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Non-recurring engineering (NRE) refers to the one-time cost to research, develop, design and test a new product. When budgeting for a new product, NRE must be considered to analyze if a new product will be profitable. Even though a company will pay for NRE on a project only once, NRE costs can be prohibitively high and the product will need to sell well enough to produce a return on the initial investment. NRE is unlike production costs, which must be paid constantly to maintain production of a product. It is a form of fixed cost in economics terms. Once a system is designed any number of units can be manufactured without increasing NRE cost.
In a project-type (manufacturing) company, large parts (possibly all) of the project represent NRE. In this case the NRE costs are likely to be included in the first project's costs, this can also be called research and design (R&D). If the firm cannot recover these costs, it must consider funding part of these from reserves, possibly take a project loss, in the hope that the investment can be recovered from further profit on future projects.
The concept of full product NRE as described above may lead readers to believe that NRE expenses are necessarily high. However, Focused NRE wherein small amounts of NRE money can yield large returns by making existing product changes is an option to consider as well. Small adjustment to an existing assembly may be considered to use a less expensive or improved sub component or to replace a sub component which is no longer available. In the world of embedded firmware, NRE may be invested in code development to fix problems or to add features where the costs to implement are a very small percentages of an immediate return. Chrysler found such a way to repair a transmission problem by investing trivial NRE dollars into computer firmware to fix a mechanical problem to save some tens of millions of dollars in mechanical repairs to transmissions in the field.
Mastery of NRE concepts as financial investments are a most excellent loss control tool and must be considered a key part of manufacturing profit enhancement.
- Non-Recurring Engineering by Daniel Shefer - a short explanation of NRE
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