R & D What drives material costs?

The MTBF specification and the product's placement on the perceptual map determine a products material cost. There are two components to material cost- Reliability (MTBF) and Positioning. The positioning component is actually driven by the distance from the trailing edge of the Low End segment to the product. In round zero this puts about a $4 dollar spread from leading edge to trailing edge of the segment. As the simulation progresses, the other segments pull away from the Low End segment. This puts a small upward pressure on material costs in the high tech parts of the market.

Reliability (MTBF) Costs

The higher the reliability, the higher the material cost. An increase of 1000 hours in MTBF adds about $0.30 to your unit material costs. In general, High End, Performance and Size products have higher material costs. The smaller the size or higher the performance, the higher the material costs. You can experiment with these factors by bringing up your R&D area and watching "New Material Cost" as you change positioning and MTBF.