Are materials suppliers the weakest link in the electronics supply chain?

If a chain is only as strong as its weakest link, it begs the question, which is the weakest link of our supply chain?

For years, if not decades, the popular assumption has been this dubious honor belongs to the lowly fabricator. On one level that assumption appeared to make sense. Historically, so many fabricators have been, and remain, small “bucket shops” looked down on as low-tech and low-quality. Likewise, many larger companies historically became overleveraged, balance sheets filled with debt for everything from spanking new (albeit minimally used) advanced technology equipment to the owner’s vacation house – and eventually foundered.

The fact is fabrication may be one of the most robust links after all. Yes, today there are fewer fabricators in North America than a decade back, but globally the number tells a different story. Locations have shifted, but the sheer numbers remain surprisingly consistent.

Insofar as viability, while every industry has its marginal players, most of the remaining PCB fabricators in North America are financially stable, if not thriving, and have established specific markets and/or capabilities that provide reasonable growth and margin. Globally, the companies that have sprung up have done so in high-growth areas of the world, focusing on high-tech markets, and therefore have been able to significantly grow and establish themselves as viable enterprises.

Despite the naysayers, predictors of doom, and those who otherwise have held printed circuit board fabricators in low esteem, this link in the supply chain is solid and far from being the weakest in the chain.

Regrettably the same cannot be said for suppliers of raw materials and laminates that all other links in the electronics supply chain rely on to fuel our industry.

There, the picture looks quite different and scary. An industry that has historically been served by larger brand name companies that globally supplied laminate, film, chemistry and plating supplies is today a mere shadow of its former self. Yes, one can find laminate: FR-4, for example, is available from different suppliers across the globe. However, it is available only from relatively few suppliers and with only regional, not global, distribution. A further complication is the trend toward specialty laminates. Whether a high Tg FR-4 type material or the dielectric-driven PTFE flavor of laminate, many specialty laminates are made by only one company, with no “drop-in” replacement. If out of stock or on allocation because of a spike in demand, delivery of specialty laminates can be agonizingly long and result in lost sales. The challenge of fewer and only regional laminate suppliers, combined with the growth of specialty laminates, creates a minimally competitive industry overly dependent on just a handful of suppliers.

If the picture for material suppliers looks bleak, the state of chemical producers appears absolutely ghastly. With one company seemingly set on owning all the chemical companies that serve our industry, it would only take one misstep for that company to end up with a pile of debt, inadequate cash flow to remain viable, and all its customers (and customers’ customers) stuck high and dry without the ability to process product through their plants. Ditto for dry film and most all of the other key raw materials every company relies on to fabricate a board.

Indeed, when it comes to a competitive and robust supply chain, our industry has never appeared so frail. And the current weakness is not because of alleged bucket shops producing so-called low-tech product but rather because of the extreme frailty of one of the most important links in the supply chain: raw material suppliers.

With the dramatically shrinking number of suppliers and the rapidly decreasing number of plug-and-play options, higher material prices will most assuredly result, and a misbalance in regional competitiveness will ensue. None of this will prove to be healthy for end-customers, assemblers or fabricators. When laminate, chemistry and other key raw materials are not globally available, consistent product suffers, and the playing field quickly tilts in one direction or another.

The real question is whether this growing vacuum will be filled by new or emerging suppliers. For many fabricators a differentiator has been the chemistry system(s) they utilized in their processes. With so few remaining companies, an opportunity exists for small regional companies to fill that void. Or an established larger regional company may take advantage to become truly a global supplier. Such a movement by the up-and-coming to fill the void may be exactly what is needed to push technology to the next level. If new, innovative thinking accompanies emerging or transplanted suppliers, then the supply chain link will become more robust.

Laminates may also prove an opportunity for lesser-known suppliers. Companies that have established manufacturing and focus on quality product may find they are more than welcome in the lower volume markets of North America and Europe, while also enjoying higher margins that come with lower volume orders. For the rest of the supply chain, additional sources of supply will provide an added level of security when committing to a laminate or tight tolerance design.

Hopefully the entire supply chain will begin to focus on the weakest link and, together, find ways to enable our suppliers to once again be strong and vibrant. Likewise, suppliers will hopefully realize their current path is straining not only their collective link, but the rest of the supply chain as well.

Peter Bigelow is president and CEO of IMI (imipcb.com); pbigelow@imipcb.com. His column appears monthly.