Pan Pacific Symposium Conference Proceedings

Electronic Product Assembly in High Labor Rate Markets - A Case Study in Exploiting the Counterweight to Low Labor Rate Competition: Automation

Author: Tom Borkes
Company: The Jefferson Project
Date Published: 2/11/2014   Conference: Pan Pacific Symposium

Abstract: At the conclusion of the 18th century, Thomas Jefferson contributed to the advancement of his first love, farming. He did this by designing a plow with a moldboard that optimized the plow's ability to help prepare the land for planting. His "mouldboard of least resistance" greatly reduced the energy needed to cut through, turn and displace the surface sod and soil to form a planting furrow. (Note: "mouldboard" and "plough" are British English spellings)

In both horse and human terms, Mr. Jefferson's invention significantly increased the productivity of those involved in the process of furrow or trench production - and, significant to this paper, the reduced cost associated with the increase in productivity was NOT achieved by finding a source of cheaper labor. At the time farmers in the South already had a source of cheap labor: a plantation's slave population. Primarily this group, along with several hired slave and free field laborers and overseers, combined to form the plantation's agricultural workforce. Guiding a horse-drawn plow was among the tasks associated with preparing, maintaining and harvesting the land to produce the farm’s crop output. Annual output, however, was a function of planting cycles. With fixed resources and 5,000 acres to farm, Jefferson had a compelling interest to get the crop in as quickly as possible using the least amount of plantation resources. This would help produce the highest output per acre at the lowest possible cost.

Here in the 21st century, electronic product assemblers in high labor rate areas, whether they are original product developers (OPDs) or electronic manufacturing service (EMS) providers, continue to conclude that they cannot compete with operations in low labor rate regions of the world. These companies basically have the same objective as Jefferson: to produce the highest output at the lowest possible cost. They attempt to do this, primarily, by searching globally for the lowest labor rates to minimize cost. The harder way to reduce labor cost is to reduce labor content. This is what Mr. Jefferson's "mouldboard of least resistance" did. When attached to a plow it permitted the land to be prepared in less time with less resources - it reduced labor cost by reducing labor content, not labor rate.

This paper documents a real world project conducted to reduce the labor content of assembling an electronic product. In the project the OPD, who also does all the product assembly, tuning and test, is located in a high labor rate environment. Applying the latest available average loaded labor rates in high (US) and low (China) regions, the labor cost reduction realized by automating the assembly of two traditionally hand-soldered components resulted in a cost that is 6% less per circuit board (70% less than hand soldering in the U.S.)

The paper then conducts a return-on-capital investment (ROI) analysis to put the cost saving in a production volume payback context. This case study revealed a ROI of 2.67 months to generate enough cost savings to pay back the capital investment. Other factors such as process capability, control, variation and in-process yield are addressed as they apply to the assembly options for the components that were studied. In addition, softer, more difficult to measure process results, such how the automated process assembly affects fielded product quality and reliability, are discussed.

Finally, the labor cost reduction achieved by automating this portion of the product’s assembly is addressed as a part of a much larger new paradigm-breaking general production model for high labor rate geographic regions. For example, it is observed that reducing labor content works at cross purposes with overhead-burdened operations that rely on direct labor hours to absorb those overhead costs. How does a high labor rate manufacturer reduce product assembly direct labor hours and reconcile all the indirect and overhead costs that need to be absorbed. The solution: drastically cut the indirect and overhead costs.

Key Words: 

U.S. competitiveness, offshore manufacturing, Concurrent Education, electronic components

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