The Xiaomi Way to Optimize Costs
Two interesting stories about the strict management of Xiaomi on the quality of the products are well known.
There was a time when we conducted a quality inspection of all the components of MIphones, which of course included cost controls, and we found something wrong with the SIM ejector pins.
These pins are used for the easy removal of SIM cards. But seeing as most people either lose the pin or don’t have it on them when they want to get the SIM card out, they often use paperclips as an alternative, and a few of them even prefer using toothpicks. Anyhow, the ejector pins shouldn’t be a costly thing, as a box of paperclips is sold at RMB merely a few yuans, which contains hundreds of paperclips in each box, so the cost of every single paperclip is only a few cents.
However, when we checked the cost of the ejector pins, everyone was floored by the fact that they cost over one yuan per pin. What was up with the extreme price difference? There must have been something wrong.
There might be two reasons behind it: one, someone in the company had taken kickbacks, and the other, we were being taken advantage of by our suppliers.
Well, we trusted our colleagues implicitly, so we ruled out the first contingency immediately. It was then that we contacted our suppliers.
Upon hearing the news, our suppliers were uneasy, especially when they learned that our CEO, Lei Jun was handling this matter personally. After arriving at our company, they said that they didn’t overcharge us at all, and there weren’t any profits to be made from the pins.
No profits from these bucka-piece pins? It seemed that the suppliers were just making excuses? Then I asked them why the cost of an ejector pin was over one yuan while that of a paperclip was only a few cents, and they told us, “Your pins are special because they contain several kinds of rare metals.”
This answer puzzled us. Why should an ejector pin contain rare metals? And they responded, “Your test standard for the pin requires it to remain unbent after being inserted into the SIM tray 100,000 times.”
Upon hearing it, all of us were shocked. What an absurd standard! An ordinary user would barely use the pin a couple of times, yet the standard was set at 100,000 times. Who would insert the pin into their phone 100,000 times? It didn’t make a lick of sense.
And just like that, the mystery was unlocked. It wasn’t the suppliers’ fault.
We discussed the matter with colleagues from the R&D Center who felt a bit wronged. It turned out that when we first began making smart phones, we borrowed heavily from the iPhone in many ways, including Apple’s standard for mobile components, and the ejector pins were made accordingly.
Then our suppliers added tartly, “It’s true that Apple adopted this standard for the pins at the beginning. But later they lowered it due to cost controls. Xiaomi is such a topnotch company that you even use the high-quality pins on your Redmi Phones that are worth only several hundred yuan apiece.”
What funny logic!
Of course, we have to pursue perfection. But the blind pursuit of perfection like this simply leads to a waste of money, and is practically meaningless to the customers.
A similar story happened before about screws. When making mobile phones, the main board has to be firmly secured to the body by 12 micro screws. Because of the thinness of the phone, the screws have to be super small. Generally speaking, the cost for such a small screw should be no more than a few
thousandths of a yuan, but the actual cost was close to one yuan. The screws are fixed into the phone during manufacturing, so they don’t need to be used repeatedly like the ejector pins. So something was definitely not kosher.
As usual, we invited the suppliers to the company to discuss the problem.
As Xiaomi has been well reputed for being its meticulous attention to detail, the suppliers took the matter very seriously, and brought lots of tools with them, one of which was a magnifying glass. When we asked about the high cost of the screws, they put the magnifying glass above one of the screws, and said, “These are incredible screws. You can see the trick through the magnifying glass.”
We bent forward immediately towards it, and the suppliers continued, “Did you see it? There is a Xiaomi logo on the head of every single screw.”
We were absolutely stunned. What a BRILLIANT design! But what was the point? It’s obvious that our engineers have wasted their talent, and this was simply another case of blind pursuit of perfection.
Upon reading the two stories, you’d likely think that we have an engineering crew of absolute airheads. In fact, it’s not their fault, as this is the common R&D problem for many companies. The relentless pursuit of perfection on the part of the engineers who only want to make great achievements at work, or create something that they’re proud of is beyond question. But if they forgot that their work is to serve the customers and create value for them, problems like these will just keep reoccurring.
Therefore, before making a product, it’s better to raise the cost-consciousness of everyone in the company, and conduct cost-conscious management throughout all the stages from planning, design to research and development. Once the design, product standard, or research and development of the product is finalized, the cost will be fixed. And then you need to analyze the cost at every stage and see if there is any waste in the cost that doesn’t serve the customers or bring them any extra value. And that’s how you get the optimal cost.
(From I AmMaking “HotCakes”at
Xiaomi , CITIC Publishing