The Definitive Case Study

2015-01-27 06:00:00


By: Charlie Barnhart

Jan 27, 2015

The Rosetta Stone is an ancient Egyptian slab of basalt inscribed with a decree issued in 196 BC on behalf of King Ptolemy V. The decree appears in three scripts: the upper text is Ancient Egyptian hieroglyphs, the middle portion Demotic, and the lowest Ancient Greek. Because it presents essentially the same text in all three scripts in 1822 an academic named Jean-Francois Champollion was able to unlock the millennium old mystery of Egyptian hieroglyphs. Today the name “Rosetta Stone” is applied to just about any type of key used to unlock a mystery.

In the case of the Outsourcing Navigator Series (ONS) and more specifically the Global Pricing Methodology (GPM) of the ONS a very special case-study has come to be called the “Rosetta Stone” at CBA, for two important reasons:

1.         This specific PCBA just happens to be at the exact center of the data-set that comprised the current version of the ONS at the time of its manufacture. In other words, the standard deviation (σ) of this particular case was zero, thus making it the key to unlocking many of the operational and pricing practices of an entire industry.

2.         Just as Jean-Francois Champollion was lucky enough to have long-term access to study his ‘Rosetta Stone’, CBA was also fortunate enough to be able to track the details of this PCBA throughout its entire life-cycle (>3 years!)

Without a doubt the Rosetta Stone/PCBA is the single most studied and detailed case in the history of the electronic manufacturing industry. Every aspect of this PCBA from the bottom of the supply-chain through final field repair and replacement has been tracked.

Therefore we decided to use the Rosetta Stone case in this issue of the ‘Bottom-line Series’ to demonstrate how the changes we’re always talking actually do impact the life-cycle of a product!

Please let us know if questions.

Charlie Barnhart 

 


 

Rosetta Stone/PCBA

  • Typical PTH/SMT PCBA built to IPC level II

  • Not particularly complicated, plugged into backplane in application

  • 8 Layer SMOBC PCB, approx. 7 x 9 inches, panelized 2-up

  • Used in a commercial computing product

  • Approximately 250,000 units produced

  • Average run rate over life of production 7,500 units/month

  • Average lot-size 200 panels/day

  • ECO’s over life of program 18 (12 documentation/software, 6 hardware)

  • Initiation of NPI to End-of-Production, ~11 quarters

  • Lifetime yield at ICT 96.2%, range 94.0% to 98.4%

  • Lifetime yield at FCT 98.8%, range 92.7% to 99.6%

  • Lifetime OTD (by lot at 3 days early/zero days late) 99.1%

  • Warranty 2 years from mfg. date-code

  • Lifetime warranty returns 18,116 pcs. (46% NTF, 12% Label/other misc.)

  • Standard assembly time .5 hours

  • Standard test time total ICT/FCST .08 hours

 

Original Quotations

 

Material

Labor & OH

COGS

Corp. Costs

Applied Margin

FOB/Selling Price

Geo

USA

$300.00

$20.00

$320.00

$16.00

$48.00

$384.00

Mexico

$300.00

$5.56

$305.56

$15.28

$45.83

$366.67

EE non-€

$295.50

$14.11

$309.61

$15.48

$46.44

$371.53

SE Asia

$285.00

$9.22

$294.22

$14.71

$46.16

$355.09

China

$279.00

$5.33

$284.33

$14.22

$44.61

$343.15

 

Final Quotations

USA

$290.00

$19.82

$309.82

$15.49

$30.64

$355.95

Mexico

$288.00

$6.02

$294.02

$14.70

$29.08

$337.80

EE non-€

$292.00

$16.59

$308.59

$15.43

$30.52

$354.54

SE Asia

$286.00

$9.14

$295.14

$14.76

$29.19

$339.09

China

$286.00

$7.02

$293.02

$17.00

$32.56

$342.57

 

Delta over Life of Project (~ 3 years)

USA

-$10.00

-$0.18

-$10.19

-$0.51

-$17.36

-$28.05

Mexico

-$12.00

$0.46

-$11.54

-$0.58

-$16.76

-$28.87

EE non-€

-$3.50

$2.48

-$1.02

-$0.05

-$15.92

-$16.99

SE Asia

$1.00

-$0.08

$0.92

$0.05

-$16.97

-$16.00

China

$7.00

$1.70

$8.69

$2.78

-$12.05

-$0.58

 

 

Analysis of Quotations over Life of Project:

  1. As CBA has reported on numerous occasions, and as exemplified in this analysis, it is NO LONGER UNUSUAL for FOB prices in Mexico (in this case Guadalajara) to be lower than those from SE Asia or China.

  2. The original material delta between the USA and China was $21 or ~7.5% of the Chinese material price, which was typical at that time. However on the final quotation this delta dropped to $4 or ~1.4% of the Chinese material price (i.e. the price in China went up $7 vs. the USA price going down by $10). Our assessment of this incongruity, especially given the consistency of the S.E. Asian material quotation, is that China artificially raised their material quotation (which in all likelihood probably went down slightly) as a strategy to retain margin during a time of cost-down demands from the OEMs. The Rosetta Stone case is NOT the only example of this type of pricing-gamesmanship in the ONS data-set.

  3. The increased cost of labor in China over the history of these quotations correlates with CBA’s reporting of an inflationary rate of ~1%/month during this period. Today this rate is lower but is still running at ~1 to 1.25/quarter and is expected to maintain this pace at least thru the balance of CY2015. 

  4. Even more dramatically, again as forecast and reported by CBA, Corporate Costs in China have increased by 19% over the history of these quotations, primarily due to [reported] increases related to fulfilling escalating requirements of Western OEMs in the areas of information systems, sales & customer support, commodity & supply chain administration, technical resourcing, operational reporting, on-going cost reductions management, and legal services.

  5. Finally and again as reported in detail in the ONC reports, while margins for EMS services have fallen cross all geographies [27.1% on a worldwide basis] the Rosetta Stone case demonstrates that China has been one of the least impacted geographies, i.e. the net reduction during the quoting period for China was 26.9% versus 31.2% for the USA or 33.85% for Mexico. Bottom-line, costs in China are and have been rising faster than in any other location yet this geography [probably as it remains the dominate player in the global EMS space] has tenaciously clung to its margin expectation and clearly is not prepared to provide transparency relative its cost or pricing practices. 

Original Total Cost Estimate    

 

FOB/Price

FCST Spend

Total Cost/Unit

Geo

USA

$384.00

$39.84

$423.84

Mexico

$366.67

$43.47

$410.14

EE non-€

$371.53

$49.41

$420.94

SE Asia

$355.09

$48.02

$403.11

China

$343.15

$49.34

$392.49

 

Final Total Cost Calculation

 

FOB/Price

Est./Act. Spend

Total

Geo 

Cost/Unit

USA

$355.01

$32.22

$387.23

Mexico

$337.80

$33.19

$370.99

EE non-€

$354.54

$41.36

$395.90

SE Asia

$339.09

$39.82

$378.91

China

$342.57

$44.69

$387.26

 

Analysis of Total Cost/Unit over Life of Project:

  1. By applying the FCST spend of the OEM over the projected life of the case (internal costs for forward & reverse logistics, commodity management, engineering support, supply-chain intervention and project initiatives) to the original quotations, CBA made an initial estimate of the total Cost/unit as detailed above (Original Cost Estimate).

  2. Then the actual cost, collected over the life of the case, was added to the final quotations to determine the Final Total Cost on a per units basis.

    Note: As we all know but seem to forget, further away is ALWAYS more expensive (and more often than not, more expensive than we believe!)

     

    (Originally Published on 12-18-2007)


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