Cost modeling of PCBA

Before the start of the article, I’d like to specify the scope and importance of the PCBA. I have seen that some companies combine the procurement/sourcing of PCBA and housing integration into one role. I have a clear scope in discussing PCBA ONLY and turnkey PCBA (Refers to a product that is ready for use). Housing assembly and integration tests are not in scope. The major cost drivers of PCBA are listed based on the importance, BOM cost (Excluded PCB), PCB cost, assembly cost, and tooling cost (If amortized in unit cost rather than NRE). The BOM cost may take more than 95% of the overall PCBA cost in 1U server motherboard case. Therefore, the major task of PCBA cost modeling is to deal with the BOM cost optimization, then PCB cost and assembly cost. In my prior article on PCB cost modeling (Please refer to the hyperlink; https://www.dhirubhai.net/pulse/cost-modeling-pcb-rob-chang/), I have elaborated a detailed procedure to assess PCB cost. Hence, I will only talk about the BOM costing and assembly costing here.?????

Let’s assume that you are in a mature industry and the product you sell is highly price sensitive. Also, you lack the resources to effectively manage product design and PCB assembly (PCBA) costs. The most common procurement method is to identify a range of potential PCBA suppliers, usually diversifying between company size (Revenue is one of the good indexes), capabilities, geography, and many other qualification factors. Then, we provide the opportunity to the selected suppliers to quote their PCBA product or service. The procurement manager analyzes the quotes to make a sourcing decision. Pause! Here comes two questions: Q1. What do you want the suppliers to quote? Q2. What and how to analyze the quote??

The physical production of circuit boards has at least two stages, production of PCB and adding/soldering of components on PCB and testing it. Typically, PCB manufacturing is outsourced to one supplier and PCBA is another. There is another model called contract manufacturer (CM) which is responsible for both the production of PCB and PCBA (In some cases, they also provide component sourcing). Let’s get back to the example I shared earlier. The procurement manager will definitely prefer to work with CM rather than two individual entities. This is especially true when the business model is OEM. However, if the model is ODM and you don’t own the design, then you may have difficulty obtaining the accurate BOM and component-level pricing quote. Business model (CM/OEM/ODM/JV) with dedicated management resources (Commodity/modular/FG level workforce), and the business influence (Significant share in supplier’s revenue) will result in how detailed and accurate the quotation is and how easy you can get the costed BOM (cBOM). I put my suggestion of how to get the cBOM in Appendix A.?

If you don’t have cBOM, you can still execute RFQ. By comparing quotations from multiple suppliers, procurement managers get insights that can be used to leverage supply competition and firm the business strategy. The next step is to do the cherry-picking. You screen the RFQ details and use the lowest quote in each field of RFQ received to construct the lowest final quote. Then you renegotiate with the suppliers again and make the final decision of sourcing. In this case, you don’t own the design and don’t have BOM, and lack component-level management force, I foresee the quotation you received won’t contain too many details. Therefore, you can hardly manage the cost and justify the spending even though you may still have the lowest quote by this model. I strongly encourage you to have cBOM and build your component database and always refresh to the latest data based on the latest quote and engineering change; no matter what business model you are.?

What to do if you have the cBOM or just merely a BOM? The next step is BOM scrub or component-level pricing. The major reason why we do this is that we want to assure the design is optimized or not and every required component has a valid and reasonable price and source. It may not necessarily be cBOM but at least contain the following information, such as level of BOM, customer/manufacturing/vendor PNs and descriptions, quantity (Usage) of each component, LT, MOQ, cancellation window, and product life cycle status. An example is shown below.??

If the business model is OEM, you will only have a single BOM. You can do the comparison of component pricing based on the RFQ given by different suppliers as well as compare with your precedent product BOM. We want to know not only the price deviation but also the justification. You may also buy the service from a 3rd party that has a large database offering integrated component lookup of the BOM and price or build your owned database.

