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# Manufacturing in China, Revisited

Manufacturing in China, Revisited | 12 October, 2004

At least the few people left in this industry should make a stink, why all these jobs went to China and take efforts to get them back. If I take a typical line, which can do 20,000 components an hour, costs \$ 200,000, a board with 50 different components, an average of 3,000 components per reel, then one reel empties every 7.5 hours. This in itself can�t keep one operator busy. Let�s further assume, there are 200 components (50 different) and 4 boards on the panel, then one panel is done in 2.4 minutes. The board stacker at the end of the line can hold 40 panels and fills up in 1.6 hours. Even that, can�t keep one operator very busy. I�m getting reports from Japan, that one operator handles 8 lines. Do you remember, how many operators were around the machines, when you were employed in a manufacturing plant? The \$ 200,000 line should be written off in 4 years, or 920 days at 16 hours a day = 14,720 hours. Machine cost \$ 13.60 per hour. The board with top and bottom side and 200 components may cost \$ 10. At 576 boards an hour, there are \$ 5,760 material cost. It is quite obvious, that the cost of manufacturing make only a small percentage of the product prize. Nevertheless, the contract house can only operate with the cost of manufacturing.

1. The offshore manufacturing trend started with used machines. Assuming the used machine cost only � of new, than the line costs only \$ 3.60 per hour. This could have been done here as well. 2. One operator can keep simultaneously 4 lines running. At \$ 10 an hour these are \$ 2.50 per line. Building rent is \$ 33 per day or \$ 1.85 per working hour. 3. 1.+2. = \$ 7.95. 576 boards = \$ 7.95 ~ 13 cents per board. 4. If I neglect the operator cost as well as the building rent in China, then I still have the machine cost, no matter where in the world the machine is operated at 576 boards = \$ 3.60, ~ 6 cent per board. The difference is significant with 7 cents a board, however, put the board in an envelope and stick a 7 cent stamp on it and see how far the envelope will travel.

Manufacturing in China, Revisited | 12 October, 2004

Stefen- When looking at it from your perspective only it makes no sense to off-shore. The machines and operators are but a small part that goes into the decision to move overseas. The bigger picture is the fact the "entire" operation gets outsourced....managers, engineers, plant costs, benefits, tax liabilities etc. SMT manufacturing has never been a labor intensive operation. It's all the other costs aside from the machines and operators that adds up.

However things are looking better. I've heard Solectron is moving several lines back from China into the U.S. as well as purchasing some new Fuji lines for their U.S. factory. Good sign. I'm also hearing grumbling on how the Chinese labor force is becoming quite dissatisfied with working conditions in Chinese factories. The workers there live in dorms, eat lousy food etc. and many are getting out of the industry because of it. That will lead to increases in wages to keep these people which in turn will make it less beneficial to go there in the first place.

Give it time...things have a way of evening out in this scenerio. I saw the same thing in the early 80's in the disk drive industry. Everybody left....many came back.

Manufacturing in China, Revisited | 12 October, 2004

Stefan,

If I understand your post correctly, I have to make a statement.

It is impossible for 1 operator to manage 4 lines let alone 8. With all due respect, the reports you are getting from Japan are utter B.S. I have been doing this stuff for a long time,trust me there is no way.

Simon UK

Manufacturing in China, Revisited | 12 October, 2004

Lets face it guys, its happening and its all related to greedy profit merchants, other companies are simply following suit to stay in business.

For 1 UK worker i can get 3 workers in Italy at the same price. If i choose to outsource to China, i get 6 people for the price of one UK worker, doing the math soon adds up on the savings.

Thats why the UK spends so much on capital equipment and keeps a lower head count than our competitors.

Its all about profits and shareholders, my company is currently going thru the same evolution and im soon after Christmas going to be looking for another job.

Its about time i got out of this industry altogether, the time for retraining in another vocation is here guys!

Simon

Manufacturing in China, Revisited | 12 October, 2004

It is being done. I�ve lived and worked in 3 countries, have visited all countries in Europe, been in Asia and most of the US. Japanese are in love with robots and automation. Japan has already moved most of their manufacturing out of China, while US companies still move in. Sony demonstrated fully automatic placement and assembly lines in the 90�s for their Walkman. Feeder carts moved on tracks for auto-change-over from Walkman Sports to Walkman xxx. The lines were controlled by one operator sitting above the lines in a glass house. At any time you may visit Bosch manufacturing plants in Germany, in which one operator works on 4 lines. Boards are never been touched, when they end up in ABS or other systems. However, these operators have a high degree of technical training and do not work for \$ 10 an hour. As Fastek mentioned, SMT assembly has never been labor intensive.

