SMTA International Conference Proceedings


Author: Tom Borkes
Company: The Jefferson Project
Date Published: 10/24/2010   Conference: SMTA International

Abstract: In 2008, a paper was written to address the labor cost disparity between producing electronic products (i.e., those with highly automatable assembly) in high and low global manufacturing labor rate regions [1]. The paper concluded that implementing a new high labor rate operational and organizational model, replacing the one that has been traditionally used, could result in offsetting the cost advantage that a low labor rate assembly model naturally affords. This new, high labor rate model is competitive because, instead of fixating on the lowest labor hour rate, it significantly reduces labor cost through focusing on minimizing labor hour content by exploiting the available automation. In addition, factory indirect costs and overhead are minimized by dismantling the traditional hierarchal organizational structure and replacing it with one that best serves building products in an automated environment. This paper addresses a second assembly cost consideration in competitive electronic product manufacturing – material cost. The paper concludes that any significant price differential between the cost of purchasing the same electronic components in high and low labor rate product assembly global regions is artificial. In other words, any relative pricing differences are not justified by the actual cost to manufacture and deliver the components to the assembly factories different labor rate areas. In a similar sense to the unjustified difference in the price of purchasing the same piece of automation equipment in high and low labor rate markets (an historic anomaly that has never been adequately justified in terms of cost), this paper concludes that relative electronic component pricing is determined primarily by what the local market will bear (read: is willing to pay), at best, and by political reasons, at worst. This has contributed to the exodus of electronic product manufacturing to low labor rate regions as much as, or more than, the well-publicized labor rate disparity. In applying higher profit margins (under the guise of higher prices because of incurring higher costs e.g., overhead, shipping). In some cases, material manufacturers and distributors have charged a 20-50% premium in high labor rate regions. These material cost differences can exacerbate labor cost differences, contributing to the allure of low labor rate electronic product manufacturing. Government protectionist policies, currency exchange rates and other non-labor or material related cost considerations while referred to, will be addressed in detail in the final paper in this series. Finally, the paper recommends that material procurers in high labor rate environments insist on equitable treatment – i.e., offered material pricing with the same cost markups, or be given a valid reason why they must pay a premium.

Key words: U.S. competitiveness, offshore manufacturing, Concurrent Education, electronic components

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