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EMS Contracts in the U.S.: Focused Equipment Strategies for Jobs and Profits
December 31, 1969 |Estimated reading time: 9 minutes
By Greg Biesiadecki, Alpha Electronics International Inc.
U.S.-based EMS providers can win back OEM business from overseas with higher quality and lower costs. Automated manufacturing and inspection equipment, along with a solid OEM relationship strategy, can bring business to U.S. firms.
Understanding Foreign vs. U.S. OutsourcingWhile it may seem attractive, international outsourcing includes many negative factors that OEMs rarely take into consideration, such as the cost of incoming freight, component sourcing, returned goods, consigned parts freight in and out, time difference, kickbacks, and theft.
Considering these issues, it is feasible for U.S.-based EMS companies to grab back a substantial piece of the available OEM business, if they are willing to do what is needed to prove that using their services is more cost effective and will deliver higher-quality end products than outsourcing overseas.
To stay competitive, service companies can't simply rest on the fact that using their facility will immediately eliminate many externally added costs. They have to offer the best in price and delivery speed with higher quality.
The Right EquipmentTo compete, manufacturing equipment must reduce labor rates and produce exceptional quality. This can be done by automating as much as possible. To create an equipment set, consider the OEM market you are serving. The goal is to create a synergistic manufacturing line that can compete with any international EMS provider, producing cost savings that are substantial enough to keep the work at home. While major equipment is the first consideration, such as pick-and-place, screen printing, wave solder and reflow ovens, there are many in-between steps that can be automated that will greatly increase productivity, reduce rework, cut labor cost, and enhance product quality.
Figure 2. A well-outfitted AOI system can also reduce labor by 66% to 75%.
Quality inspection. If equipment is a poor fit, or if an EMS company is still doing inspection manually or in a semi-automated fashion, it creates a costly bottleneck. Automated optical inspection (AOI) equipment identifies defects and provides the means to correct the process at the root source. A well-fitted AOI system can also reduce labor by 66% to 75%.
Manual soldering. Today, mixed-technology and multi-level board assemblies are common. When boards require through-hole devices that can not be handled through basic wave soldering, it becomes manual. This is detrimental to product quality and adds costly labor. Adding SMEMA-compatible in-line selective soldering to production lines can reduce rework, scrap, and labor by up to 60%.
Equipment SelectionLooking across all capital equipment, the main question to ask is, "What do I need the most?" It is important to have a rating system. For a true comparison, look beyond just the capabilities of a machine. How easy is it to maintain? How easy is it to program? Does it have outside programming? Can you program off-line? Is it readily available to upgrade? Is it going to be obsolete in five years?
The rating must be completely honest. Decisions must be based on what is most important to the line and which equipment delivers the most benefits, even though it may not rank at the top in every category. There will always be a tradeoffs; the goal is to make the very best tradeoffs. Through evaluation, the lowest cost of ownership (COO) for the best value will become apparent.
For example, Alpha Electronics made these choices with the AOI and selective soldering systems, with a positive impact on the facility's effectiveness.Because of growing production volume, manual inspection was difficult. It was imperative to check for part identification shorts, missing parts, tombstones, improper solder, improper component placement, polarity issues, insufficient solder, solder balls, bent leads, and all other forms of component assembly defects. AOI was the only answer.
The company spent months evaluating systems to determine which would give the best inspection capabilities at the lowest COO. Alpha's specific needs included user friendliness for all operators, inspection on all four sides of the assembly as well as the top-down view, and cost. A Mirtec AOI system was selected because the system software incorporated an automatic teaching tool and library, making it easy for all operators to learn and use. The system's five cameras provided the capability of looking at all four sides of any assembly and also from the top down. Background lighting could be easily changed using the high-intensity, three-layer LED lighting system, allowing more views while inspecting.
While the system was available in various models, a portable model was purchased because it proved to be the best fit for lowest cost of ownership. The off-line teaching software and remote-repair umbilical to a network server were plus features. Once in place, this system indicated all defects on a consistent basis, allowing Alpha to continually tighten up processes so defects would not re-occur.
To become more competitive with overseas contract companies, reducing hand soldering was essential. Many new double-sided assemblies can't run through the wave process even when using selective solder pallets, as the risk of losing or damaging components is too great.
To fill this gap between wave and manual processing, Alpha evaluated several automated selective soldering systems. The system they selected from RPS Automation was not the least expensive, when noting the cost of key add-on features that would be needed to produce the best end product; however, it offered the best solution.
