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Cost vs. Cause: What is More Critical to EMS Profitability?
May 9, 2016 | Mitch Holtzer, AlphaEstimated reading time: 1 minute
Solder paste printing process capability is critical to EMS profitability. In more than 20 years, no one has ever been able to make me believe this hypothesis is untrue.
The reality of the market is that each major global EMS will ask solder paste manufacturers to reduce price, rather than improving first pass yield. The economics of this market trend are unsustainable. Solder paste is already the lowest cost item on every electronic assembly bill of materials, but can have the most impact of any material used in the surface mount technology process.
Numerous EMS and OEM firms have driven their companies to oblivion by determining that the unit cost of the least expensive material on their consumable list was the best choice. Looking at a list of well known, global companies who no longer assemble electronics confirms this point. Cheap solder paste has never been a driver for success. Let me show you why.
First-pass yield, determined by the number of circuits successfully produced per attempt, without requiring wasteful re-work, is a critical milestone. Profitability is the difference between revenue and the sum of fixed and variable costs. If you have $750,000 in fixed assets (a printer, an SPI device, two or three chip shooters and a reflow oven) per SMT process line, and a rapid depreciation schedule (five years), your fixed costs would be $150,000/year.
Next, you should factor in costs for manufacturing space. Let’s assume a low-cost location of 1,000 square feet and use a conservative estimate of $1/ft² of floor space. Manufacturing overhead is a common term for the labor required to manufacture assemblies. This is a more difficult cost to estimate, as different companies have varying head count per SMT line and wage rates determined by the local market.
Each of these fixed costs needs to be amortized over the number of good assemblies produced. Because there are so many variables in the fixed cost allocation, I won’t attempt to quantify them in general, but they must be considered as a significant part of the total cost of manufacturing.
Editor's Note: This article originally appeared in the April 2016 issue of SMT Magazine.
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