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Managing Global Supply Chain uncertainty

We are well into the second year of tariff-centric trade policy and one thing appears certain; uncertainty is here to stay. Though most of the media focus has been on cars and steel or consumer prices and corporate profits[2] , the enduring challenge for both the electronics and PCB industries has been maintaining reliable global supply chains.

Since July of 2018, the PCB industry has been affected by tariffs on key manufacturing components like laser drills, placement machines, and reflow ovens, as well as PCB assemblies used in telecom equipment, cameras, and ATMs[3] . Like many in the industry, we were hopeful for and confident about a swift resolution.

A year later, the path forward is still not apparent. Uncertainty hovers in every planning session: will tomorrow bring another import tax increase, or a speedy resolution? The unknowns can freeze an organization in place, hoping for the best. In a recent NY Times article[4] , Pete Guarraia, leader of Bain’s[5]  supply chain practice was quoted as saying, “Most companies took a wait-and-see-attitude. That was absolutely the mind-set.”

Hope is not a long-term strategy[6] .

As these trade conflicts drag on, with no one outcome more or less certain than another, it makes sense to consider new supply chain strategies for high-end manufacturing components like PCBs. According to a recent IPC[7]  survey, 87% of its US members import raw materials, components, or equipment from China[8] . PCBs are among these critical components and are the foundation of any electronic device. Sooner or later, tariffs associated with their manufacture are going to leave a mark on profits, prices, and production volume.

Alternate sourcing for PCBs can get tricky, especially if there exists a long-term relationship with your vendor. Searching for new sources for all your products impacted by tariffs is a big exercise. You have to weigh the cost of the tariffs against quality expectations, lead times, knowledge transfer requirements, and the risk associated with terminating, albeit perhaps temporarily, your existing supplier relationships.

There are also few cost-effective supplier alternatives to China for producers of electronics[10] . For high-end manufacturing, China beats nearby Vietnam in terms of available skilled labor, modern production infrastructure, and relatively limited bureaucracy[11] . And even if an organization is prepared to work with all of those variables, the raw materials for production will come from China and be subject to tariffs anyway. It is therefore easy to understand why companies are still unwilling to move from the status quo, even if it impacts the bottom line.

Though absorbing costs or passing them on can work in the short term, eventually forward-looking businesses will seek competitive pricing advantage by adopting supply chain strategy that avoids tariffs. Determining how to do so internationally is less obvious than it might seem, especially in the electronics industry where products are so complex.

PCB manufacturers work with a relatively finite list of components, at least compared to our customers who are making medical devices, robots, and drones. This presents our industry with a chance to provide value for our customers who are spending precious resources poring over tariff codes in an attempt to figure out which apply to their components. Domestic PCB manufacturers can offer tariff-free boards to their customers, eliminating both long term cost uncertainty and a supply chain headache.

The case for domestic PCB manufacturing

We have been making the Made in America PCB case for years to small and mid-sized electronics manufacturers, understanding that enterprises relying on high volume, commoditized boards for mass production are a different animal. For these larger enterprises, there exists opportunities to renegotiate overseas supplier contracts or even influence where their suppliers buy raw materials.

Smaller organizations needing a lower volume of PCBs face greater relative risk to the bottom line, the added cost and uncertainty associated with international trade can help make domestic manufacturing more appealing. We understand that even PCBs made in the US will likely have raw materials from China but producing boards here does not present risk like a move to Vietnam or China.

It offers multiple advantages.

By moving to PCBs made in America, you can eliminate risk associated with uneven quality, delays common with transatlantic shipping, and risks to your intellectually property. We also encourage our customers to look for hidden costs of offshoring and seriously consider its less quantifiable pain points, like the impact on inventory management and burden on the domestic operation.

The longer tariffs remain in place, the more likely cost benefit analysis tips in the favor or US produced PCBs. Uncertain trade policy causes us to closely examine our hidden assumptions about offshoring paradigms. You might find that a domestic manufacturer that specializes in low volume, high-mix manufacturing provides a viable alternative to increasingly costly and risky Chinese production.

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