Machine maintenance was also a key cost consideration when evaluating 5- or 10-year depreciation. In this area, the system ranked very high. It also provided a range of flexibility to accommodate point-to-point soldering, drag solder, and a mini wave if needed. It rated outstanding for ease of programming and required the least time in training.
The selective soldering system applies a very consistent solder connection, even into very tight and deep areas without the risk of damaging nearby SMDs. It gives consistent heat, dwell, and solder with 100% consistency. Automating selective soldering replaced three operators doing manual soldering.
AOI and selective soldering systems are examples of often-overlooked equipment areas that, once optimized, enabled better service to customers by eliminating some aspect of manual or semi-automated processes.
U.S. Assembly: The Strategy It takes dedication on the part of any U.S.-based EMS company to bring an OEM customer back to this region. Some aspects can be prepared in advance because they generally fit all arguments. But, to be specific to an individual OEM who has already "paddled the pond" takes a more detailed effort.
What are the OEM's expectations regarding the board and components? For example, are all the components sourced in China? Do the homework and see if there are good China sources. If not, get stateside suppliers to take a closer look at their profit structure. This may mean sharing more information with suppliers than is normal, but the payoff is finalizing the sale and bringing the job to your on-shore facility. A smaller percent of something is better than a larger percent of nothing.
Arrangements must be set up with suppliers for better pricing on a customer-by-customer basis before attention moves to freight and duties. It has been Alpha's experience that this may be where stateside saves the most dollars for any customer. On average, OEMs pay approximately 510% per part for incoming freight and duties. If a proprietary part, it can be higher.
Get the HS tariff classification number that the customer is currently using to bring in finished goods. If the customer does not want to share that information, it can be found generically on the internet. Armed with the code and the approximate weight of the items shipping, call the necessary agency and get the approximate cost for duties charged for incoming freight.
Determine how defective material and returns are handled. Is there a "Letter of Credit" required? If so, that is tied up cash. All returns, defective material, and engineering changes also tie up cash.
What about defective assembly? Who is going to fix defects and what is the cost?Most orders to Asia are blanket orders. What if the OEM has a slow down? Or the opposite, there is a spike in business, and parts are required faster. Again, both costly possibilities when manufacturing is outsourced offshore.
Once all information is in place, the EMS provider needs to set up a full meeting with the client: CEO/president, engineering, accounting, quality, and purchasing. This is essential. When the OEM decided to go offshore, it was not determined by purchasing alone. The same people from that initial decision-making meeting need to be shown how a U.S. EMS company can truly compete with offshore pricing and increase product quality.
With proper equipment selection to streamline a lean facility and ensure high product quality, any U.S. EMS company armed with the proper cost comparison data can compete, proving that they can remove much of the costly risk in dealing with international outsourcing. When U.S.-based EMS companies get OEMs to understand the true added value of keeping work stateside, there will be a lot of work coming back to North America.
Creating an Equipment Evaluation SpreadsheetEach section is rated from 1 to 5 with 1 being the best and 5 the worst. Enter total of ratings into final rating. To get highly critical, use a 1 to 10 scale.
Suggested columns to place in any standard spreadsheet format/program:
- • Equipment Manufacturers• Original Cost to Purchase• Additional Costs for Added Features• Warrantee• Service• Local Representation • IPC part placement / Speed/ other operational considerations, etc.• Training• Software• Maintenance• Upgradeability• Trade-in Value (if any)• Company Durability/Stability (will they be here in 5 years?)• Final Rating• Comments and Concerns
There should be column large enough to put in more than a sentence for comments. However, if there are too many comments and concerns, that might be a red flag that this might not be the right equipment to help meet your goal. Go back and review your point ratings and you may see clearly why there are too many comments and/or concerns.
Attach all supporting documentation to the back. Depending on your specific target market, there may be special issues to address in this criteria lineup. This could include special certifications needed on equipment for medical, food, or other unique areas or custom automation that may be required for markets needing complete e-pedigrees on all products. Basically, this is just a matter of adding any special equipment criteria to the basic list to be able to give everything a good side-by-side comparison across all columns.
Greg Biesiadecki, VP of sales and marketing, Alpha Electronics International Inc., 767 Edgewood, Wood Dale, IL 60191, may be contacted at (630) 238-1000 x 126; greg@4alpha.com; www.4alpha.com.
Related Articles:PCB Fab in a RecessionPratish Patel, EI, discusses how board fabricators in the U.S. can use modern communications and lean practices to remain competitive with low-cost suppliers.
Low-volume/High-mix: EMS Jobs in North America John Buckley, Zurvahn, describes the balance of development in North America and volume production available in low-labor-cost regions required by OEMs. Lower inventory requirements and time-to-market priorities also come into play.