For those components with 100% match manufacturer PN with the cheapest price, we usually can drive the cost reduction either by negotiating with PCBA suppliers, directing PCBA suppliers to the cheaper component source, or directly getting involved in the negotiation between PCBA supplier and component manufacturer. A good system can allocate the right parts based on the information given quickly and provide the AVG unit cost, the lowest unit cost, and the availability (Source and location). For those components only partially match or don’t match which means not all the required information is found or error, we will need to do further analysis, such as 1. Clarify the data source and input all the data needed, 2. Identify the justification of the components proposed, 3. Any alternative is presented and their rationale for whether its cheaper, quicker, safer, or risk avoidance. To do the BOM scrub can quickly identify the components which have some sort of issues. We can ask SME to design out or risk-buy the components to survive the lifetime of the production run.?

After the clarification of component usage in BOM regarding validation, justification, and source identification (Including price, location, supplier, MOQ, LT), you may have different prices in one component. Usually, we prefer the lowest-cost tactics. No matter whether the lowest component cost comes from your supplier, prior product, internal system, or 3rd party system, we generate the lowest/optimal BOM cost estimation.?

Hereby, I provide the rules of thumb regarding how to tell if the design is optimized.?

1. Categorize the cost and plot: Simple categories could be listed such as, EE parts, ME parts, OTS parts, packaging, etc. The more detailed organization setup and dedicated workforce will result in a more detailed category for the commodity. For example, if you have a passive commodity manager and procurement engineer, EE parts can be broken down like CAP, RES, SENSOR, ANTENNAS, etc. You can plot the data into a pie chart or waterfall chart. PCB and IC are two key cost drivers for PCBA, they should be excluded in the plot and analyze the cost individually.???
2. Focus on the components which do matter: In the normal case, we can follow Pareto principle (80/20). It describes that 80% of the BOM cost is contributed by 20% of the components. I hereby strongly encourage using NUDD (New, Unique, Different, Difficult) which is a good approach to assess all the components in the BOM. For those components which are listed in NUDD, in most cases, they represent costly in both/either unit price, hard to obtain, or additional production process required. We need to reduce the NUDD component usage in mass production (MP). If you have a good infrastructure/system to support this operation, you can focus on more components such as the unit cost is higher than $1.?
3. Collaborate with subject matter experts (SME) for the BOM optimization: Cost engineer or procurement team can do the BOM comparison with the prior model, and the BOM shared by different suppliers. They can be identical or different. The key is to justify the design and find a more cost-efficient source for the component. Any deviation you found could be a cost reduction opportunity. For example, the PCB layer of the prior product was 8 and the new product was designed to 10. Discuss with SME and see if 10 layers PCB is really necessary and see if we can reduce it to 8. If we combine two mechanical parts into one, will we save any savings in raw material, tooling, or production process cycle time? FPGA is really expensive. Can we find an alternative for it? There are plenty of questions that can be discussed when reviewing with SME. The key is the value you want to deliver to the end customer can’t be compromised.

Till now, we have an effective and complete BOM with BOM cost. However, you know the component wholesale price is cheaper than the retail price but your company is small and only has a limited budget and tight schedule for the project. You can only buy smaller MOQ at retail price. It will make more sense to rely on the component sourcing from the PCBA supplier. One of the ways to build up trust is to ask your supplier to share the purchase invoice from the component supplier or distributor. Before the production, you need to make sure who will be responsible for the component sourcing responsibility and what to source because it is the most critical factor to the quick turnaround of turnkey PCBA. Other factors which influence the turnaround of PCBA are PCB production, PCB assembly, and testing.?????

