What is NRE cost in PCB manufacturing and assembly? For many PCB manufacturers, the cost of production is always a considerable issue. Thus, if not well handled, it can get out of hand.
Like any other entity, a PCB manufacturer is out to make a profit. It means lowering the production costs as much as possible.
But one of the main issues is the non-recurrent or one-time costs that companies incur during production.
What are they, and what techniques can a company use to bring them down? Let us see in detail what these costs entail in this NRE costs guide.
What is NRE Cost?
NRE is the short form for Non-Recurring Engineering costs. It represents a company’s spending on research, design, and testing a new product before manufacturing.
For instance, take a case of a PCB industry company specializing in creating a circuit board. A team of researchers will develop the model for the design; some to perform the actual design, and others to test the product.
All these individuals will be compensated for the engineering costs. However, the company that orders these parts will only incur these non-recurring costs once.
It is because once the design and testing phase is over, the manufacturer will not require to invest in these processes again.
What does NRE (Non-Recurring Engineering) Cover?
An electronics design factory.
Among the different categories of cost, this is one of the most important ones despite being a one-off cost.
It is a broad term representing product design and testing tooling costs. It also encompasses all the machine programming costs and money a manufacturer spends in the initial setup of a product.
NRE aims to prepare the ground for the mass production of the new product. Hence, any cost that precedes actual production qualifies as a one-time NRE cost.
What does NRE (Non-Recurring Engineering) Cost, not Cover?
Final Products- PCBs.
A company must be wary of misunderstanding the wrong costs as NRE, which can significantly balloon production costs.
For example, the NRE is limited only to the initial research costs for the products the company has hired a manufacturer to produce.
However, all the set-up costs for manufacturing off-the-shelf products that the manufacturer makes for other customers don’t qualify as NRE costs. Each company is responsible for their respective NRE costs.
Also, the upfront costs for the standard components companies use to manufacture the products that go to the market are not NRE costs.
The NRE Process
Electronics Design and Testing.
So take a company that hires a manufacturer for a product development project. The following are some of the respective steps that the NRE takes before the manufacturer can start the production of the finished product.
- First, the company outsources the production, and the manufacturer must agree on the product specifications. For instance, if it is a PCB board, what circuit parts should it have, and which functions should it perform?
- Next, the manufacturer enters the product development process whereby the firm designs a product blueprint per the customer’s specifications.
- Thirdly, before producing the product, the manufacturer and the customer exchange the design. Then, the client approves the commencement of the manufacturing process. If unsatisfied, they can ask for remodification.
- Finally, the manufacturer can start the actual mass production of the product.
Consideration During the NRE Process
An electronics development facility engineer.
Before any company decides to produce, they must be tactical to avoid incurring so much on the engineering charges of the NRE. So what should they consider?
First, a single company can decide to undertake the entire product design and testing process within their premises and opt not to outsource the service.
Nonetheless, this primarily depends on whether the firm has the skilled human resources necessary for these tasks.
Also, does the company have the packaging type, technology, and capacity to create complex product designs?
Also, a company must do a detailed analysis of the profitability of the product they are planning to introduce to the market.
NRE costs can be so high, and thus there’s a need for thorough cost analysis. Otherwise, they can drive a company to loss-making if there is no high demand for the final product.
How to Reduce NRE Costs
A PCB next to its circuit diagram.
Let us see some ways to lower the production costs of circuit boards at the NRE costs level.
Produce in Volumes
When dealing with customer requests, a PCB manufacturing firm will prioritize and lower chargers for companies that request a high volume of products.
Therefore, the primary way to lower the NRE costs is to reduce the manufacturer’s unit costs by ordering in bulk.
Opt for Small size PCB.
Also, companies should go for small form PCB instead of relatively large surface area boards as the former are more economical to manufacture.
Instead of producing a large board, the best way is to keep the size small. Then the company can increase the number of layers only when necessary.
Make Orders with the same Manufacturer.
Often, manufacturers destroy the PCB stencils that have not been used for long.
Hence, proper preparation is also imperative in lowering the NRE costs. A company should be well set to produce a particular product over an extensive duration.
This is cardinal in ensuring that they can always use the same manufacturer.
It will ensure that they will not require to create new designs from scratch every time.
Should You Amortize or Breakout?
Production and Testing of Microcircuits.
There are two primary plans to pay for the NRE costs. Some companies opt for the amortization choice, which primarily involves combining the NRE costs with the unit prices of the final products.
The alternative is the breakout payment option.
Here, you first pay for the platform design process fees, programming, and final testing costs, then later pay for the production costs separately.
Of the two, there is no outright better payment plan.
However, there’s always some haziness in the payment structure for the amortization option. Companies may struggle to keep track of the costs the manufacturer includes as part of the amortized NRE.
Is There a Waiving Option for NRE (Non-Recurring Engineering)?
Engineers Designing PCB.
There is a limited chance that your manufacturer would be willing to waive the NRE costs.
Unlike other production costs, such as tooling costs in the manufacturing of final products, nothing is yet profitable for the manufacturer at the NRE juncture.
Also, these costs represent the expenditure of time, human resources, and technology that the manufacturer has invested in making your project plan successful.
So it makes all the sense that they’d be unwilling to waive the rates.
Product design and testing are also costly, especially when a manufacturer deals with an entirely new product. The issue gets complex when there’s a need for an investment in new technology.
PCB and electronic equipment design processes are a headache to most companies, so they resort to outsourcing parts production from industrial experts.
However, even if a company were to manufacture within their premises, it would also be costly, especially if there are NRE costs to shoulder.
Luckily we’ve highlighted what companies need to do to lower these costs. This will make the production process feasible in the overall profitability of the final products.