The profitability of the whole project depends on a lot of factors, one of which is the optimization of the development and manufacturing of a product. However, there are also factors that influence the optimization of a product’s manufacturing. NRE cost is one of these factors.
NRE cost which refers to non-recurring engineering cost is an important aspect of manufacturing. In the engineering field, NRE cost is usually considered. So, what does NRE cost entail and how is it paid for? Read more to get vital information about NRE cost.
What are NRE Costs?
NRE costs simply stands for non-recurring engineering costs. It is a term that describes the one-time cost from the design, development, and integration of a manufacturing process for a new product in the market. It is simply the cost of developing a new product. This cost is always paid in full before the manufacturing of any new product. Various elements make up NRE cost based on the industry, process, supply chain, and product.
NRE cost is a one-time cost of configuring the manufacturing for a new circuit board for EMS contract providers. The process of calculating NRE cost is usually dedicated to a specific printed circuit board. There is no need for any further NRE fee when the same board is being manufactured. This means that when manufacturing process is restarted for the same particular board, no NRE cost is added.
Also, prior proper preparation for production enhances the optimization of the production process, material supplies, and inspection procedures. The costs of production and problems associated with a product’s quality reduce to a great extent.
NRE cost is different from production cost. Non recurring engineering cost defines the cost of developing a new product while production cost is based on the quantities of products manufactured. While production cost is an ongoing cost, NRE is a fixed cost.
For instance, in a LED industry, the NRE cost would be the cost of designing and developing the LED components which is responsible for making the LED work perfectly. While the production cost would include the cost of manufacturing each LED.
What Makes up NRE Costs?
When it comes to electronic manufacturing service, NRE costs comprise expenses incurred for preparing equipment, system configuration, software, and processes. Therefore, these costs comprise the following:
Preparing and designing a solder stencil made according to Gerber files. This requires planning the arrangement of holes and adjusting the hole’s shape based on a particular components’ requirements.
Machine programming: NRE fee include the cost of programming machines since it is important to write a new programme for every device for a PCB production process. Also, this program must be optimized to reduce manufacturing time and as well as the financial contribution of OEMs.
Reflow profiling based on the surface mount process as it enables proper soldering process and improves the quality of manufactured product.
- Preparation of production fixture like SMT frames. These frames prevent circuit boards from bending and also secure them during the process of wave soldering.
- Preparation of documentation that defines all the stages of production. This stages start from the supply of materials to the shipping of the products.
- Designing and developing test systems which are crucial for maintaining quality assurance system.
- The realization of forms for holders, synthetic materials, steels, sieves for screen printing and tools for stamps isn’t usually included in NRE costs. A customer will need to cover the cost of these elements.
Is it Possible to Waive NRE Costs?
Your supplier will need production and engineering resources to develop or upgrade a product. In contrast, the possibility to minimize the cost of design through mass production in off-the-shelf designs is small.
Therefore, you need to ask your supplier to offer extra services like testing, design, and research. The engineering cost should define these extra services. Furthermore, NRE costs would help you evaluate how much contribution your supplier has made towards your product manufacturing. This will give you insight into the design benefits, the cost involved, and the amount of time needed for the design to work. With this, you can maintain a good relationship with your supplier.
With non-recurring engineering costs, customers can manage their expectations from the supplier and product. In as much as it is not possible to waive NRE costs, there are some exceptions:
- If there is a strong relationship between the customer and the contract manufacturer
- If there is a strong need to repurchase tooling or repeat programming to fix a problem or manufacturing issues.
- When there is a large account and the manufacturer makes a good margin for the NRE to be petty.
- If the quantity produced by the manufacturer meets up with the quantity the manufacturer deals in, the customer can take back the NRE in this case.
Should you Amortize or Breakout?
There are ways to pay up NRE. You need to understand how NRE is paid. There are two ways to pay for NRE. Customers will either amortize or breakout. When you amortize, this means you will be paying for NRE costs in increments. This involves including NRE to the cost of each piece.
Whereas, breakout involves paying for the NRE cost at once. It involves paying the whole NRE cost before you pay for what you ordered. Each payment method features its own downsides and upsides. However, it is difficult to monitor amortized costs and as such breakout is a better payment method. Also, manufacturers might not know when the amortized NRE should be deducted. Therefore, breakout is a preferable option for most people.
Most customers prefer to integrate the breakout payment method since it is not as complicated as the amortized payment method. You can choose either of the payment method. Anyways, it is a good sign when your supplier charges NRE costs. This indicates your supplier will ensure all your needs are well met. Also, NRE costs shouldn’t be considered as an extra cost.