Before we touch the assembly costing agenda, PCBA unit cost is closely relevant to volume (Economic scale) and lead time (LT). Generally, the more you order the cheaper the PCBA cost would be. This is quite true when one-time costs apply to the unit cost, such as setup cost, startup cost, etc. The same phenomenon applies to PCB fabrication as well. Therefore, when in the planning stage, we need to prepare for different scenarios (95 percentile forecast, 50 percentile forecast, and minimum forecast/breakeven volume). Choose a PCBA manufacturer capable of producing products tailored to our requirements economically and geographically. In terms of LT, make sure the mutual alignment with the definition of when the production will start; does it start from the day we release order or the day we pay or the day supplier receives all the components? How does the manufacturer prepare the material inventory? What level of inventory has been prepared? I’d like to remind you that the logistics cost will be significantly high if you have different supply bases for PCB, PCBA, and final assembly and test (FAT), especially in different continents.??

The PBCA process flow is shared below:

Be noticed that the flow is a bit simplified and it can be different based on applications. Following is some additional information for your better understanding of the whole process:?

1. Solder paste inspector is an option and not listed in the flow.?
2. SMD pick and place may use different machines based on component size and mount speed required.?
3. We usually set an inspection checkpoint before reflow. This checkpoint can be used for hand-placed components and visual inspection in order to prevent the rework after reflow.?
4. QC and inspection block: There are many ways to test but I only list the most common testing here. Such inspections can occur regularly after the reflow process to identify any potential problems. These regular checks can ensure that errors are found and fixed as soon as possible, which helps both the manufacturer and the designer save time, labor, and materials.

a. Manual Checks: Only proper for the boards with Through-Hole components with less component density. Usually, the accuracy of the right judgment for a trained person will decrease after an hour.?

b. Automatic Optical Inspection (AOI): It is a more appropriate inspection method for larger batches of PCBAs. By using several high-powered cameras to take pictures of produced boards. It inspects a high quantity of PCBs in a relatively short time. However, we still rely on the personal judgment after AOI due to the concern of misjudgment rate.?

c. X-ray Inspection: It allows a viewer to see through layers and visualize lower layers to identify any potentially hidden problems and is suitable for more complex or multiple-layered PCBs. However, not all EE components can go through X-ray. For example, CMOS IC will be broken if inspected by X-ray.?

d. Electrical tests: These tests can be used in bare PCB and PCBA. Flying probe test and bed of nails test are two examples. In bare PCB, you check only conductivity, and in PCBA, you examine parameter levels due to the component mounted.?

5. Some components may require going through a selective wave soldering process. It is a special application.

6. Final inspection is the last stage to assure the functionality of PCBA. I only list ICT and FCT here. These two tests have some similarities such as both of them performed after AOI/visual inspection and both require QA specialists to inspect by using instruments or testing software.??

a. ICT (In-Circuit-Test): Watch the individual voltage and current levels throughout the PCBA at the component level. It helps to locate the root cause of the problematic device or procedure.?

b. FCT (Functional Test): Look for the overall functionality and output of the product regardless of its inner works. The testing procedure and result presentation will be the key input for the analysis of FCT cost.??

7. Clean: Many low-end products don't clean but high-end assemblies require this additional costly process for better reliability by removing the resin and flux residues. Most of the cleaning process uses ultrasonic under deionized water. Must assure PCBA is fully dry before packaging.??

A specialist and highly skilled operator knows how to produce PCBA and how to handle when an issue happens and rework is required. You can see the phenomenal situation of most of the supply and talent clusters existing in Southeast (ASEAN). They supply PCBA operations with very low labor cost and quick responsiveness (It used to be China; the cheapest country before 2021). If your model is nearshore in America or in Europe, they have a skilled workforce but the assembly cost is significantly high. Supply base is not only relative to labor cost but also influences the logistics cost. As mentioned earlier, It could be most cost efficient if the supply bases of PCB, PCBA, and FAT are in one region. However, you need to have a total cost of ownership (TCO) concept and a resilient supply chain to optimize the supply bases.?

