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31
October
2012
Guest comment: Theo Langer

PCBs from Asia traded by western PCB Manufacturer

Today’s reality of smaller and medium size western based PCB manufacturers often requires supplementing their own production with PCBs manufactured elsewhere, mainly in Asia.
The advantages gained are:
  • Coverage of volumes and/or technologies that are not within the factory’s capabilities.
  • Keep existing customers from wandering off to competition, by satisfying some of their special needs.

Often the requested production volumes are too big for the own in-house production. Certain requested technologies cannot any longer be produced at competitive prices in the own factory.

One additional reason for some western PCB manufacturer to trade PCBs from Asia is to partly subsidize their own production with the profits made from this trade.

Thus, today the business model of many western producers often has to rely on a blend of
- in-house production and
- traded boards purchased from Asia.

The Paradox.
Because of the sheer number of small and mid-size shops (about 500 in the western world), many compete on similar business models. The highly competitive landscape in this business let many shy away from teaming up when it comes to board purchasing from Asia. Thus, when considering today’s situation of each of this western board producer isolated from each other, the purchasing scenario may rapidly develop into a catch 22 situation with the potential to endanger also the second parts (own in-house production) of the mixed business model.

A catch 22 describes a paradox situation where a problem can’t be avoided, since a contradicting constrain exists.

And precisely this is the case here.
In what lies the paradox? Let us elaborate.

Usually if a customer (in our case the western PCB producer with the mixed business model) requires top notch quality combined with a competitive price, he needs to attract his (Asian) supplier with some sizable order volumes in order to really get the quality and price he needs.

However, the contradicting constrain lies in the fact that our ever increasing demands on quality and price performance are difficult to achieve with the – as your Asian supplier sees it
– only “small” order quantities required by you, the western PCB producer.

Now, each PCB producer – and thus also Asian producers – bases his customer portfolio management on predefined parameters enabling a ranking of existing as well as potential customers.

Studies in Asia show that this parameters and its weighing may and do have different emphasis than those selected by PCB producer in the west.

Often the three most important parameters in Asia are:
  • Possible attainable sales volumes
  • Strategic importance of the customer
  • Trust

Taking a somewhat closer look at the implications of the three priority parameters, we now will understand the following:
Based on our (in the eyes of Asian PCB suppliers) „small“ order volumes we will very quickly become second or third priority in their order books. Once we become second or third priority, it is easy to imagine how much attention – or less attention - is paid to our demanding quality and price expectations. In addition, the purchasing of „small“ volumes becomes more and more confronted with another hurdle. The MOQ (minimum order quantities) set by our Asian PCB suppliers often does not allow for “smaller” quantities (about 1- 15 m 2) to be produced in the first place.

Furthermore, economically this order quantities do not justify having permanent on the ground staff in Asia. Such set up, however, is vital to supervise quality and on-time delivery of the goods ordered.

As a substitute for not having the above “luxury on the ground supervision”, the western PCB producers are depending almost entirely on email communication. This provides another challenge, since Asians have a different communication style than the one used in the west. If we are not used or trained on this important topic, we can get easily and unwantedly entangled into a frustratingly outdrawn miss-communication process. It consequently produces plenty of back and forth emails, often to only clarify small issues. Time and money gets wasted quickly.

Yes, of course there is also the sporadic visit in Asia, which is an attempt to smooth things out and clarify lots of topics accumulated over time between the parties.

A traditional Chinese saying goes; „Friendship accumulates every time people meet”

Living over 14 years in Asia the author knows how true this is and adds „The more you meet face to face the more you can trust“.

Bottom line: With the quality/price expectations but only “small” order volumes the western PCB producer is more depending on our Asian PCB suppliers than preferred. Although being the customer, the western PCB producer is beginning to lose the position in the driver’s seat.

The opening gap of small margins and small order volumes on one hand, and thus the reducing influence on the produced quality on the other, indisputably puts strain on the chosen mixed business model. Quality issues and claims are often the result.

