fmsreliability.com http://www.fmsreliability.com/education/reliability-cost-reduction/

Fred

Reliability and Cost Reduction

Cost reduction and reliability improvementI do not like procurement organizations.

It is like saying you don’t like lawyers. I don’t know all procurement engineers or managers, so understand mystatement is a grand generalization. It’s not the people I don’t like it’s a common behavior that I’ve witnessedcountless times that I do not like.Procurement organizations tend to look for ways to reduce cost by purchasing less expensive components ormaterials. This is often done with little regard to the impact on product reliability.

Why is this? And what can we as reliability professionals do to change this behavior?

Isolated Costs

One of problems is the procurement organization if focused on the one of the largest identified costs of product cost ofgoods sold, the cost of the components included within the product. The cost of the components is a viable target.Substituting a similar component for a higher cost one shows direct cost reduction and improved profit.

What is often missed is the impact on yield during manufacturing and field reliability in the hands of customers. I’llleave the adverse impact on manufacturing yield to the interested reader to pursue elsewhere. The impact onreliability is delayed and may even be difficult to measure.

The focus on what is immediately available to measure is short sighted and may lead to erosion of profit and marketshare due to poor product reliability.

Less expensive components may not be the same

Vendors are working to reduce costs to meet the demand of their customers. They automate processes, reducewaste, streamline processes, and simplify designs. They reduce performance margins, increase internal heating,increase process variation, and reduce robustness of their products.

Less expensive components may perform as well or better then more expensive parts, yet that is rarely the case inmy experience. Less expensive components generally have a higher field failure rate, and it doesn’t take much of achange in failure rate to erase any cost savings created.

FET cost reduction example

Let’s say we have a product with a circuit board that contains a field effect transistor (FET). The FET costs $0.10(completely hypothetical example using simple numbers to illustrate the point).

We plan on manufacturing and selling 1,000 units each with a one year warranty from date of purchase. Customersuse the unit about 1,000 hours each year.

Our dutiful procurement engineer notices that the same vendor offers a very similar FET that costs half as much,$0.05 and suggests the we switch the the lower cost component.The proposed change would save $0.05 x 1,000 = $50. Not a bit amount, yet in the right direction according to the

metrics used by the procurement organization.

Reliability impact of proposal

We need a couple pieces of information in order to determine change in field reliability and impact on warranty.First we need the expected component failure rates. For this example, let’s use the following (FIT is failures in time,here failures per 109 hours of use):

$0.10 FET has a FIT of 13,333$0.05 FET has a FIT of 20,000

You can use the exponential distribution reliability function to determine the probability of a FET surviving one year (inthis example, 1,000 hours).

Where t (time) in this example is 1,000 hoursAnd, lambda is the failure rate, in the ten cent FET case 13,333 x 10-9

Resulting in:

$0.10 FET has a one year reliability of 0.987$0.05 FET has a one year reliability of 0.98

At this point the procurement engineer will say something like “Great, that isn’t a big change, let’s do it.”

Let’s continue the calculations to estimate the number of failures we will expect to incur across the 1,000 units. This isthe probability of failure or one minus the reliability times the number of units. Resulting in the expected number offailed units in a year:

$0.10 FET has 13.25 expected failures$0.05 FET has 20 expected failures

That is an 6.75 expected increase in unit failures. Which brings up the cost of failure. We do not replace just the FETwhen it fails, we replace the entire circuit board and often replace the entire box or system involved.

In this example lets say the average cost of a field failure under warranty is $250 (a relatively low value in most caseswhen including the cost of the replacement unit, call center costs, shipping/handling, failure analysis, engineeringtime, loss of future sales, brand erosion, etc.)

Therefore, the savings of $50 buy using the lower cost component will result in an increase of warranty costs of 6.75 x$250 or $1,698.50 (roughly).

If making this clear to the procurement team is not sufficient to stop the component cost reduction nonsense, then findsomeone that cares about the bottom line and customer satisfaction.

What is often missing in an organization is the cost per failure. Along with a simple estimate of the change in failurerate we can estimate the total cost when ’saving’ money with lower priced components.