Estimated reading time: 11 minutes

Reading, Writing, Listening, Speaking and Analyzing Material Cost in the Global Economy, Part 1

"These are the times that try men's souls."

Thomas Paine, an 18th century activist and American founding father, reportedly wrote that two days before Christmas in 1776, and it comes from his short essay entitled, The Crisis. Distributed in pamphlet form throughout the former colonies that had recently been declared the United States of America, the war for independence was more than a year old when it was published.

This new experiment in self-government began on a field in Lexington, Massachusetts, on April 19, 1775. At that time, the idea of people governing themselves was laughable to most of the world’s population and to over one-third of the colonies in revolt.

However, a quick assessment of the condition of the country today could be summarized by the same quote, and could have been written last week. The new country was in crisis then, and I would suggest that our country is in crisis now

But, instead of shouting “the British are coming,” we should be shouting, “the Robots are coming.” The intelligent machine labor invasion will lead to societal dislocation and disruption. The chaos will result from a significant segment of the population having no saleable skills to replace the jobs that the automation has taken away. Search YouTube for “Fast Food Company Develops Robots,” to see an example.

Social unrest will ensue. The people affected will demand the government provide for them. Individual freedom and self-government will be traded-in for government welfare. Why is individual freedom important if the government gives you everything you need? The dystopia that will be created will be fought by a counter-resistance that will develop, but as said while back, “it is hard to vote against Santa Claus.”

Is technology then the enemy? Does this mean we should become like the 19th century Luddites in England who protested (and destroyed) the weaving machines that were replacing the manual labor workers of the cloth-producing industry?¹

Should we resist the use of the automated equipment that is replacing segments of the human workforce in our society—whether it is fast food production or workers on a progressive circuit board assembly slide line? In either case, it seems clear to me that this would be attacking the symptom and not the problem’s root cause.

An interesting, albeit at times a bit cringe-inducing, projection of this societal devolution is presented in the 1976 sci-fi film “Logan’s Run,” based on a 1967 novel by William Nolan and George Johnson. It’s worth the two-hour viewing investment in my opinion. Remember, sometimes it’s the thought that counts most. Actually, it’s Jefferson vs. Hamilton all over again! An individual’s value and inalienable rights vs. the government needing to control the “beast.” You choose.

The first military engagement after the publication of the independence declaration by the Second Continental Congress was the Battle of Long Island, also called the Battle of Brooklyn. General Washington and his decimated troops fled across the East River to stop the bleeding as the British pounded the rebels to the point where most believed it was over—even George Washington was in despair! The legendary escape through Manhattan, New Jersey and into Pennsylvania led to Washington’s bold surprise attack on the British (actually, Hessian mercenaries being paid to fight for the British) across the Delaware River in Trenton the day after Christmas in 1776. This was followed the next week by the Continentals’ successful battle in Princeton, New Jersey. Nine-months later, the huge American victory in the second Battle of Saratoga, New York, in early October 1777 was the war’s turning point as it gave the French (as well as Spain and the Netherlands) confidence to side with the rebels and against their perpetual enemy, England.

Jefferson believed that the ability of people to govern themselves was predicated on having an education and conducting their lives in a virtuous manner (i.e., doing the right thing when nobody is looking).

Without the population making decisions based on what was right, their government would fail.

Fast forward to the 20th century. Over the last several decades, we have had an analogous transformation from “government” rule to “individual responsibility and sovereignty” in electronic product assembly. Just substitute “company management” for “government.” How? We have gone from the post-World War II production strategy of inspecting the quality into an assembled product by effectively putting an inspector behind every operator and assembler, to building the quality into the product. We do this by developing a statistically capable assembly process and having a production infrastructure in place that helps keep the process in control.

What is that production infrastructure? It is a combination of process and quality control measures and an educated human workforce. Therein lies the rub. This combination has been for the most part reactive with “uneducated” operators and assemblers being the direct labor on the factory floor. When defects occur, a higher “level” resource, e.g., a technician or engineer is called. Usually, it’s too late and the defective product is moved to the rework operators. In-circuit test (ICT) and automated optical inspection (AOI) have become good (but expensive) tools to separate the good product we build from the defective product.

High levels of production machine data exchange that I call "Meta-Process Control," are being introduced². In many circles, this has become known as “Industry 4.0.” This is an extension of “proactive process control.” It uses big data, the Internet and machine-to-machine communications to proactively deal with material, equipment and other process variation theoretically without human intervention.

However, these complex systems require a workforce with high engineering skill levels. A workforce that not only can write code, but also understands the science involved electronic product assembly process. This will be the principal issue facing high tech manufacturing and production in the upcoming decade. So, all roads lead to education.

I submit that it’s not automation technology eliminating people’s jobs that is the root source of the social angst and unrest that is surely around the corner. Then, what is it? It’s an educational system that is not responding to the needs of the new industries that the automation technology is creating.

But, the fault does not solely reside in the secondary and post-secondary branches of the educational system. The primary (elementary) schools have allowed an erosion of the most basic skills needed for earning a living: reading, writing, speaking, and listening.

Teaching the fundamental skills needed to successfully compete both in post-secondary education (college) and the real world (industry) must be restored.

Social promotion in our primary and secondary educational system must end.

In many cases, and high-tech electronic product assembly is a good example, all roads lead to an ineffective system that is administered by an adult population that is detached from the real world. The social promotion of students and a fixation on school ratings has become a school’s objective. Success in the real world is built on a foundation of reading, writing, listening and speaking. There are high schools in Connecticut that are graduating students who read at a 5th grade level and below. And, they represent 50% of the graduating population! What chance do these young adults have in the real world?

