Originally Posted by Curmudgeon
"A segment of fiberglass is said to be between $5 and $10 cheaper than a magnesium-aluminum one, and an entire notebook could see $20 in savings on the production end with the use of fiberglass. That could equate to savings of $50 to $100 at retail, according to Taiwan fiberglass maker Mitak Precision."
I'm most definitely not a business man. So how does this work? How does $5 to $10 turn into $50 to $100?
I looked around the thread and I didn't see anyone directly address your primary question: How can a $10 part equate to a $100 increase in cost. I'm not going to discuss the end price, but I can assure you that a part that arrives at your incoming dock that you pay $10 for will end up costing you more than $10.
First, someone has to pick it up, log it in as received (this also incurs IT costs...). Then it's moved to some storage location (after some kind of inspection to make sure it's what you ordered and not some shipping clerk's left over pizza and that it is painted the right color, has the right lettering, and, actually works). Even if automated conveyers, that location is most likely inside a building. The part is taking up real estate in that building and it's taking up environmental conditioning of the storage area. As long as that part sits on that real estate, it's adding cost.
As an aside, Apple is the, or one of the, grand masters in "Just in Time" manufacturing. This means that incoming raw materials spend as little time as possible taking up real estate.
When the assembly line is ready (again, that determination incurs costs some human, some IT) for the part then it's moved again. These are direct costs and controllable by smart management and design.
Now, what no one has talked about is the activity leading up to ordering that part. If it's a transformer for the power supply, it almost certainly isn't an off the shelf part. It most likely was designed by an Apple engineer. The design was shopped around. Bids were received and evaluated. Sample parts were made. And again, these parts were received and again evaluated before being released to procurement and production. I knew an engineer in Apple's QA department some years ago and he told me that Apple was the biggest stickler for quality he'd ever worked for. These are indirect costs. And, again are controllable by clever management and processes.
Lastly, every part in the finished product is subject to failure. Some value has to be added to the part to cover costs related to diagnosis and replacement. This is a big one. Every time an Apple person has to look at your computer and diagnose it, the costs start piling up. So, the goal is to build in quality so you never have to bring it back and have a physical part replaced.
So, does this make a $10 part add $100 to the price. I can't say for each part there is a 10:1 mark up, but I can assure you, a $10 part adds far more than $10 to the cost of using it.
I hope this helps.