|
VTech
is committed to carry out periodical cost reduction programs on product
cost for customers. The cost reduction program will be focused on
two major areas:
1) Material Cost
Over 80% of the product cost come from material.
The cost reduction program on material will consist of two phases:
Phase I :
The saving from Phase I will purely come
from VTech's effort in pricing negotiation with material suppliers.
This is a periodic process. VTech will carry out material cost negotiation
with material suppliers twice a year. The amount of saving is very
much depending on the maturity and volume growth of the products under
discussion.
The more mature the product, the smaller
the room for cost reduction. For higher annual volumes, our chances
will be better for cost reduction. The type of material being used
by product is also a factor to determine the amount of saving (e.g.
Prices of memory component is determined by market).
For product having been made by VTech for
less than two years, it is our experience that the average annual
saving can be achieved is between 2%-5%. For products having been
made by VTech for over 2 years, the annual saving could be as low
as 2%.
Phase II :
The material cost reduction under this phase
will need joint effort from both VTech and the customer. After running
the product for 3-6 months, VTech's engineers will gain sufficient
product knowledge in recommending alternative sources for the materials
of:
a) High in unit price and
b) The original supplier doesn't respond
to a request for cost reduction.
For all alternative sources to be recommended,
VTech's engineers will carry out an evaluation. Once approved by VTech
internally, an alternative sources request form will be submitted
with samples from VTech to the customer for final approval.
It is VTech's experience that the saving
from Phase II could be as high as 5% to 10%.
2) Labor and Overhead
The industrial Engineers at VTech are committed
to provide continuous process improvement for products. After running
the products for 6 to 12 months, the industrial engineers at VTech
will summarise all the saving in product standard time. Cost reductions
will be implemented at that time. It is our experience that reduction
in product standard time can be as high as 10%.
It is also our experience that if the customer
can provide a relatively stable forecast and order pattern, both the
material and manufacturing cost can be reduced more significantly,
as this is a key factor to negotiate with a lot of suppliers for continuous
cost reduction commitment.
VTech will commit to provide best quote for
our long-term partner. VTech believes that a competitive cost from
us will enhance the customer to sell more in the market, which is
a win-win situation.
A mutual agreed pricing structure can be
set up and also all the components cost will be provided open book.
Customer can always evaluate whether the component cost is competitive.
The partnership should be such that price changes are easily brought
to the other parties' attention and properly implemented. |
|
|
ÖÐÎÄ
Cost Reduction Commitment
