM Product Team.
  • Obsolete RFQ process creates big delays between OEM and EMS partner, consequently slowing down product design/release process (complex product designs can take 3+ weeks for Quote Response)
  • OEM Sourcing teams have only a vague idea of what a new product design should cost, mostly relying upon historical quotes; not able to negotiate using true manufacturing data such as cycle time, assembly time, actual overhead and labor time, machine time, etc.
Reduce Overall Cycle Time While Reducing Product Cost at the Same Time

  • aPriori PCM can provide structure and process for managing cost estimates during the entire product lifecycle for both the OEM and the EMS partner
  • A common Enterprise PCM platform accelerates communication of quote/cost information enabling OEM to reach the market ahead of competitors and accelerate revenues.
  • OEM Sourcing teams can drive down costs of outsourcing using aPriori with easy access to detailed piece part and tooling cost estimates to use for fact-based negotiation.

 

aPriori works with some of the leading manufacturers of Electronics & High Tech equipment in the world.  To learn more about how aPriori Enterprise PCM can help your company Meet Target Costs at Product Launch, Improve Your Ability to Negotiate Effectively with EMS/CM partners and Accelerate Time to Market, send an email to ProductCost@apriori.com.

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