Cardinal Peak

Minimizing Development Costs on Low-to-Mid Volume Products

My last post suggested ways to reduce parts costs in a low-to-mid volume product. This post explores ways to keep development costs low while still creating a cost-effective product.

You can’t escape the fact that it takes money to create a low cost product. It is estimated that the first version of the iPhone had COGS (cost-of-goods-sold) of around $200. That is very impressive given all of the included features. However, it is also estimated that Apple spent around $150M over 30 months to design the iPhone. In addition to that direct investment, Apple was also able to entice their component vendors to spend huge amounts of money to design custom ICs for the device.

Our clients typically do not have that kind of money to invest in a new product. (Although please give us a call if you do!) And even if they did, it often doesn’t make business sense to invest a lot of money in upfront engineering in order to reduce COGS, unless you have high volumes. So it’s more typical that we are performing a balancing act between the budget available for engineering, and meeting the target COGS that is necessary for a successful product.

Here are some guidelines that we use to keep development costs low and still create cost-competitive products.

• Start with solid requirements definition.

The most successful design projects start with clear product requirements. Starting a project with known requirements (and not changing them during the product design phase) is the best way to minimize development costs. Of course, most projects aren’t so lucky as to have perfectly defined requirements. It usually takes the management team some time to balance the requirements, development cost targets, product cost targets, and project time-lines. Still, the more quickly you can define what the product has to do, the less the engineering team will thrash—and thrashing costs money.

• Keep the schedule short.

This is pretty obvious, but the longer a project takes, the more it costs. We’re big believers in rapidly getting a solid, but perhaps less-fully-featured, product to market. In addition to keeping development costs low, this strategy also allows you to quickly gain feedback from the market and focus investment for an enhancement release on the most important areas.

• Hire an experienced design team.

An experienced design team will put together a more accurate project schedule and budget, is more likely to meet the project deadlines, and is better prepared to overcome the inevitable hurdles along the way.

• Explore the trade-offs between custom hardware design and using off-the-shelf components.

For low to mid-volume products, using off-the-shelf subsystems and components can be a very tempting way to reduce development costs. However, off-the-shelf subsystems (such as single board computers, power supplies, cases, etc) can be quite a bit more expensive than custom designed hardware. It is worth a thorough investigation of what solutions might exist to reduce your design effort yet still meet the product cost targets. Small hardware vendors may be willing to modify their products to fit your application and costs, and may not charge NRE to do this. As with all vendors, negotiating goes a long way towards minimizing your costs.

• Put together a hardware prototype early in the project.

In most product development projects, the software effort is larger than the hardware effort. As such, we structure projects to give the software engineers as much time as possible to work on the target hardware. This maximizes the time available for low level hardware and software bugs to be found and resolved.

• Start with reference designs and evaluation boards where possible.

Most semiconductor products have reference designs and evaluation boards available to give you a head start. For a low-volume product, these designs can be especially helpful to minimize development time.

• Use the vendor Field Application Engineers

IC vendors usually have FAEs that will help integrate their products into your design. FAEs are usually willing to do schematic reviews, help with software drivers, and even help debug parts of the system if necessary. These folks increase the chance of a successful first revision design and can reduce the development time of a product.

• Use open source software where possible.

We are big advocates of open source software here at Cardinal Peak. There is huge opportunity for reducing the development time and costs in a project by using open source modules. However, it is not easy to properly integrate open source software (especially real-time or embedded modules) into a complex product. To properly take advantage of the open-source benefits, a team that has experience with this is imperative.

Mike Deeds is an expert in embedded systems hardware and software engineering, including FPGA design and computer architecture.

Designing Low-to-Mid Volume Embedded Products Cost-Effectively

I take it as a given that when a client approaches us with a new embedded product idea, they will require a very demanding set of features and a minimal price tag. The “minimal price tag” part always applies to the development effort required. For products with a hardware component, it also applies to the product’s cost of goods sold (COGS).

Companies developing high volume consumer products can afford to spend quite a bit of engineering effort to reduce their COGS, since the development costs will be amortized over so many units. However, many of our clients sell low-to-medium volume products—in the range of 1,000 to 10,000 units per year. This volume is not high enough to leverage massive economies of scale, yet a clever design team can still create a very successful and cost effective product if some care is taken during the design phase.

There’s no magic bullet to reduce COGS in the low-to-mid volume range; it’s mostly common sense, coupled with the experience that comes from having built products in this volume range before. Here are some ideas for minimizing COGS:

• Use stocking distributors, but negotiate.

Stocking distributors can help reduce both product costs and development costs. Distributors have much higher leverage with IC suppliers than a small company, which can help reduce lead times and solve supply problems. One big advantage is that distributors often give forward pricing or high volume pricing (even at low volumes) that can significantly lower your product’s cost. The big ones (Avnet and Arrow) also have dedicated resources that can suggest technology solutions you might not be aware of. They can also facilitate deals with small 3rd party subsystem vendors, such as display manufacturers. As with any vendor, you must negotiate with these companies in order to see the best prices. They are in business to make a profit, but they can also act as a facilitator in negotiating with the end suppliers.

• Talk with vendors to learn about new products.

IC vendors always have new products in the pipeline. These are usually lower cost and higher performance than existing product. Of course there is risk in using a new product, especially if there is a lot of software support required. You need a close vendor relationship in order to successfully integrate a new product.

• Use ICs that are derivatives of high volume consumer products.

Many high volume consumer electronics ICs are custom designed for a certain customer or retail market. Large IC vendors such as Texas Instruments and Intel frequently offer embedded products that are derived from their consumer products. These are usually low cost, but very high performance products that are guaranteed to be available for many years. One example is the Intel Atom family. The consumer versions of the Atom chipset can disappear at a moments notice, but the embedded versions will be around for at least 7 years after release.

• Try to use stocked parts.

Many component suppliers have wonderful parts that would be a perfect fit for your product, but not all of these parts are actually available in small purchase quantities. Your best chance of a sustainable supply chain is to use parts that are currently stocked. Maxim is a company that is notorious for having lots of great parts in theory, but a much smaller subset of parts that are actually regularly manufactured and available for small purchase quantities. My colleague Todd refers to these types of parts as being made out of “Unobtainium”.

• Negotiate with your vendors!

This is a no-brainer, but one that engineering teams are not always comfortable with. Competition between suppliers is one of the best ways to reduce product costs. A lower cost competitive bid is your best negotiating position.

• Second-source your highest cost components, if possible.

Second sourcing components or subsystem modules creates a permanent negotiating position with your suppliers. A great example is to use a single board computer in a open form factor, such as COM Express. Many vendors supply these modules, with lower cost versions coming out in the future.

• Continue to work the supply chain to drive down costs over time.

Concentrate your efforts on the highest cost components. Unlike high volume products, it may not be worth the overhead cost to squeeze out the pennies.

• Pick a Contract Manufacturer that is a good fit for your product and volume.

If you don’t manufacture your own products, you will need to select a CM; this is an area where “bigger” definitely doesn’t mean “better”. It may be difficult to get and keep the attention of a large CM. It is more likely that a large CM will slip your deadlines in favor of their larger customers. You will be able to push on a small CM when you need to.

These are some of the guidelines we use to minimize costs for low to mid volume products. Part 2 of this article will cover minimizing development costs while still producing a cost-effective product.

Mike Deeds is an expert in embedded systems hardware and software engineering, including FPGA design and computer architecture.