Tag Archives: Thomas Smiley

Balancing Cost Savings vs. Offshore Sourcing Risks

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So many purchasing professionals I meet are wary of exposing their company to a supply line risk by buying offshore. With good reason, it often goes wrong.

An article published by Thomas A. Foster of Global Logistics & Supply Chain Strategies highlighted the issues:

Sourcing from offshore suppliers in China, India, Eastern Europe, Latin America and other low-cost regions is so widespread that few manufacturers and retailers can be competitive unless they join in this trend. In fact, the U.S. Federal Reserve Board attributes much of the recent economic growth and low inflation to this offshore outsourcing “best practice.”

However, the downside of offshore sourcing receives far less attention at the Fed or in any boardroom — at least until something goes wrong.

The more a company sources from distant, low-cost lands where financial transparency, operating visibility and reliable logistics are practically unknown, the risk of serious supply chain disruptions increases geometrically.

In a recent supply chain risk assessment study, Aberdeen Group, a Boston-based research firm, said that more than 80% of supply management executives reported that their companies experienced disruptions within the past two years serious enough to negatively impact their companies’ customer relations, earnings, time-to-market cycles, sales, and overall brand perceptions.

Let’s put some real numbers to this.

The cost of establishing a source offshore in time and out of pocket expenses can exceed $50,000. The cost of attempting to resolve an issue by revisiting a supplier, an equal amount, considering the airfare and hotel alone can top $10,000 per person … and there’s no assurance the problem will be resolved.

Not a huge number to you? Now add the cost of disappointing customers: big. The writeoff of bad product: big. And, to pour salt in the wound, making several trips before you realize there will be no resolution.

Real life case in point. One customer of ours had the unfortunate experience of finding 20% of the goods it received from its Asia-based supplier failed in system in the field. The supplier insisted they did not nothing wrong and would not support any reimbursement. This was after scrambling to replace units in the field for customers, and two engineers flying to China for a week. The customer finally turned to us for the rework at a cost essentially equal to the original purchase price. Ouch.

So, what does the OEM with limited resources do to compete on the same level as the big guys which have deep pockets and feet on the ground in Asia?

The answer is to shift the accountability from the offshore supplier to an experienced provider of managed PCB manufacturing services in the US. They can eliminate the risk of poor quality and greatly mitigate the risk of supply line disruption.

They do this through rigorous attention to technical detail on the front end, using only developed, strong, factory relationships, then thorough incoming inspections, and holding the factories accountable for any errors.

Basically, knowledgeable feet on the ground here, with the skills and experience to manage complex Asia-based electronics projects, and perhaps most importantly, financially accountable for the results.

Eliminating risk and capturing the savings from offshore. That is a pretty decent balance.

Calculating PCB Fabrication Costs (Watch Out!)

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We get this question a lot: How much per square inch for a 4-layer board? (or double sided, or 6 layers … same question).  I won’t hold you to it, I promise. Right….

We understand that it is difficult to provide the boss with a project cost roll up if you do not have the board cost estimate. If you do a lot of designs you may have a feel for it or you may refer to a similar board cost from a past project. This actually can be very effective.

I have even seen online cost calculators that presume to give an accurate number.  Knowing what I know about PCB pricing, however, I can say that it just ain’t so.

Here is why calculating PCB cost is tricky and dangerous ground.

The biggest cost drivers for a bare board are:

  1. Who are you? Are you a stranger or newcomer, or do you have established relationships with board vendors? Most of us manufacturers figure the total dollar volume somewhere into the pricing equation.
  1. Board size. Square area of the board, plus the square inches of material remaining on the panel after routing your unique board shape. (You are charged by the processed panel).
  1. Production volumes in the 10 boards to 1000 boards range will have a very steep cost curve. The curve flattens out as the order rises above 1000 and gets very unpredictable at 100,000. Who you are begins to make a big difference at this level, along with your negotiating skills.

All manufacturers have a floor or minimum and it is best to ask how many boards you can get for the minimum charge. Some of the internet guys will sell one or five at a very low seemingly low cost, but your boards will have to fit perfectly into their narrow technical profile.

  1. Delivery days requirement. This can be very steep cost curve in the one to 10 day requirement range. After 10 days, little influence unless the volumes are large. We turn boards from our China factory in 10 working days and small expedite fees for five days. (Yes, we turn boards from China in five days.)
  1. Manufactured location. USA, China, Europe, Taiwan. This is usually a preferential decision, but clearly, China has the edge, followed by Taiwan. Differences can be great.
  1. Number of layers. No surprise here. From double-sided to four layers, costs will go up about 60%. From four layer to six layer add another 50%. For six to eight layers add 30%. Keep in mind that each added layer is the equivalent of a double-sided board added to the stack.  Also, remember that high-layer-count boards are often accompanied by tough technical requirements and buried vias.
  1. Technology stretching requirements, like exotic materials, super small geometries, buried vias, etc. This can be steep or moderate depending upon the manufacturer and the difficulty. Tg requirements will have a moderate impact.
  1. Surface finish, like HASL, ENIG, tin, OSP. If you can handle OSP, it is the lowest cost, followed by HASL, then ENIG. ENIG is so common these days that for low volumes, it can be as low cost as HASL.

Not the following:

  1. Number of drill hits; however, the total number drill tools used can drive costs up. Ten tools is the preferred maximum and usually can do the job.
  2. Presence or absence of a silk screen legend. (Minor influence.)
  3. Always insist on testing at no charge.

So, now think about putting all of this into an algorithm and coming up with a defensible, unchangeable answer. That is a dangerous guessing game.

My best advice is this: Get preliminary Gerbers to your preferred vendors and tell them they are preliminary. If the effort is conceptual, provide a simple description answering the cost drivers above and email your proposed or preferred vendors for a quote. (To make it easy for you, we offer a template. Go to precisionpcbs.com/pcb-manufacturing and click on the “Fab Drawing Template.”)