When you are finalizing development, you will look at transitioning your product to production. In order to do this, you will need to analyze your investment to start production. While you might have an idea of what your total investment is, you will need to go more granular.
When thinking of starting production, the term that comes to mind is non-recurring engineering (NRE) costs. An NRE is a one-time payment that is paid before any product gets manufactured. While there are multiple NREs for development, such as development fees, industrial design, etc, we will focus on the costs to get production up and running.
Different Types of NRE Costs
Depending on the product you have, there will be a few different types of NRE costs. We will categorize these as mechanical, electrical, assembly, and quality control.
Mechanical NRE Costs
For your mechanical parts, there will be certain non-recurring costs that you need to pay before you start production. The most obvious ones will be mass production tools. Mass production tools are equipment that allows you to replicate a part quickly. In addition, you are able to receive a consistent product at a lower price.
Electrical NRE Costs
Electrical NRE costs are needed to get the assembly of your electronics board started. These costs are usually the setup and any fixtures and testing equipment needed.
Whether you are assembling the final product or assembling a sub-assembly, there will be certain tools, fixtures, and machines needed to assist the workers. This does not include the normal everyday tools, such as hand tools, but instead, anything related to the automation of a customized part or assembly.
This is quite similar to assembly. The quality department will have quality tools that are used for a number of products, such as a caliper, hardness test, CMM machine, and more. These are tools that will be used on a good amount of products. The NREs for quality control will be those of a specific product.
Other NRE Costs
There are a number of other costs as well that cover the entire product as a whole. These costs are the following:
- Golden Sample Cost
- Design for manufacturing (DFM) Costs
- Costs related to packaging material and setup.
Can I get out of Paying NRE?
For most companies, NREs are a cost that must be paid in full before production. However, there are some exceptions:
- If you have a strong relationship with your supplier then you might be able to get away without paying for certain NREs.
- If there is potential for the product and you lack the cash to pay for it then you can see if your supplier can amortize certain parts of the NRE into the unit cost.
- If your contract is large enough then your supplier might be willing to take financial responsibility for some of these NREs.
As you can see, the trend is the relationship you have with your supplier and the financial scale of your product. If you’re a young startup without historical sales numbers then it will be difficult to find a supplier who is willing to cover your NREs
What can you do today?
When you are launching your product, there will be multiple revisions and change requests that must be managed. It is easy to lose historical data or fail to share changes with the correct team members. A centralized platform that connects your team, contractors, and suppliers is your solution.
OpenBOM is a cloud-based PDM & PLM platform to manage your engineering and manufacturing data. Companies from startups to Fortune 500’s use OpenBOM to create a centralized database to bring in, store and manage their manufacturing data. With this infrastructure, users also use OpenBOM to streamline both their change management and PO processes.
If you need to improve the way you manage your data and processes, contact us today for a free consultation.