So, what does this have to do with the cost of materials for high-tech electronic products? People generally make decisions based on self-interest. Does this mean that they are selfish and do this at the expense of the general good? It could, but it doesn’t have to. It really comes back to an issue we have discussed several times over the months in this column. Is it better to have 330 million equal pieces of the economic pie, or promote policies that increase the size of the pie? The choice is to have a population that is unequally rich, or a population that is equally poor.

In 1620, the pilgrims tried the “equal size slice” approach and failed miserably. The people of Harmony, Indiana tried to create a utopian town where people worked according to their ability and were compensated according to their need—again, failure. Today in Venezuela, a country rich in oil, people are starving to death³.

All centralized authoritarian government schemes are confronted with the same challenge: trying to force all public policy through a narrow government funnel. History proves it never ends well. Never! The excuse always is that “centrally controlled economies will work and that failed attempts in the past are due to the leaders not knowing the best way to do it—we know the way!” They always lead to tyranny, corruption and public misery.

As we mentioned in our last column, there are four elements that need to be addressed when trying to compete against product assembly in low labor rate environments⁴:

High assembly yield loss causing labor costs in high labor rate operations to balloon due to expensive rework. (Not an issue in low labor rate regions where rework labor costs can diminish the effect of poor process development and control.)

High indirect and general and administrative labor costs that must be absorbed and greatly inflate the labor sell rate.

Material cost differences—a potentially big issue. This is especially true for Tier 3, 4 and 5 operations that don’t have facilities in low labor rate locations with a central procurement activity to leverage volume production and local favorable material pricing.

Government policy such as corporate tax, tariffs and regulation that affects the cost of doing business.

The first two are controllable. The second two are thought to be uncontrollable. But, are they really? How would we eliminate the disparity between component pricing when buying material for assembly in the Pacific Rim versus buying the same material for product production in Paramus, New Jersey? Make no mistake unless you are a Tier 1 or 2 product assembler with a global procurement group that serves multiple sites including ones in low labor rate regions, there are significantly higher prices when buying material for assembly in high labor rate markets like the U.S. Why? A paper was written addressing this in 2010⁵.

There are two strategies to combat this inequity. The “unthinkable” approach is to competitively produce 0402 (English)/0201 (Metric) resistors, micro BGAs, bare circuit boards, et al., here in the States? Is it unthinkable? Why? We’ll drill down into this fantasy next month.

The other approach is to demand our government, you remember the one that is supposed to do the will of the people and who, based on the Constitution create that “level playing field” we are always hearing about, use their international leverage. You know, the one that is by and for the people, the one that the people give up some of their inalienable freedom in the form of very limited government power. There isn’t a good reason small- and medium-sized high labor rate assemblers should have to pay 10%, 20%, 30% or more when assembling in a high labor rate environment. Don’t try and use the “shipping cost” excuse—it’s negligible. Read the paper and inform me. I would appreciate being straightened out on this.

Until this is reconciled, getting the labor part of the cost worked out is like spitting into the wind, or like shoveling sand into the ocean. Or as George Carlin, also known as Al Sleet the hippy-dippy weatherman, would say, “RADAR has picked up a line of showers…but, the RADAR has also picked up a squadron of Russian ICBMs... So, I wouldn't sweat the thunder storms.”

How do we get our government to challenge the manipulation of material cost? One way, is to organize and lobby. Perhaps the Electronic Industry Alliance (EIA) would have been a good vehicle to act in behalf of electronic product assemblers. However, they dissolved and ceased operations in 2011. The ECA (Electronic Components Association) was designated to carry on passive standards development. They merged with NEDA (National Electronics Distributors Association) to form ECIA (Electronics Components Industry Association). Of course, JEDEC (Joint Electron Device Engineering Council) handles standards for active electronic components. All of these are technical standards-based organizations and not really involved in business issues. Maybe IPC, who was heavily involved in the lead-free debate, is the best hope. Or maybe a new lobbying organization needs to be formed. This is not a simple task as subjects like currency manipulation play a role in global material pricing.

Intelligent individuals are needed whose abilities are built upon strong reading, writing, speaking and listening skills! Do you know any?

At least that’s what I think. Hey, what do YOU say? I’d like to hear your thoughts and opinions.

References

1. K. Sale, “Rebels Against The Future—The Luddites and their War on the Industrial Revolution: Lessons For The Computer Age,” Addison-Wesley, 1995.

2. T. Borkes, L. Groves, “Reducing Labor Content as a Strategy to Improve Competitiveness: An Analysis that Addresses the Value of Designing for Automation and an Empirical Analysis that Exploits the Automation using Meta Process Control,” SMTA International Conference Proceedings, Chicago, Illinois, September 30, 2015.

3. O. Hernandez, M. Castillo and D. Bloom, “Venezuelan food crisis reflected in skipped meals and weight loss,” CNN, February 21, 2017.

4. T. Borkes, “Toward a New Organizational Model that Embodies Logic, Cost-Effectiveness and Customer Service, Part 4 (Conclusion),” SMT Magazine, March 2017.

5. T. Borkes, “Electronic Product Assembly in the Global Marketplace: The Material Piece of the Competitive Puzzle,” SMTA International Conference Proceedings, Orlando, Fl., October 2010.

This article was originally published in the June 2017 issue of SMT Magazine.