New CEO Mitchell Breathing Life in IPC

The early feedback is that new IPC CEO John Mitchell has brought a much-needed breath of fresh air to an organization that had lost its drive and character after 11 years under the previous regime.

Among the early changes include a recognition that IPC has become out of touch with many segments of its membership. Designers were so disenchanted, a group of the Designers Council leaders were preparing to bolt the organization altogether. Fabricators’ antipathy toward IPC is well-documented and may even run deeper, as many smaller and private shops have long since labeled IPC as disinterested in their concerns. Even some assembly equipment suppliers have shared concerns over the standards process and perceived biases toward certain groups.

Much of that is turning around under Mitchell. He has moved quickly to make the rounds of various constituents, and in a departure from his predecessor, has not relied on staff to vet member opinions. He has begun to shed some of the entrenched “lifers” who had alienated too much of the membership to continue in their roles. And he has made clear, according to sources, that the staff focus going forward needs to be on the members, which is a long overdue switch from a decade of “Is It Good for the IPC?”*

Further, he is repositioning the organization to better reflect the way the industry is structured. One new division is simply called Member Success, which he describes as a group of functions (membership, member support, events and industry councils and market research) “focused on helping our members be more successful and taking an active role in helping them more fully benefit from their IPC membership.” Most of these areas had grown stagnant to the point of calcification. One of the problems many had identified with IPC is that it existed as much (or more) to ensure its own success but had lost its vision on how to improve members’ profitability. Recognizing that the onus needs to be on IPC to help its members (and not the other way around) is a long overdue and welcome shot in the arm.

Dave Torp, whom many feel is a talented but marginalized asset, is now clearly in charge of the technology and training programs, a role where his background in engineering at Rockwell Collins and sales and marketing at Kester will truly help him excel.

There is a renewed interest in Public Policy, which will in the future coordinate with Brussels and Beijing (and perhaps other key spots). IPC plans hire a new vice president for this space, a sign that it needs fresh input and energy if it plans on making a difference with the legislative branch.

Mitchell seems highly motivated to invest in IPC’s international operations, a space where the trade group’s board had been critical of the previous president for moving at a glacial pace. To that end, IPC is casting about for a president of its China organization, a smart move and a tacit nod that in Asia, titles mean something, and the approach of using a middle manager with no real authority was not working. It says here that if vice president Dave Bergman stays on, he should move to Shanghai, where his experience at IPC (30 years) could better be put to use.

One very smart move was to create a Special Projects function, which allows IPC to look at new or short-term initiatives without distracting staff from the core functions.” We see this as wise because new projects often either sap all the attention and resources from important but functioning efforts, thus potentially leaving those programs to wither, or vice versa, attending to existing programs can act as a excuse for letting new efforts simply dangle. Mitchell has brought on a former colleague named Ed Trackman to run this area.

IPC holds a critical place in the electronics supply chain, but that spot had slowly been eroding over the years. It’s early, and the proof will be in the results, but based on several conversations with IPC members who are much happier today than I’ve seen them in years, Mitchell appears the right person for the job.

*With apologies to Office Space.

3 Thoughts on Foxconn

A few thoughts on Foxconn in the wake of last night’s Fair Labor Association report:

1. Not that Mike Daisey feels much better today, but the excessive overtime was clearly way out of whack with Chinese law.

2. The FLA head was very clear in stating that Foxconn’s assembly lines are on par with any in the world. We knew that. There’s only so many placement machines and screen printers out there. Don’t let that obscure the larger picture, which was the dehumanization of employees. One quote that jumps out: “We’ve got to make sure people can opt out and if they do feel that they’ve suffered any kind of incriminations as a result, that they can complain, and that complaint will be handled fairly.”

3. The Electronic Industry Citizenship Coalition, which supposedly sets standards on how electronics OEMs should behave, has been fully exposed as being nothing more than a PR front.

Finally, you should read this piece from the Silicon Valley Mercury News that explains what the FLA is — including the main source of its funding.

 

How Much Would You Pay?

Would you be willing to pay for more “fair-trade” electronics?

The host of This American Life, a public radio show based in Chicago, revives that debate in a recent segment on Mike Daisey —  the author of The Agony and Ecstasy of Steve Jobs  and his visit to Shenzhen (so polluted, it looks like “Bladerunner threw up on itself”).

The issue over China’s labor practices, the show finds, boils down to that question.

 

GKG: Westward Ho?

Southeast Asian assembly process equipment companies have approached Western markets in fits and starts.

