Cost engineering and VA/VE

1.Target costing fundamentals

Target costing is "design to a price" — set the unit cost target at concept and design backwards from there.

1.1The target cost equation

``` Target unit cost = Target retail price ÷ Channel markup multiplier − Variable cost premium (warranty, returns) − Selling, general, and admin (SG&A) − Marketing reserve − Profit target

Example: Target retail price: $100 (premium DTC product) Channel multiplier: 2× (DTC) Target unit revenue: $50 Less SG&A: $5 Less marketing: $10 Less warranty reserve: $3 Less profit (20%): $10

= Target unit cost (COGS): $22 ```

1.2Channel multipliers (recap)

1.3Working backwards from price

1.4Cost lock-in timing

Cost is largely set by the time mechanical CAD is complete:

• Concept stageProcess selection, material choice, complexity. ~90 % of cost.
• Detailed designSpecific components, tolerances. ~95 % of cost locked in.
• Pre-productionFinal supplier negotiations. ~98 % cost locked.
• Mass productionVolume + experience curve reduces cost by 5-15 % over time.

Wait until design freeze to think about cost = "redesigning" the product. Front-load.

2.Cost structure analysis

Before reducing cost, understand where it is. Break down the BoM and process to identify opportunities.

2.1Cost breakdown framework

For a typical consumer electronic product (~$30 COGS):

2.2Pareto analysis on BoM

Apply 80/20 rule to BoM:

• Top 5-10 line items typically = 60-80 % of BoM cost.
• These are your A-parts; focus cost reduction here.
• B and C parts have less leverage; don't waste effort below the threshold.

2.3Cost driver analysis

For each major cost category, identify the driver:

3.VA / VE methodology

Value Analysis (VA) is applied to existing products. Value Engineering (VE) is applied to new designs. Both use the same 5-step methodology.

3.1The 5-step VA/VE process

1. Information phase — Gather full BoM, drawings, specs, supplier costs, function tree. 2. Function analysis phase — For each component, ask: "What does it DO?" Express each function in 2 words (verb + noun). 3. Creative phase — Brainstorm alternatives to provide the same function. No critique yet. 4. Evaluation phase — Score alternatives on: function preservation, cost, quality, feasibility, time. 5. Implementation phase — Engineering changes (ECNs), supplier negotiations, ramp.

3.2Function analysis (FAST diagram)

For each component, ask: "What does this DO?" and "How is it done?" Build a tree:

`` Provide light ← Primary function (why the product exists) ↓ Emit visible photons ← Basic function ↓ Convert electrical to light ← Required function ↓ LED ← Current solution ↓ Phosphor + driver + heatsink ← Sub-functions ``

For each level, ask: is this function necessary? Is there a cheaper way?

3.3VA/VE substitution checklist

• Different materialSame function, lower cost (PC → PC+ABS, brass → zinc).
• Different componentSame function, different MPN (premium → generic equivalent).
• Standard vs. customOff-the-shelf vs. custom; standard usually wins below 50k volume.
• Multi-function consolidationOne part doing two jobs (overmold replaces two parts).
• Process changeCNC → casting → injection mold per volume.
• Outsourcing decisionIn-house vs. supplier specialisation.

4.BoM optimisation techniques

Specific tactics to reduce BoM cost.

4.1Component consolidation

• One regulator instead of twoIf acceptable voltage drop, use single regulator with branched output.
• Shared decoupling capsOne 10 µF + multiple 100 nFs serves the whole board (per power-rail bank).
• Standard resistor valuesReduce variant count; supplier discount on volume.
• Common connector typesOne USB-C, one barrel, eliminate proprietary.

4.2Material substitution

• PC + ABS instead of pure PCSlightly lower clarity + slightly lower cost.
• Glass-filled vs. unfilled polymerHigher strength + slight cost increase, often net reduction in part wall.
• Generic equivalent ICsMicrochip vs. ATmega; second-source as direct substitute.
• Recycled plastic where cosmetic + structural allow10-30 % savings + sustainability story.

4.3Tolerance relaxation

• Critical features tight (±0.05 mm)Tolerance budget on critical mating.
• Non-critical features loose (±0.3 mm)Process-capable tolerance.
• Cumulative tolerance budgetSet per assembly stack-up.

4.4Process change examples

4.5Geometric optimisation

• Reduce wall thickness where not structurally required (saves material + cooling time).
• Reduce part count through snap-fits, living hinges, overmolds.
• Standardise screwsOne size, one drive type per assembly.
• Reduce cable harness complexityInternal PCB connections vs. cables.

5.Design-for-cost rules

Tactical rules engineers apply during design to keep cost down.

5.1Mechanical DFC rules

• Plan for high-volume process at design timeDon't design for 5-axis CNC if volume justifies injection molding.
• Single material per partMulti-material parts require multi-shot molding or assembly.
• Snap-fits over screwsEach screw = 3-8 s assembly time + screw cost.
• Self-aligning featuresAsymmetric mating prevents misorientation = faster assembly.
• Standard fastener sizesM2.5, M3 for most consumer hardware.
• Minimum draft angles1-2° (smooth), 3-5° (textured).
• Minimum wall thickness1.5-3 mm for most polymers.

5.2Electronics DFC rules

• Use largest acceptable component package0603 over 0402 except where space-constrained.
• Standard 2-layer or 4-layer FR-4Avoid 6+ layer or HDI when possible.
• Lower copper weight1 oz (35 µm) over 2 oz (70 µm) for non-power layers.
• Minimise via countEach via adds drill cost.
• Avoid blind/buried viasAdd 2-5× cost vs. through-holes.
• Standardise component packagesFew package variants; supplier discount on volume.

5.3Assembly DFC rules

• Fewer parts = less assembly timeEach part needs picking, placing, joining.
• Visual orientation cuesOperator doesn't need to verify orientation = less time.
• Linear assemblyTop-down or one-direction stacking; minimal flipping.
• Fewer tools per stationOne screwdriver type, one connector type.

6.Cost reduction examples

Real examples of cost reduction in consumer hardware.

6.1Example 1: Bluetooth speaker

Original BoM cost: $14.50 After VAVE (Year 1):

6.2Example 2: Soil moisture sensor

Original BoM cost: $8.80 After VAVE (Year 2):

6.3Example 3: Smart watch

Original BoM cost: $42.00 After VAVE (Year 1.5):

6.4When NOT to reduce cost

• Safety-critical componentsBattery protection, ESD diodes, fuses.
• Brand-essential featuresThe thing that makes customers buy.
• Compliance-criticalSubstance restrictions, certifications.
• Single-source long-leadWhere supply security trumps cost.
• Cosmetic where the user touchesPremium materials on contact surfaces matter.