How to respond to supplier price increases.

Demand for printed circuit boards is going up. But so are production costs.

Raw PCB material pricing has jumped about 40% since June, with the exact increase dependent on material type. This price increase was inevitable and is, in fact, overdue.

During the early months of the Covid crisis, most PCB suppliers were hesitant to pass on their already-increasing material costs. But as China has rebounded faster from the Covid slowdown than the US and Europe, demand for production has escalated. PCB vendors are now more willing to pass higher material costs onto their customers. And the price increases are by no means over.

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Government incentives are just part of the formula.

Government-led directives of late are aimed squarely at bringing manufacturing back to the US. President Biden recently signed an executive order requiring the federal government to buy more goods produced in the United States and limiting the ability of federal agencies to issue waivers on overseas purchases.

Earlier, then-President Trump had approved regulations that increased the share of a product’s components that must be produced domestically to qualify as US-made. He also imposed a 25% tariff on goods imported from China.

The $740 billion 2021 National Defense Authorization Act (NDAA), which took effect in January, includes a provision forbidding the purchase by the Department of Defense of printed circuit boards manufactured in potentially adversarial countries such as China, Russia, North Korea and Iran. Many in our industry have welcomed this new directive as a means of rebuilding the once-robust PCB manufacturing climate in the United States.

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American manufacturers are throwing away business opportunities. Are you?

According to a recent statement by US Undersecretary of Defense for Acquisition and Sustainment Ellen Lord, national electronics procurement is at a crossroads.

“[America] can no longer clearly identify the pedigree of its microelectronics,” she said. “Therefore, we can no longer ensure that backdoors, malicious code, or data exfiltration commands aren’t embedded in our code.”

According to Lord, a variety of price pressures – ranging from government regulations to labor costs – have driven manufacturing of electronics offshore and created not only an economic imbalance but a security threat as well. “That’s what we need to reverse,” she said.

Like the Defense Department, American consumers also support bringing manufacturing back onshore. They believe the “Made in USA” slogan means saving American jobs and, often, superior quality of goods. They support “reshoring” – bringing the manufacturing and assembly of goods – back to the US.

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Being ready to pivot offers flexibility and keeps vendors honest.

What is your company’s PCB buying strategy as we emerge from the confines of the Covid-19 pandemic shutdown? Do you have one?

Those responsible for corporate procurement need to understand supplier diversification is the key to remaining competitive in this challenging economy. Yet, many OEMs and EMS companies have invested too much of their annual PCB spend with only one vendor. That could prove to be a costly mistake.

I understand and appreciate vendor loyalty, but are you leveraging your vendor, or are you being leveraged by your vendor?
The truth is companies that stick with this one-vendor approach will have a harder time remaining competitive in the post-pandemic world. “We have used this vendor for years” is not a viable strategy.

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