What are NRE Costs in Contract Electronics Manufacturing?

The optimisation of product’s manufacturing and developing, which is vital for the profitability of the entire project, is a complex issue influenced by many different factors. One of the factors is NRE cost. 

What are NRE costs?

NRE costs (non-recurring engineering) is a quite broad term defining a one-time cost that results from developing, designing and implementing a manufacturing process for a new product.

It can include various elements depending on a product, process, industry and even supply chain. However, in case of EMS contract providers, NRE is usually associated with one-time costs of configuring production for a new PCB. It is a unique process dedicated to a particular board. When the manufacturing process must be later restarted for the same board, it does not involve any further NRE costs.

Moreover, if preparation for production is led wisely from an early stage, it facilitates the optimisation of a manufacturing process, inspection and test procedures as well as material supplies. In consequence,  production costs and problems related to the quality of a product are reduced significantly. 

Therefore, if such optimisation is ordered from a contract provider who has proper experience, trained specialists as well as know-how, procedures and systems, possible problems can be avoided and general costs lowered. 

NRE costs and BOM

The optimisation mentioned above usually regards two categories: bill of materials (BOM) and already mentioned NRE costs. The BOM is directly responsible for the expenses resulting from manufacturing a final product while NRE costs reflect the cost of work performed by a contract EMS provider in order to prepare a production process. However, it should be emphasised that the attempts made to minimise BOM costs can cause a rapid growth of NRE costs and the other way round. 

The dichotomy between the BOM and the NRE is a fact. As there isn’t one solution to this problem, which would allow to optimise BOM and NRE costs for all manufacturing process and products, it is necessary to conduct a detailed analysis including various business and engineering factors that could facilitate taking proper decisions, especially, that they may influence the profitability of the final product.  

NRE costs and recurring costs

Recurring costs is a term related to all known and predictable costs reappearing in regular time intervals. These can be, for instance, maintenance and exploitation costs or the costs that result from purchasing lots of materials necessary for production.

On the contrary, NRE costs are borne once - not in regular intervals - while preparing for manufacturing a new product. They don’t reappear in the same production process even if the production is based on manufacturing next batches of the same products. 

What do NRE costs include?

In case of contract EMS providers, NRE costs include expenses borne to prepare equipment, software, system configuration, processes and documentation. Hence, these costs include:

• Designing and preparation of a solder stencil (sieve), which is made on the basis of Gerber files and requires, for example, planning of holes arrangement and adjusting their shape and type to the requirements of a particular component. 
• Programming of machines because to launch a PCB production process it is necessary to write a new programme for each device and optimise it to shorten production time and, consequently, reduce financial involvement of OEMs.
• Profiling of a reflow oven according to an SMT process as it ensures the proper course of soldering process and quality of a manufactured product.
• Preparation of documentation specifying all production stages, beginning with material supplies up to shipping of finished products.
• Organisation of manufacturing understood as preparing a well-organised and economically optimised production process.
• Preparation of production fixture (e.g. for SMT frames) preventing PCBs from bending in devices and securing them during wave soldering.
• Designing and building test systems which are the key elements of a quality assurance system.

 
NRE costs do not usually include the realisation of: forms for synthetic materials, holders, stamps for steel, tools for stamps and sieves for screen printing used during  the process of labelling. These elements usually require a customer to cover some extra costs. 

The above NRE operations require great knowledge and huge experience. They allow not only to design and manufacture elements of the whole process, but also to perform it in such a way that enables preventing unpredictable and dangerous situation possibly resulting in some damages of a product and delays in production.

Can NRE costs be avoided?

There is no possibility to resign from these costs. Moreover, it is necessary to remember that in case of small orders, NRE costs can constitute up to 50% of the order’s value. However, if long batches are manufactured, the NRE costs calculated for one board are insignificant. 

Besides, it is should be kept in mind that the proper preparation of production allows not only to lower its costs, but also avoid problems related to the quality of manufactured elements  and, consequently, after-sales service. Also, though an order for preparing a production process may seem to be a major expense, in the end the reduction of production and warranty costs can bring some significant savings. 

In fact, it is especially important in case of an incorrectly designed product and production process as it may be necessary to buy instrumentation again and program it, and such actions entail high costs. 

In Assel we focus on good relations with OEMs and our skills, know-how, systems and procedures allowing to meet all customers’ requirements regarding the quality of production. On the basis of our experience we know as well that the analysis and optimisation which we have conducted are too important to ignore in the project in which one-time NRE cost constitutes only one of many, very important financial investments.