Circuits Assembly Online Magazine - When to Outsource Rework

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Breaking down the cost and quality decisions.

One compelling argument for outsourcing the rework and repair of printed circuit boards is that it permits the assembler to focus on its core competencies. While the cost savings, given the right circumstances, are compelling, OEMs and EMS providers want assurances that quality levels are maintained. By ensuring quality systems are in place, the right equipment is utilized and inspection criteria are spelled out ahead of time, the outsourcing provider can ensure quality rework and repair operations.

Several factors need to be considered as part of PCB rework and repair costs. These include the labor rate of the rework technician performing the operations, training materials, consumable materials and the equipment needed.

Hourly labor costs for technicians performing rework operations drive a significant portion of the marginal costs of rework. The mean salary of Electronic Equipment Assemblers in the U.S. is $13.29 as reported in the 2003-04 U.S. Department of Labor statistics. The national average for the overhead burden that needs to be added for this hourly rate is 42% for manufacturers with less than 500 employees. This consists of voluntary (e.g., medical, dental and life insurance, etc.) and involuntary (e.g., Social Security, unemployment insurance, etc.) costs. Direct labor plus overhead represents approximately 70% of the total hourly cost for hand soldering technicians on an hourly basis.¹

In addition to direct costs, numerous indirect costs are associated with having a skilled soldering technician on hand, including ongoing training and supervisory costs. Technicians responsible for the rework process have a real cost of training associated with their expertise and accreditation. Costs associated with training include the fully loaded cost of the trainer spread over the number of associates being trained, the “lost” pay linked to the time when the associate was not providing manufacturing support, the equipment used for training purposes and training space costs. By plugging in the trainer’s base salary, the number of employees they train, training frequency, floor space costs dedicated toward training and the training equipment into the cost model (using average values of a Midwest-based EMS provider with annual revenues of $20 to $30 million), training expenses add another $5.47 per hour to the total effective soldering tech hourly wage (Table 1).

Table 1

Supervisory labor is also a part of the rework technician’s indirect labor costs. Whether a dedicated supervisor responsible only for rework, a floor supervisor who spends only some time in the area or a process engineer supervising temporary help for a given rework job, supervision of personnel is part of the effective cost of rework. Even when temporary associates are brought in for larger rework projects, the cost of their supervision needs to be considered. In the cost model established for this discussion, the supervisor’s salary adds another 10% to the cost of the rework technician’s effective hourly wages.¹

The costs to outfit and maintain a rework area are part of the cost associated with operating an internal rework operation. The major capital equipment required for reworking PCBs includes handsoldering and rework stations, area array rework systems, solder fountains, x-ray, stereo microscopes, CCD imaging systems and endoscopes. In addition to equipment costs, solder, flux, tools, trace and pad repair frames are part of the ongoing consumable costs. Floor space costs to house a dedicated rework area need to be taken into account. The time associated with engineering the given rework process is another element of equipment cost. Testing the reliability of the rework, documenting the rework procedure and adjusting the in-circuit or functional testers are some of the tasks that contribute to these costs. Additional engineering time is required to troubleshoot and maintain the equipment, train the staff and specify supplies for the rework area. The cost model indicates that this time adds another $7.26 per hour to the effective hourly wage rate.¹

Rework yield and the associated cost of the board assembly is the major cost driver associated with reworking an assembly. Internal studies of larger OEMs and contract manufacturers² show rework yields in the 92-96% range. This relatively lower yield compared with the original automated assembly process is incumbent on the skill and experience level of operators, the tools used by rework technicians and process developed by process engineering personnel. The total per-component rework cost depends on how far down it is in the process stream, the PCB assembly cost and this yield.³

To see how this cost model plays out, the replacement of a 0.015" pitch, 44-pin PLCC will be used. An average operator should be able to remove and replace this device within 12.5 minutes.⁴ If the operator yields 95% in the rework operation when working on a PCB with a costed BoM value of $200 (assuming a 150-board rework job is at hand), the cost per component for rework is $16.89 (Table 2).

