What is NRE, & why am I Getting Charged For It?

NRE charges on manufacturing invoices can cause confusion if you don’t understand their purpose.

Non Recurring Engineering

NRE stands for Non-Recurring Engineering (expenses). The purpose of these charges can vary based on industry, but for our purposes, we’ll discuss their place in plastic and electronics manufacturing.

Tooling and Setup

Every time a production floor begins a new project, there is a certain amount of tooling and setup that must be done before anything can be manufactured.

Molds, forms, and jigs all have to be fabricated prior to production and should be a one-time charge.  If there are repeat orders, those molds and forms can generally be re-used.

Because many modern manufacturing machines are computer driven, there are costs associated with the time it takes to program those tools. Labor costs generally decrease when processes are automated. You may see these tooling charges on every order because the machines have to be programmed each time.

Design & Engineering

Whether you are starting from scratch with a new product concept or improving an existing legacy product, there are charges associated with the research, development, material selection, and drawings.

It’s a Good Thing

Even though you may not appreciate the extra cost, it is a sign that your manufacturer takes the correct steps to ensure your product is made correctly. Generally, paying for the due diligence upfront will ensure quality throughout production.

Up Front or Amortized?

Depending on the scale of the project, some manufacturers will allow all or a portion of the NRE to be spread out over the per-piece price of the order.  If you plan to place repeat orders for the same product, consider using that information to negotiate lower up front NRE charges.

Don’t be Afraid to Ask

Manufacturers large and small approach NRE differently.  Never be afraid to ask for more information regarding charges on an invoice. If the manufacturer is smart, they will be more than happy to explain everything included in those costs because it will educate you on the added value they can provide.

NRE is a normal part of almost every modern manufacturing job. It’s important to get a solid understanding of how NRE will be charged for your project.  It’s also important to know that you should be able to expect a quote prior to your order for what to expect in NRE charges. Valuable services have a dollar value.  Educate yourself and communicate with your manufacturer to ensure honesty and clarity in regards to every element of the production process.

Want to learn more about how value engineering can improve your ROI? Let’s talk. We have increased revenue for small businesses and fortune 100 companies by improving their existing products.

 

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