Test is a necessary evil—at least, that’s the conventional lens through which it’s viewed. Your best opportunity to improve profitability, though, may be to improve your testing. Chances are you’re under-investing in technology, and as a result, you have a test strategy that isn’t optimized.
I’ve worked with test engineers around the world in industries from semiconductor to consumer electronics to defense and have witnessed many teams reinvent their testing process with dramatic results. Annualized savings of millions to tens of millions of dollars is not uncommon. I doubt there were many other opportunities within these companies to add such a significant improvement to their bottom lines with such a small investment.
There are at least three ways to generate additional profits through test: direct cost savings, cost avoidance, and enabling a premium price.
Direct Cost Savings
For many industries, lowering the cost of test on a per unit basis can be an important competitive advantage. High-volume, low-cost devices, such as those in semiconductor and consumer electronics, are obvious examples. In these areas, each penny spent on testing a device is scrutinized.
Test cost can also contribute to competitiveness in larger, more complex devices. A complex aeronautic system may take days to test with very expensive equipment. In this case, lower test costs can increase margins or enable a more competitive bid for a design.
Test costs are often viewed using a simple model: the cost of the test equipment itself. A more holistic view of test costs should also account for development expense, maintenance costs, and the operational costs per unit of time spent testing.
In many production test applications, for example, the throughput of a tester is the largest factor in test costs—not only due to the operational costs of the tester, but also because the throughput of each tester dictates how many testers are required to keep up with the production rate.
Test engineers today have available to them an array of techniques to improve the performance and thus reduce the cost of test, such as built-in-self test, on-chip testing modes, and parallel test. A relatively small investment in one or more of these techniques can yield huge savings.
There is reason to believe that many production test systems aren’t operating at an optimum level today. For one, the test requirements in many industries have grown exponentially along with the complexity of the devices themselves. If there isn’t innovation in the testing process, test costs will grow at the rate of this complexity and make up a larger and larger percentage of the cost of the device.
Second, most organizations still move test systems appropriate for a design lab directly into production. The whole notion of “rack and stack” test systems reflects this strategy. These boxes are designed primarily to be used interactively on an engineer’s desktop, not in a highly integrated and automated system.
It is estimated that the cost of a failure decreases by 10 times when the error is caught in production instead of in the field and decreases 10 times again if it is caught in design instead of production. By catching defects and collecting the data to improve a design or process, test delivers a lot of value to your organization.
If you really understand the value of catching defects through test, you can make more educated investments. By increasing test coverage, you may save expenses in field failures, such as returns, repairs, and lost future business.
Test coverage and test cost are often interdependent. As devices increase in complexity, and the time and budget to test a device remains fixed, test engineers are forced to make tradeoffs in coverage to keep up. Using these techniques, however, you may be able to increase test coverage without reducing throughput.
Because the cost of defects increases as you move through the product development cycle, catching defects early is of particularly high value. Integrating testing into the design and collecting measurement data early and often reduces defects in design. The data collected in test systems is often underutilized, yet it can be a gold mine for improving products and processes within your organization.
Enabling a Premium Price
While cost savings and cost avoidance are the most direct ways to add to the bottom line, higher pricing also is effective. A higher price increases revenue without adding to your cost of goods, and therefore it has a bigger impact of profitability than increasing sales volume.
Your testing strategy may enable you to receive a higher price for your products. For many products, high quality has established a premium brand position. This high quality is maintained through rigorous testing in both design and production.
Volvo, for example, has a strong brand position from the safety features of its automobiles. Of course, this image is reinforced with marketing dollars, but Volvo has also invested over $80 million in a major crash testing facility in Sweden.
The perception of safer vehicles, supported by investment in testing, enables Volvo to charge a premium for its automobiles. The value of its testing can, in part, be established by the incremental margin it can command versus its peers.
Another example of premium pricing is the practice of screening units, commonly used in the semiconductor industry. When you opt for the more expensive speed grade version of a component, you are paying for value added by testing, which was able to bin the parts based on their performance.
Next time you’re tempted to cut the budget of your test department, consider how you can view testing more strategically. You’ll find ample opportunities to make small investments that can yield a large impact on your profitability.