A few have made inroads: From time to time, we have seen JT and Fulongwin soldering equipment at US plants, usually smaller ones (Flextronics is an exception) and often on the US West Coast. But while we’ve been reporting for more than a decade on the availability of literally scores of Chinese-made brands, some of which are very popular in Taiwan and China, it’s still highly unusual to see any make it across the ocean.

Many have been stymied by patent issues that effectively have blocked them specifically from the US and European markets. Another problem is finding good channel partners. From time to time, firms ranging from independent reps like FHP Reps and Bill West to solder paste vendors like Qualitek have tried, with limited success. Service and access to spare parts have been limiting factors.

That’s what makes Friday’s announcement from GKG so interesting. GKG has named Juki as exclusive distributor of its screen printers in the Americas. Known primarily for its placement equipment, Juki has been inching toward a full-line offering for the past couple years, having begun distributing Intertec’s selective soldering equipment in 2009.

For years, DEK and Speedline have dominated the Western printer markets, with Asys/Ekra in third with an estimated 10% share. Juki’s track record and never-say-die approach to selling makes it a formidable competitor. However, Juki has many of the same distributors as Speedline, and it is unclear that they will give up the latter for a new player.

But the real prize may be the emerging South America market. As Juki CEO Bob Black told us, “In Latin America, out major competitors are offering complete lines. To be competitive, we need to do the same.” And Juki has the breadth and depth in its service department that many standalone reps have not.

Keep an eye on this.

No Counterfeits, No Excuses

In a move that already is causing no small degree of consternation, President Obama last Saturday signed a new law that places the onus squarely on the Pentagon’s supply chain for ensuring all electronics components in all defense products are legitimate.

The bill, part of the 2012 National Defense Authorization Act, requires that the Department of Defense, the Department of Homeland Security and their contractors  “detect and avoid counterfeit parts in the military supply chain.”

Counterfeits have been a known problem for years. (CIRCUITS ASSEMBLY has been warning of the issue at least since I came aboard in 2005.) I was personally told by a QA manager at one prime contractor that no less than a fourth of all the parts in some of its systems were suspected to be faked or otherwise out of compliance. And workshop after workshop told the tale of rivers of parts being shipped as e-waste to China, primarily the Shenzhen area, where they were separated and stripped from circuit boards, cleaned (usually in polluted water), sanded and remarked, and then resold into the supply chain. In a keynote at SMTAI in 2010, Tom Sharpe of independent distributor SMT Corp. noted some 29,000 incidents of counterfeits were reported to the US Department of Commerce between 2005 and 2008.

But the turning point, according to some analysts, was a Nov. 8 Senate Armed Services Committee hearing at which Congress heard compelling testimony on the sheer volume of fakes in the US military supply chain, including the results of a Government Accounting Office sting operation targeting electronics parts counterfeiters.

The evidence spurred Committee Chairman Carl Levin (D-MI) and Sen. John McCain (R-AZ) to lead a bipartisan effort to act. The result: legislation that establishes a program of enhanced inspection of electronic parts imported from any country determined by the Secretary of Defense to be a “significant source of counterfeit parts” in the DoD supply chain. The bill further requires defense contractors to establish policies and procedures to eliminate counterfeit electronic parts from their supply chains, and for the DoD to adopt policies and procedures for detecting and avoiding counterfeit parts in its own direct purchases.

Most important, the new law states those contractors that fail to detect and avoid counterfeits, or fail to exercise adequate due diligence, can be debarred. Furthermore, contractors can no longer charge the DoD for rework or related costs to remove and replace counterfeit parts, and they are held liable for any remedies required, regardless of where the counterfeit entered the supply chain.  The law affects all contractors at all tiers and is not limited to direct acquisition of parts. In other words, an EMS firm would be responsible for the counterfeit solder mask (yes, that happens) on a PCB it sourced from a fabricator in Asia (yes, that happens too).

Counterfeiting runs the gamut from the mundane to the highly sophisticated. In some cases, the trickery is performed by crude remarking and easily caught by a diligent inspector with an eye loupe. But at the upper end, it has evolved into a wholly systemic problem; again, we have been reporting on the “fourth shift” at various semiconductor factories, where workers build parts using legitimate materials and lines, but those parts are not subject to rigorous inspection and are sold “out the back” to unscrupulous third parties. In one egregious episode, VisionTech Components administrator Stephanie McCloskey was sentenced to prison and her boss, Shannon Wren, died of a drug overdose after facing similar charges for duping the US government in a long-running scam.

There is no question the supply chain has found counterfeit detection and prevention an expensive and difficult undertaking. XRF, chemical or laser etching and DNA marking are three of the more sophisticated means, although each adds time and cost to traditional inspection methods.