Manufacturing in China, Revisited | 13 October, 2004

I think forgot one most important thing. SMT is not all. In China, after the SMT process, QC, QA, casting, packing etc. It need lots of labors. I really one worker can handle 4 lines. Nokia still have two bid factory in China, Motorola has two also. Solectron, Philips, Intel.....etc. Hundred of US factories & Japanese factory still love to invest in US. When you come, you will know why. I moved back to Hong Kong & started my own CM factory couple years ago. I can make triple than when I was made in the US.

faiton

Manufacturing in China, Revisited | 13 October, 2004

Hello! As Stefan mentioned and I agreed. I had been in Japan quite a few times to visit both equipment manufacterer and production company. Most of the work was done by robots and the operator could control from 4 lines up by himself. However, these operator is high degree technical person, not that you can call the temporary agency and ask for one. Face the fact. Regards! Fii

Manufacturing in China, Revisited | 13 October, 2004

I do know for our case...it was not just SMT manufacturing. There were many variable: 1) Part purchasing- The larger CM's would get better \$ and lead times than we could. in some case we would have to wait 4-6 months before delivery. Or we could buy right from SCI (Flex, Celestics,...) who had it on their shelves not being used. 2) It was not only SMT...final production, Test, cabling, programming, and packaging was key as well. 3) Strategic...90% of our business was repair of telecom products. Since some of the larger CM wanted additional repair capabilities we mixed business. i.e. we would get some repair business and the CM would get the Manufacturing work and both are happy. Now the CM can say we have additional repair capabilities and we could say we have enhanced manufacturing capabilties.

Cal

Manufacturing in China, Revisited | 19 October, 2004

Electronics manufacturing moving to China is not about the labor man. You all don�t get it. It�s the material, and not just the electronics material either. Plastics and metal parts costs are lower. Labor costs are the smallest component of a product�s total cost. During the APEX 04 show a study was released to show no real labor savings in China for a board that is 100% SMT, meaning machines do the work. Automation is the key. We needed to get more automated in this country! Not to mention better quality mfg. engineers. I have seen quite a brain drain here over the past few years. Added is the fact that our schools turn out more lawyers and doctors than anything. As manual assembly parts increase on the board, labor savings goes up to do it in China. Also, China put in an export duty. If a product is built in China for export to the USA, the company pays a duty on all the material procured in China, closing the gap on material costs. The Chinese government is getting a taste of tax revenue, and we all know no matter where the government exists, they all have a healthy appetite for tax revenue. Companies are looking to cost reduce because consumers in the USA want things cheap. For example DVD players did not start selling well in the USA until they were less than two hundred dollars. While in Europe and Asia they were selling well at the higher prices. The phone service companies give mobile phones away for free. Cost pressures cause these companies to move where the costs are lower or get beat by the foreign companies that have ops in Vietnam, China, Thailand, etc� Lets face it, the large fifty plus line facilities are pretty much gone in the USA for now and may never come back. Thanks in part to corporate greed and the cheap USA consumer. The markets I service in the industry are not really affected by China and I think they are representative of what the USA market is. There are small to medium sized manufacturers and had no significant loss of companies from our industry�s crash in 2000. The average companies have two to three SMT lines and are building high mix/low volume products and higher value business-to-business products, and to professional consumers, not just household consumer. These products are in high demand too, not just PCs, games, and entertainment electronics for the consumer. I�d start to worry if medical; industrial/commercial products of small qty builds go to China. I think its better to have twenty companies each with two to three lines than have one with fifty lines. I have seen a growth in electronics manufacturing in my market since 2001, in terms of number of SMT lines (and the database I inherited was tracking less lines before 2001), so its not all doom and gloom. In the aforementioned report from APEX 04 they also reported on total number of SMT lines in the USA and compared them to 1999. I�m going to try to locate that report and post the numbers. Its not all Doom and Gloom!!

KEN

Manufacturing in China, Revisited | 19 October, 2004

I feel it is less pressure from consumers and more from stock holder increased demands for dividends.

Every quaters end our publicly traded customers go bezerk on increased orders to show increased finished goods and less component inventory. All this to "cook" the balance sheet and give a favorable stock holders report. lame. just lame.

For some of the largest OEM's outsourcing in China, Tiawan, Malaysia the OEM's only pay for product that work. It is in the best interest of the CM to have a High yield. However, as we all know Technical depth is lacking in many Eastern CM's and process short-cuts are the norm. To offset the scrap cost (and low efficiencies) it is commonplace to substitute lower grade assembly materials. These savings go directly to the CM's bottom line - offseting the scrap factor. Additionally, these CM's will negotiate multi-year materials contracts for consumables like flux, paste, bar solder, nitrogen etc.

Economies of scale rule. But, I've never substituted any contractual materials or dumped hazardous waste in a hole dug in the back of the factory's lot. I may not get rich in EMS but at least I've got class.

(stupid class keeps getting in the way of wealth and world domination)

Manufacturing in China, Revisited | 20 October, 2004

It's not just pressure from stock holders (although that can't help)- component manufacturers have a lot to answer for as well. We've often been offered assembled boards of good quality for less than we can buy the materials for in europe, or seen people selling finished product at less than material prices over here.

Manufacturing in China, Revisited | 20 October, 2004

Good point Rob,

The vast majority of PC Boards and components is manufactured in China and Taiwan, so evidently they cut the middle man. The strength of any country is recourses and local manufacturing and manufacturing is fading at a fast pace in the USA. I believe the people that can do something about this will get the point when we need a large amount of F-16's in a conflict and China refuses to send us spare parts.