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5 Factors That Could Spike Electronics Manufacturing Costs

(Image credit: Morozov Anatoly | Shutterstock)

The semiconductor chip shortage is currently wreaking havoc on several industries, including consumer electronics and automotive. The demand is much higher than the supply, but that’s not the only factor contributing to the problem. With more people spending time at home, for example, the demand for common electronics has exploded and there are more computer, consumer electronics, and gaming console purchases happening.

It has hiked prices all over, increased demand, and caused mad scrambles for larger supplies, which just aren’t being met. Economic shutdowns have also delayed production and sourcing in many instances. All of these cases highlight the need to be aware of potential factors and plan accordingly.

1. Labor
Labor costs and expenses vary depending on the geographical location of an operation. However, it doesn’t matter where that location is; costs are going to fluctuate wildly in certain instances. There are several reasons for this, some of which remain unseen until things move down the supply chain.

Hiring cheap, inexperienced labor, for example, appears to save a lot of money upfront. But the products and goods those workers create may be more prone to defects. It could damage the reputation of the brand or company, resulting in more returns or refunds, and lead to a dissatisfied customer base. What’s more, it can cause problems to develop during production, resulting in delays, shutdowns, or worse.

Labor costs may be a variable expense, but it’s best to meet the needs of your work, based on location, skill, and time invested. Workers also have a direct impact on the manufacturing costs ceiling, both raising or lowering those limits, depending on what’s going on locally or with the market. AI-powered robots may be able to help offset some of the costs associated with manual labor, also presenting new and more advanced automation solutions.

2. Raw Materials
Sourcing materials for products, components, and various goods will have a direct impact on manufacturing costs. It really benefits manufacturing teams to take their time researching material alternatives, with similar properties yet cheaper costs overall. In many cases, there are newer, more applicable materials that can be used during production, like plastic resins, metal alloys, and beyond.

For example, there are many types of 18-gauge lead wire, and new forms are engineered each time there’s a new application. Understanding the differences between these materials and components, and when is the right time to apply them, can mean the difference between inordinate costs or manageable invoices.

It’s also important to point out — as seen with the semiconductor chip shortage — it’s always best to choose materials with higher levels of prediction and control. Sometimes that cannot be helped, and rarer materials need to be used regardless. But when and where it can be avoided, it should be. Always reference pricing tables for commodities, and try to consider months or years in advance, especially when a supply is already limited.

Photographer: Nathan Laine/Bloomberg

3. Volume
Naturally, the higher the volume of components and products needed, the longer it’s going to take. There are also supply considerations to contend with as well, like material shortages, limited production cycles, tooling, and so on. Because many manufacturers outsource the development of individual parts to other teams, this can create extra complexities on top of a local team’s development cycle. It can also vastly influence total manufacturing costs.

Moreover, each team or company is going to have a different price per piece, component, tool, or resource. Those prices also fluctuate depending on supply and demand and what’s happening with the markets. A partner may raise prices, for instance, after a contract has been fulfilled. As volumes increase, those prices go up considerably as well. There are generally better financial incentives for ordering in bulk, and some companies may offer exclusive discounts, which are all things to consider when seeking out potential partnerships.

As a real example, the world’s largest chipmaker, TSMC, is raising prices during the shortages. This could make electronics even costlier for consumers, also ballooning manufacturing costs for a host of companies and providers.

4. Quality
As things change during development — with newly sourced materials, design updates, restructured processes, new tools or components, and so on — output quality may go up or down. This can have both a direct and indirect effect on manufacturing costs, some more in your face than others.

For example, lower-quality products may save money in the short term, but higher waste, additional returns, and similar challenges may increase overall operational costs. The opposite is true for higher-quality products.

Mechanical and assembly costs are a part of this too because both the materials and methods chosen can alter the quality of output. Using multi-cavity molds versus single-cavity molds during mechanical processing can have an incredible influence on manufacturing costs for plastic parts.

Manufacturers will need to factor in these expenses for normal operations and choose a suitable route based on the products they are developing, the customers they serve, and the current market demands.

5. Certifications, Testing and Approvals
Some products require special testing for either federal approval or certifications before they can be released to the market. We see this often with medical devices. The Food and Drug Administration (FDA) must award a UL/ETL safety certification for devices that come into contact with food.

Releasing products without the appropriate approvals can result in recalls, fines, damaged reputations, and much worse. All of which, of course, also affect manufacturing costs just like the testing and approval methods.

The review process can also extend the time to market, increasing manufacturing costs through required product revisions and refreshes. These are all elements to consider when dealing with electronics product output.

Keeping Things Manageable

The good news is that, while manufacturing costs may rise and fall, there are many resources out there to create a more manageable operation. Newer technologies are also promising some much-needed improvements, like advanced robotics, machine learning, AI, and IoT-enabled devices offering deep and valuable insights. All of these solutions can be implemented to speed up production, lower costs, and enhance efficiency.

See also: Understanding The Pandemic’s Lasting Impact On The Consumer