Original Equipment Manufacturers (OEMs) are always looking for ways to reduce costs while maintaining product quality. Value engineering is a tool often used to help OEMs improve product designs, reduce expenses, and enhance functionality. One of the most critical applications of value engineering is to help companies better understand associated costs versus direct material costs. Value engineering can help control overall production expenses and create efficiencies in operations.
Understanding Direct Material Costs
Direct material costs are the raw materials used to product a specific product. These are the initial costs of the physical components of the OEM product. For the automotive sector, this includes steel, aluminum, and electrical components. In the consumer electronics industry this would be plastics, semiconductors, or display screens. For aerospace, direct materials include titanium and avionics systems. The price for materials used in each manufacturing process can fluctuate based on market circumstances, with increases having a huge impact on OEMs.
Understanding Associated Costs
Associated costs are the indirect expenses that are part of the production process but are not directly related to a specific component or product. Associated costs include labor, factory maintenance, utilities, transportation, packaging, compliance certifications, and warehousing. Associated costs are related more to the manufacturing process than a specific product but can be more than 80% of the total cost to produce or manufacture the end product.
How Value Engineering helps OEMs
Value engineering identifies each cost by function so OEMs can understand where specific costs are incurred in the process. Value engineering can help identify more cost-effective materials and ways to standardize components to reduce procurement and inventory costs. Value engineering can help improve production processes that could be costing more than they should by introducing automation, simplifying product designs to reduce parts or labor needed, optimizing your supply chain by negotiating with suppliers for volume discounts, and improving warehouse management.
Value engineering provides a comprehensive look at your production costs and ways to reduce both direct and associated costs. OEMs can find ways to substitute materials, streamline processes, and reduce complexity while maintaining and improving product quality and performance. Gexpro Services has a team to help you identify solutions to your process challenges or product applications. Talk to our team today about value engineering to simplify production, reduce costs, and improve efficiencies.