Non-recurring engineering (NRE) cost means the one-time up-front costs for product research, design, development and testing. It covers engineering time on tailored parts. And such costs are expected to be compensated via profits from mass production of the product.
Here is an example for you to understand.
Let say that you are to mass produce a unique book shelf, and the research, design, develop and test fees are what are included in the NRE costs, and you will usually receive an invoice from your supplier informing you with such costs. Once your book shelf is fully developed and put into mass production, such fees won’t occur again, which is why they are called “non-recurring”.
What is NRE (non-recurring engineering) cost for?
As mentioned, the non-recurring engineering cost covers engineering time spent on custom-made parts, be it new designed product, or the upgraded version of an existing product.
That said, the non-recurring engineering cost include tooling and programming costs that happen before your unique product is actually put into mass scale production.
What is NRE (non-recurring engineering) cost not for?
As a project manager, you should be extra careful when it comes to the cost of the project, and NRE cost can be quite a big chunk of your project. So it’s utmost important that you’re aware of what you are paying for.
Non-recurring cost is NOT for:
- Off-the-shelf products or products that would be sold to multiple clients of the supplier;
- Standard components for larger product portfolios & market applications
The above fees should be the research & development expenditures of your supplier’s organization, and it’s unreasonable that they should ask you to pay for such cost.
Can NRE (non-recurring engineering) costs be waived?
TL;DR version: no.
It takes engineering and production resources from your supplier to create or upgrade product, which is different from off-the-shelf designs, where the likelihood to reduce the design cost via mass production is small.
In other words, to fulfill your needs require your supplier to provide extra services, such as research, design, testing, which should be well defined by engineering cost.
What’s more, the non-recurring engineering cost helps you see for yourself how much effort your supplier has put into your product. So you won’t be left assuming what are the benefits of the design, how much time does it take for it to work and the costs involved. This is also a good way to groom and maintain your supplier relationship.
That said, the non-recurring engineering cost helps you manage your expectations, from both the product and the supplier.
Breakout or amortize?
Breakout means that you pay for the NRE cost upfront, all at once. Amortize means that you pay for the NRE in increments by adding the non-recurring engineering to the per-piece price.
There are upsides and downsides of these two ways of payments. But since the amortized costs are difficult to monitor, and some don’t know when to remove the amortized NRE, breakout is usually the preferable way to pay for many people.
By the way, it’s good that your supplier charges for the non-recurring engineering, because it’s a sign that your supplier is taking actions to make sure your requirements are met. And the non-recurring engineering cost should not be regarded as the extra cost, it’s always there, and it was just neglected.
What to do when you have questions regarding NRE costs?
Whenever you have any question regarding the cost, in this case, the non-recurring engineering cost, of your project, just ask. It’s very normal that different suppliers handle the NRE differently, and it’s natural that you expect answers to how you spend your money.
On the supplier’s side, it’d be smart of them to educate you on the non-recurring engineering cost, because it’s a great opportunity for you to see the added value they provide.
Insight Solutions Global is professional at supply chain consulting services, so if you are not sure who to turn to, we’re your go-to option.
Cost analysis and reduction is too important to be ignore in a project, and non-recurring engineering cost is only one of the costs. To better achieve your project goals, be them lower cost, higher yields or else, it’s utmost important that you know what you to expect and how to make the most out of what you have.
Should you have any question regarding non-recurring cost, feel free to leave us a comment, or reach out. We’d be glad to help out.