As illustrated, the major cost drivers in this cost model include the cost of the rework technician’s time, the skill level of the rework technician in terms of their throughput and yield (i.e., fast and accurate) and the complexity of the assembly.

When does it make sense to use an outside contract services provider for rework and repair services? When the PCB rework or repair operation is beyond the skill level of the rework technicians, a company specializing in such work should be engaged. Examples include the modification of traces in buried layers, repairs to traces or pads that are smaller than 0.005" on a given side, jumpers requiring the soldering and routing of ultra-fine gauge wires, replacement of 0.020" pitch or less PLCCs or small QFN replacement (Figure 1).

FIGURE 1: Before (a) and after (b) photos showing repair of BGA pads and soldermask.

The skill level of a contract rework facility technician may be higher than a their counterpart at a typical EMS or OEM provider for several reasons. First, the rework and repair provider has staff technicians who consistently perform rework and repair operations, making this their specialty. The variety of rework and repairs performed at the contract facility is greater than at an OEM or EMS provider, providing for a broader knowledge base and skill set from which to draw. The typical EMS or OEM employs the same soldering technicians in hand-soldering operations, rework, wire prep and cable harness work areas. Second, the contract rework and repair facility is generally outfitted with the latest rework tools, while the rework department at the PCB assembler competes for capital with more highly utilized equipment. As a case in point, the payback on a screen printer will be faster due to its high utilization rate compared to a hot-air rework system.

Increased emphasis on JIT inventory management, Lean manufacturing practices and reduced cycle time inventory management schemes have reduced the amount of WIP and finished goods in the distribution chain. When there is a need for a large rework project, the pressure is on to turn the rework project promptly. The PCB assembler has a variety of options to meet this increased rework demand including outsourcing the rework, adding temporary labor or using overtime. If personnel utilization rates are high outside the rework department, there may not be enough capacity to complete rework in the customer’s required timeframe. In these cases, a contract rework facility should be considered.

Capital equipment funding cannot be justified to handle short-term spikes in rework demand. Lower utilization rates lead to lower rates of return on rework and repair equipment. Contract rework and repair facilities are outfitted to handle demand spikes with the intention of meeting several peak customer demands simultaneously. For large, unplanned and infrequent rework demand spikes, investing in more rework generally does not make sense.

The most compelling case for outsourcing is the lower level of scrap offered by an experienced contract rework facility. In many cases, rework providers can guarantee a less than 2% scrap rate. The industry average scrap rate is 7 to 8% for rework. ⁵ This difference on a board valued at $200 can reduce scrap costs by $3,600 for a 300-piece rework job. A rush environment, the lack of trained personnel and the lack of proper equipment to handle spikes are reasons for this yield difference.

The major cost drivers for rework include: technician costs; equipment and its support; and (most important) rework process yield. By making sure that the proper quality systems, material control elements and equipment are in place at the contract rework and repair facility, a quality rework job can be ensured. While a make-versus-buy analysis is always smart, the use of contract rework providers is sometimes prudent, especially in the case of large, complex or highly time-sensitive rework projects.

Ed.: An online calculator for computing the total cost per component reworked is available at solder.net/xformtest/calculate2.asp

References

BEST Inc. rework cost calculator model.
BEST Inc. customer survey, December 2001.
CEERIS International Inc., “PCA Cost of Conversion Study, March 2001.
BEST master instructor survey, January 2005.
M. J. Epstein, “Accounting for Product Take Back,” Management Accounting, August 1996.

Bibiliography

R. Filimon, et al., “Spoilage with a Production Function,” Accounting Business Research, Autumn 1987, pp. 337-348.
J.P. Healy and R. G. Stephens, “Accounting for Scrap in Multiphase Sequential Production Processes Using an Activity-Based Cost System,” Journal of Cost Management, January/February 1999, pp. 3-9.

Bob Wettermann is president of BEST Inc. (solder.net); bwet@solder.net.