In This Economy, The Right Components Just Make Cents

Okay, so the economy isn't in the best of shape these days. Although there are certainly signs of recovery, consumers are holding on to their wallets... tightly... with both hands. But, are there ways to combat our spendthrift economy so that people are more inclined to purchase? According to David Mantey's article in Product Design and Development, designers can cut down on costs and make their products more appealing to a society that's currently not in a spending mood.

PDD The question comes down to one of components. Take, for instance, the case of a franchise distributor. They've essentially signed on to carry one name brand product line, instead of being able to explore all the possibilities, including house brands and generics.

This impacts the designers, limiting their ability to lower product costs through the integration of alternative components.

PDD According to Greg Harris, Vice President of Sales and Marketing for Jameco Electronics, "As we sit around and look at an economy that's in the toilet, we think that design engineers at this point really have more on them to design component cost in to their final design. Every piece of the design will drive up the price."

We all know what happens with high-priced objects in a down economy. They don't sell. Luxuries or big-ticket items get put off until security returns.

"If you can do cost reduction by redesigning and replacing expensive brand name components with less well-known brands, you can save a lot of money," states Harris.

So, let's take a closer look at components. In the Product Design and Development article, Mantey outlines the traditional way that engineers save money when buying components and it generally comes down to buying in bulk or making a long-term commitment to the vendor.

But, according to Harris, there is one alternative that most design engineers are not taking in to consideration. "You don't read about the opportunity to save money by buying off-brand, house-brand or lesser know brand names. You don't hear about taking advantage of inventory."

Taking advantage of inventory? What's that mean exactly? Well, here's the scenario. The recent crash of the market caused companies around the world to virtually halt production. Because of this, they had loads of excess inventory that they had to dump in order to clean the balance sheet or cut down expenses. That created opportunity for those that were prepared.

"We started buying when people were trying to dump inventory," said Harris. "In many cases, you're buying for pennies on the dollar and in many cases we'll buy the entire inventory, much of which isn't useful, just to get our hands on a few part numbers that are a part of the lot."

Brand VS Generic That inexpensive inventory allows Jameco some flexibility, which they can then pass on to engineers. Because of this, you'll see a good variety of offering from the company with name brand, off-brand and house brand products available for consumers. So, it seems fairly simple that, if you want to cut costs, you can simply replace brand name components with their house brand or generic alternative. And that realization is an important first step for designers. Essentially, what you're doing is taking advantage of manufacturer strategy. Manufacturers understand that old products (the ones that are being phased out) still have to be sold according to preset goals, even while the new product is being rolled out. In these instances, the economy has become a thorn in the manufacturers' side.

"I think a lot of companies all of a sudden realized that they were supposed to be running out of inventory, and they weren't running out of inventory," says Harris. "In order to introduce their new product and stay current, they had to get rid of that inventory. We saw a lot of fire sales and balance sheet adjustment."

The key is for designers to be able to leverage the current economy and use it to their benefit in reducing design costs. Too often, engineers will look at a surplus product and ask the wrong questions. Is it the latest and greatest? Is it new and fresh? The question should be, "does it really matter if you're getting it for a fraction of the cost?"

Before you take this blanket statement to heart, the Product Design and Development article cautions that the surplus buying of house brand and generic components has some restrictions, namely mission critical parts. Things like Intel processors shouldn't have cost parameters placed on them because they are extremely vital. Non-mission critical components like power supply, cables, wiring and solder, which have less impact on performance, can generally be used without implication.

Harris brings up another point that shouldn't be overlooked. "You want to buy from a quality supplier," he says, no doubt in reference to the 35 years that Jameco has been providing just that type of service to customers. "You want to make sure that you understand who manufactured the house or lesser-known brand. You want to make sure that there are appropriate return policies, warranties and guarantees in order to take some of the risk out."
To read the entire David Mantey article in Product Design and Development, click here.