But the problem is too pervasive, and the risks too great, to whine about the costs. Counterfeiting has gotten completely out of hand. For those reasons, we welcome the bill and its well-conceived structure that puts the onus not on the taxpayer (via pass-along costs) but on the supplier, where it belongs. If this means contractors will have to start relying more on known-good suppliers, well, that’s not a bad thing either. I’ve seen far too many instances of high-level buyers at OEMs and EMS companies searching for parts on LinkedIn to be confident that the auditing many claim to have in place is being taken seriously.

Cost Breakdowns Break Down

While I’m at it, here’s an interesting blog item deconstructing the cost savings Apple achieves by manufacturing in China.

(Hint: It’s not as great as you’d think.)

The Chinese Diaspora

In what might be the most fascinating labor development to come out of China this year, major ODMs are relocating workers west due to labor shortages.

One major reason companies in Shenzhen packed up their factories and moved inland (with the government’s blessing) was to chase a larger supply of lower-cost workers. Shenzhen had become too expensive, and migrants from the western farms were no longer so eager to move to the Southeast coast to take jobs. The diaspora was supposed to resolve both

But today the news out of China is much different. Quanta Computer and Compal Electronics reportedly have moved employees from east to west to support factories in Chongqing City, a municipality with a population of more than 28 million (!), due to short labor supplies.

Even in a country of 1.3 billion people, cheap, effective workers apparently are hard to come by.

The Chinese Diaspora

In what might be the most fascinating labor development to come out of China this year, major ODMs are relocating workers west due to labor shortages.

One major reason companies in Shenzhen packed up their factories and moved inland (with the government’s blessing) was to chase a larger supply of lower-cost workers. Shenzhen had become too expensive, and migrants from the western farms were no longer so eager to move to the Southeast coast to take jobs. The diaspora was supposed to resolve both

But today the news out of China is much different. Quanta Computer and Compal Electronics reportedly have moved employees from east to west to support factories in Chongqing City, a municipality with a population of more than 28 million (!), due to short labor supplies.

Even in a country of 1.3 billion people, cheap, effective workers apparently are hard to come by.

Boston Bulls

To the list of those bullish on the prospects for US manufacturing, add the Boston Consulting Group.

The consultancy group has issued a report that, in essence, gives China about five years before the gap between the two nations is closed.

The report contains few surprises. BCG points to steady increases in China’s wage rates and logistical costs, coupled with higher productivity in the US, as reasons for its optimism. Automation in China will have a deleterious affect on manufacturing there, as it will further reduce any labor rate advantage.

Moreover, any shift to other lower-cost nations such as Vietnam or Brmitl will be mitigated in part by those nations’ weaker infrastructures.

Pointing to past successes in fending off Taiwan and Japan, BCG says that US manufacturing sector in well into a period of adjustment and retrenchment, and “conditions are coalescing” for another American factory resurgence.

Worth a read.

Researchers’ Take on Trade Wars Hard to Swallow

A group of researchers are asserting that onshoring low-cost manufactured goods back from China would not solve the US’s current economic woes.

The cost of an Apple iPad, they point out, includes about $10 for the workers who assemble it (and that may actually be high, from what I’ve heard). Meanwhile, each device sold helps maintain thousands of higher-paying design, software, management and marketing jobs.

OK, that’s all believable. But it’s the next part is harder to stomach. “Without China, Apple couldn’t be so successful and Apple products wouldn’t be so affordable,” said Yao Shujie, professor of economics at the University of Nottingham in England.

Not so fast. Apple’s margins are by far the highest in the industry. With lower margins, Apple might not be so profitable, but the affordability (an Apple comes at a premium for no other reason than consumers are willing to pay it) is a whole different bag of potatoes. Apple could pay a significantly higher price for onshore EMS work, yet given the fairly low labor content of an electronics assembly, could do so with no effect to the end-product price.

And it says here, those design, software, management and marketing jobs would exist regardless of where the product is manufactured.

Furthermore, the researchers extrapolate from this the idea that the effects a big change in the price of the yuan would have on US manufacturing would be fairly limited in scope. “Multinational firms that think currency appreciation is going to have a big effect on their export capacity from China to the United States are going to shift to other countries, not to the United States,” one researcher said.

Good point. But I would counter that the monies pouring from US consumers into Chinese hands serve to boost the latter’s national coffers, from which its military is deriving great benefit. Cuts in purchases of Chinese-made goods would help reduce China’s ability to assert itself militarily around the world. That would be a positive, too.

Should the US wean itself from its Chinese teat, the benefits would be seen in multiple, if somewhat less obvious, ways.