If you’re an original equipment manufacturer (OEM) selling automation equipment and your executive team demands that you reduce the cost of your current automation equipment – and you only have three months to show the cost reduction results on a first-generation – prototype, where do you start?
Going to the purchasing group isn’t an option: they’ve already squeezed as much out of suppliers whose prices are as low as they will go.
To meet the demands of a highly competitive marketplace and ensure your division meets its goal, your leadership needs you to shave an additional 30% off the standard bill of materials. The only way to reach that kind of reduction is to redesign the basic manufacturing platform for your equipment, but you don’t have the engineering resources needed to do it. Your engineering team is already at capacity managing critical customer requests and roadmap commitments. Hiring is not an option and no internal group will volunteer their help. Will you tell your general manager it can’t be done? That’s not going to be a pleasant conversation…
It’s a scenario that happens frequently in the world of custom equipment and factory automation solutions. You may have already experienced it: customers in high-tech markets, like semiconductor metrology and inspection, are demanding lower prices.
There is a lot of pressure on capital equipment suppliers to provide cutting-edge process technology at a lower and lower cost. To stay competitive, your custom automation equipment’s cost of goods sold (COGS) must be reduced to enable price reductions that won’t sacrifice the gross margins needed to ensure your company’s profitability.
The Challenge
It can be surprisingly difficult to extract cost from an existing product. When a capital equipment manufacturer is tasked with the challenge of reducing product costs, the first effort tends to be directed at suppliers. In the majority of cases, however, the supply chain organization has already identified and eliminated excess costs. Any further reduction will have to come via second sourcing or a redesign – an undertaking that will tax already strained resources.
It becomes apparent that the product cost is designed in, and only a system-level redesign can significantly reduce total tool cost. Supply chain efficiencies can’t shrink costs that are designed into capital equipment. On average, that is the case for 80% of capital equipment costs.
Part of the challenge is that few organizations have the internal design resources to devote to cost-related redesign efforts. Conflict over whether to devote engineering talent to roadmap commitments, urgent customer needs, or cost reduction programs is an ongoing source of friction. Typically, customer commitments and roadmap development support are prioritized.
Cost reduction efforts rarely have dedicated resources, and the most talented engineers are unlikely to be tasked with cost reduction programs if there are cutting-edge development projects to be done. That is where the glory lies, after all.
Suppliers may offer lower cost alternatives for individual components, but such opportunities are limited. Rarely is it possible to change out one component without an impact on all the other components around it. Few suppliers have the system-level engineering talent or infrastructure to be able to incorporate components they do not supply into their consideration.
A Solution Example
Despite these challenges, it can be done. In one example, the product was a process tool platform for which the manufacturer of custom automation equipment needed a 30% cost reduction, while also incorporating process improvements.
The cost reduction project was conducted in a low-risk manner, with process-related components exempted from consideration. The first prototype of the cost-reduced platform was to be developed in three months with process improvements to be developed simultaneously.
Over the years, as is common across the industry, the tool platform had been used in high-volume production and expanded to incorporate various options and upgrades to remain competitive. These changes were needed to meet the requirements for next-generation devices but had the effect of adding to the overall platform cost and component count.
Areas of focus for the cost reduction redesign included:
- Frame Construction
- Electrical power and control packaging
- Wire harnessing
- Pneumatics
- Cooling and heating systems
The initial area of design focus targeted the general frame construction of the process module. The existing tool platform utilized a standard tubular frame with an array of separately built hardware and electrical enclosures mounted directly to the frame. The redesigned platform utilizes a folded sheet metal frame design with built-in enclosures and integral wire harness clips, significantly reducing part count and eliminating the need for added enclosures and mounting brackets.
Major electrical and control subsystems were also reviewed, redundant components were eliminated, and the remaining components were consolidated and collocated to simplify and reduce tool wiring. The new tool layout optimizes cable routing and is designed for pre-built wire harnesses to further reduce overall assembly labor.
The pneumatic control design and the heating and cooling systems for the tool were simplified with circuits eliminated and consolidated while ensuring functionality requirements.
In each area, maintainability, serviceability and manufacturability were also addressed, based on the input of the support organizations. This drove interest and participation in the project from the service, manufacturing and logistics organizations.
By working in collaboration with the customer’s engineering group, all project metrics were met with an overall cost reduction of 30%, and the first prototype was delivered in three months.
Tackling Your Own Tool Cost Reduction Projects
While this is a single, specific example, it is an approach that can be applied to many high-volume, complex, automated tool platforms. By conceptually breaking down your tool into its lowest level of required functionality and balancing requirements against mandated cost reductions, you can conduct a bottom-up analysis to identify specific cost savings targets.
For best results, partner with a design and build solution company focused on high-tech industries and with expertise in the relevant sector and application. A fresh, non-biased review of the current tool platform can provide valuable insight into your options for cost reduction while also ensuring optimal functionality.