More inspections/IPQC/QC tests will drive cost increases. However, our goal is to drive the “Overall” cost reduction without losing high-quality products. Inspection and testing have been playing an important role in identifying the issues in advance. Therefore, you need to identify the test activities in different NPI stages and keep optimizing after mass production. That is where we can find cost opportunities. Flying probe testing usually takes longer cycle time and cost compared with other testing activities. In addition, if cleaning is required, usually we need to pay attention if your component is robust enough for the ultrasonic, and baking. I list the critical cost drivers of assembly cost in the table below.?

Before the end of this topic, I’d like to share two key takeaways:?

1. Components: Designers need to play a role in the supply chain at the start of the design phase. We see a lot of supply disruptions in 2021. A lot of companies review carefully for the sole and single-sourced materials and target to have the dual source for all materials used for sustaining and new products ASAP. The same mindset here. One needs to identify the components with few or no replacements as early as possible and get it resolved by either choosing another component or risk-buy for the life cycle. For components with specialty, please engage with the supplier directly for the supply cost and LT discussion and mitigate the risk of supply shortage and production hold.??
2. Build a resilient supply chain and long-term partner: Globalization has been changed to domestic. The rule of thumb is to find a new partner or encourage your long-term partner to go with a cluster (The larger the cluster the safer). No one can win without help from others. If you are doing business with a PCB assembler/CM for several years and it performs just fine, then my suggestion is to keep growing with them and find a resolution to deal with the headwinds of the Supply Chain. Mutual credit and trust are not easy to establish. However, if they perform badly, or you're looking for reshoring, friendshoring, or nearshoring business, then it's time to change.?
3. Build up a cost modeling system: We are in the 21st century with machines that could be smarter than humans. Please stop VLOOKUPing and using merely Excel for BOM scrubbing/component pricing. With a good system and valid database, you can do cost modeling way faster and more accurately than before. This can bring a significant impact on your business and organization. I’d like to drive efficiency, consistency, and transparency for cost modeling.?

Appendix A: How to get cBOM?

How does a company make money? The simple philosophy is to reduce the cost of materials, assembly cost, and testing cost without reducing the selling price. A capable supplier usually does not only provide one service but multiple services for its clients. Component sourcing could be one of their critical competences. When you want a capable supplier to reveal a cBOM, it may put your supplier at a disadvantage and against their business interest. Therefore, here are some suggestions to get cBOM. 1. Share information as you share to your business partner: What is your target price? What is your forecast? What is the cost gap between your target and now? 2. Build the trust: The sharing of the information means closer business relationship and stronger competitiveness rather than using it against them, 3. Build long-term partnership: The promise of the next potential business. Show a willingness for long-term partnership. Buyers should pay attention that component management cost is usually underestimated.

Appendix B: BOM Introduction

Different types of material may have different fields in BOM. I list some of the examples below:?

1. Off-the-share (OTS) parts: Part description, part number (PN), manufacturer’s PN, manufacturer, quantity, unit cost, total cost, picture, webpage, note
2. PCB parts: Designator, description (Should be as same as manufacturer’s description), manufacturer’s PN, manufacturer, Supplier PN, Supplier, quantity, unit cost, total cost, picture, webpage, note.?
3. Custom parts: Description, category, process type, material type, color, finish type, quantity, unit cost, total cost, photo.?

Except for general requirements in PN, part description, manufacturer’s PN, level, simple material spec, unit cost, and total cost, sometimes, we still need MOQ, package type, LT, price date code, and critical expensive parts that will require a payment term deal.

Appendix C: What are the indexes to measure the continuous improvement of a PCBA factory?

1. Maximum monthly productivity
2. SMT line changeover time
3. DIP line changeover time
4. PCBA first pass yield rate (FPY)
5. Continuous reduction of reinspection (Implementation of AI and IoT)
6. Continuous reduction of material movement including the total distance of material travel and the corresponding labor to handle the movement
7. Continuous reduction of material pick-up time
8. Reduction of scrap rate