What is the Difference Between NRE Cost and Unit Cost?
Most times, people use NRE cost and unit cost interchangeably. Well, we will give an illustration here. Imagine you need to develop and design your personal computer. To achieve this, you have to develop your circuit board from the scratch by integrating some materials you purchased online or hardware stores. In this section, we will discuss the five ways to get the best circuit board merchant online. This online merchant offers the materials you need for your board.
The difference between NRE cost and Unit cost revolves around this illustration. For instance, you have to pick one of the two choices here. You can list the cost of everything you need to purchase. This will likely take some time. However, you will have an idea of how much everything costs.
In the second option, you need to give an average of the cost of these materials and then determine the amount that can be spent on these materials.
There is a difference between an NRE cost and unit cost. While Unit cost accounts for every task and materials in a particular project, NRE cost describes the one-time cost from the design, development, and integration of a manufacturing process for a new product. Unit cost is more effective in terms of managing the budget of a PCB project.
One major factor to consider when making comparison between NRE costs and unit costs is the project size. Any large project that involves the mass production of PCBs will require NRE costs. This project will definitely benefit from NRE cost since it helps in saving more time.
NRE Tooling Costs
The tooling cost is part of NRE cost that should never be overlooked. When it comes to PCB manufacturing, the tooling cost is a complicated part of the NRE cost that needs to be managed well. Tooling cost require consistency.
The majority of engineers make some mistakes since they believe most projects require multilayer circuit boards. In some cases, it is not necessary to use various layers of copper. If the final product of the project requires a smaller circuit board, you can exclude multiple layers when purchasing PCB materials.
Also, you can reduce tooling costs by penalizing orders based on their quantity. This is just like combining orders for certain materials. With this, you can save NRE costs. Another way to reduce tooling costs in circuit boards is by saving designs to order later.
What to Consider During NRE Process
You can perform non-recurring engineering within an organization. Alternatively, you can outsource to a third party provider. You need to consider the cost of NRE to be sure if there is a demand for the product. NRE costs are an alternative when there are no other options. However, some factors determine NRE charges. These factors include:
- Packaging type
- Amount of work
- Type of technology integrated
- Special procedures needed
- Required skills
Parameters Affecting NRE Cost
NRE charge is impacted by some important parameters.
Increase in the number of quantities ordered
The number of ordered quantities can affect NRE cost. Avoid ordering for a single project separately because you will be charge separate NRE cost for a specific order. It is advisable you wait till you get all your projects. In this case, you can now order for the projects once. In the long run, you will be able to save penalization for any of the projects.
Order from a single company
If you order from a single company, this will help you reduce NRE costs. It is advisable to choose companies that offer discounts on NRE costs when placing orders. If you are ordering the first batch, you will be asked to pay the basic NRE costs. However, you will get a discount on your NRE cost after a few orders.
As you keep ordering from your manufacturer, a good relationship is being built between the two parties. Therefore, there are low chances of deception from the two parties. Also, you won’t have to waste your time searching for a new manufacturer to buy your materials.
Number of layers
Your NRE cost will increase when a testbed is created for more layers or bigger dimensions. Therefore, you need to reduce the number of PCB layers or design smaller dimensions to help you minimize NRE costs.
Facts About PCB NRE Cost
NRE cost is also charged in the PCB industry. In this industry, there are two categories of NRE cost you need to pay. The first is the NRE tooling cost and the programming cost. NRE tooling cost varies from customer to customer. Also, this cost is usually added up with the normal NRE cost. Also, NRE tooling cost comprises tools that benefits customers orders.
Selective tools are being integrated in NRE tooling. Also, the expenses needed for these tools are considered as non-recurring. NRE plays a crucial role in the launch of a new product and it is responsible for the success of a product.
NRE cost is a one-time cost of configuring manufacturing for a new circuit board for EMS contract providers. The process of calculating NRE cost is usually dedicated to a specific printed circuit board. There is no need for any further NRE costs when the same board is being manufactured. This means that when manufacturing process is restarted for the same particular board, no NRE cost is added.
Frequently Asked Questions
What does NRE cost cover?
NRE cost covers the time spent of customized parts either the upgraded version of a product or a new product. Also, NRE cost includes programming and tooling cost incurred before a product is manufactured in massively.
What does NRE cost not cover?
NRE cost doesn’t cover off-the-shelf products. Also, this cost will not cover for products intended to be sold to several clients of a supplier. NRE cost will also not cover standard components for market applications.
With non-recurring engineering costs, customers can manage their expectations from the supplier and product. Non recurring engineering cost defines the cost of developing a new product while production cost is based on the quantities of products manufactured.