Your current Asian supplier (eventually still – based on Asian standards – a mid-size production) loses interest on the „small“ order volumes being paired with more and more demanding quality requirements. As a result, we may experience a lack in service around the key performance indicators on time delivery, quality level and price.

This can lead to tensions in the relationship and the western PCB producer may ultimately have to change to another often smaller supplier. During the „honey moon period“ in our new relationship we may experience good service. Over time however, the key performance indicators (quality, on-time delivery, price) of this smaller shop slide even more than the one of our previous larger production partner.

Taking into account the complete effort putting into building up this new partner, our remaining margins often become less competitive than with our former partner. The risk of losing orders rises.

Medium and long term our chosen business strategy (driven by economic reasons) cannotbe successful and/or sustainable.

This triggers a downward moving spiral, concerning the development with the Asian production partners, ultimately leading to question the robustness of our entire mixed business model.

Getting out of this vicious cycle appears to be difficult. We may decide dropping the mixed business model (own PCB production paired with traded boards from Asia), by getting out of the effort-intensive trading business. At the end this may have far reaching consequences for your business.

The catch 22 now went full circle.

The solution.
The PCB producer can only solve the paradox when given tools being able to change the key parameters that defines it.

One important parameter for finding an appropriate solution strategy lies in the words (see “The Paradox” 2 nd paragraph, 1 st sentence) „ … when considering today’s situation of each of this western board producer isolated from each other.., An isolated or independent view will not provide the individual PCB producer with a satisfying solution for the described dilemma. The Western PCB producers need to realize that they are not alone with this problem, and act on it. Many other western PCB producers are facing the same challenge.

Thus, what would be more logical than connecting with a first class service provider who is specialized in catering to exactly the needs of many PCB producers? Opening up to a fresh look of things, will allow us to break through the paradox.

Suddenly we will be able to leverage our quality and price needs with the circumstances of the manufacturing environment in Asia.

Keeping the current situation unchanged can melt the influence of the western PCB producer concerning quality and price requirements faster than anticipated.

A professional PCB service provider on the other hand is not only located in the same time zone as their Asian PCB manufacturer, but also just hours away from a face to face meeting with western PCB producer in their time zone.

An ideal set up. If you decide to use the expertise of such a company, here are must-have services you should insist on being provided for you in Asia:
  • Fixed offices on the ground where boards get produced.
  • Experienced and trustworthy western management speaking your language
  • Residential yield improvement engineers embedded in the manufacturing sites
  • A quality control organization constantly driving yield management
  • Capabilities to provide all possible lot sizes.
  • There should be no minimum order quantity for you.

With all this services on hand, the western PCB producer will quickly discover that this valuable relationship pays off quickly for him.

His bundling, managing and order pooling from many PCB producers combined with professional 24h on the ground (in Asia) yield engineering frees your costly resources for things you do best – producing your own quality boards rather than spending time on managing the buying process of PCB boards from other sources.

The PCB service provider has a tailored organization specialized exclusively on managing the commercial and technical purchasing process for you (e.g. effective sourcing, communicating, quality control, logistics, SCM).

Interacting with this kind of service shortens the involvement of the PCB manufacturer from days/weeks of work to basically less than 5 hours per project and frees all the resources installed nursing these overseas purchasing activities.

Now it will be: Gerber data in, finished quality boards delivered on time out. Your purchase of boards from Asia to entertain your mixed business model is now professionally managed. It supports your business model and makes it more sustainable. Suddenly you will be able to leverage quality and price needs with the circumstances of the manufacturing environment in Asia.

After running a few projects with the new sourcing strategy the western PCB producer will see that this effortless modern approach feels like buying boards from just around the corner.

Theo Langer is VP Sales Asia & Sales Coordinator Worldwide of the company CML in Hong Kong and China. With over 14 years in Asia and varies management functions in the global PCB industry (US and Europe) he brings over 30 years of valuable PCB industry experience to the table. CML originally founded in Germany, a service provider for PCBs for all lot sizes.
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