The overall growth of the PCB industry obscures a critically endangered species: the local supply chain.
When does the number of companies in an industry drop below the level that provides customers a viable critical mass to support their needs? As I find myself asking this question more and more, I also ask the companion question: does it matter?
My musing is not borne of a gloom-and-doom view of our industry. In fact, electronics manufacturing does not appear to be shrinking at all. Just spend a week or so in China, or almost any other part of Asia, and you will see many, many large, new, state-of-the-art printed circuit board fabrication facilities offering tremendous capability, as well as capacity. Equally impressive is the number of large, new, state-of-the-art EMS companies. The sheer number and size of companies in our industry, considered under a macro view, provide more-than-ample critical mass to support high-tech “industry.”
When one takes a micro view and focuses on specific geographic areas, however, the picture looks quite different. In some regions of the global economy, the number and size of remaining manufacturers are shrinking rapidly, with insufficient critical mass, if not extinction itself, becoming a real possibility.
North America is one such geographic area that, strictly by the numbers, looks to be on the verge of lacking the critical mass needed to provide customers the viable fabrication support they need. Starting 30 years ago, the number of companies alone shrank from a reported 3,000 or so fabricators to approximately 800 a decade ago. Today, that number hovers closer to 200 companies, perhaps fewer.
Of the survivors, most are small, with annual revenues under $50 million. Only one or two companies are large enough to be considered Tier 1-sized corporations, and even then it’s a stretch. The North American PCB industry has evolved from competing with Japan as the world’s largest to one populated with smaller businesses that between capability and overall capacity can at this point best be described as niche companies.
If the global industry is healthy and contains the size and number of companies offering the capability and capacity an industry demands, it begs a second question: does it matter? The short answer is yes!
The world has gone global, and for many, sourcing product from the other side of the world poses no problem. Yet there are still ample customers – companies that design product – that value a relatively local source of supply. These customers like to communicate with the people making their product, to seek technical assistance and have a sounding board for questions that inevitably come up during the design process. Even if the order is ultimately entered via an online portal, peace of mind for many comes with dealing with “local” suppliers.
However, while some prefer a local source of supply, others must have a local source of supply. Particular companies regardless of where they are located, engaged in supplying defense and homeland security-related products, require local sources of supply. At North American companies engaged in defense and homeland security-related products, the shrinking number of printed circuit board fabricators and their suppliers should send chills down the spines of senior management. The days of a few large, technologically diverse fabricators are over. The paradigm has shifted from a small number of large manufacturers to many small, specialty ones. And dealing with a diverse group of highly specialized companies demands the engineering, procurement and quality areas of defense manufacturers also undergo a major paradigm shift.
That’s where the rubber may be missing the road. From all indications it would appear the Tier 1 designers of military, defense and homeland security-related applications have not figured out what’s going on. These large companies seem to operate as if it were still 1996, with Hadco, Praegitzer, Photocircuits, Rockwell Collins Printed Circuits and a bevy of large fabricators at their beck and call. Regrettably, all those companies, along with hundreds of other “household names,” are long gone. And of the remaining firms, many are focused on other industries, such as automotive and medical, with little if any interest in taking on the burden of qualifying to be a supplier of defense and military product.
For industries that demand certifications, qualifications and registrations all assuring product is made by secure companies in a specific geographic region, the possibility (to say nothing of the probability) that there may not be the necessary critical mass of suppliers to meet their capability and capacity demands is a clarion call to now rethink how to interact with the remaining industry. For many large companies that means realizing a “one stop shop” may not be possible, both for technological and capacity reasons. Equally, the long-running trend to reduce the supplier base in order to achieve lower costs may in fact actually cost them significantly monetarily, as well as in terms of flexibility and available capability.
The challenge is no less for smaller customers that may not have the same needs as a Tier 1 government prime contractor but value access to a reliable local source. As most remaining fabricators are niche players focusing on specialty manufacturing or with limited capacity, dealing with more – not fewer – suppliers is the new norm.
Everyone needs to step back, take in the changing landscape of the industry, and consider – or reconsider – what is truly important. For OEMs, what capabilities are really needed and with what capacity to support a multiyear program? Is burdening suppliers with the cost of repetitive quality systems the best use of their money, or would it be better to reduce the red tape and encourage those savings to be reinvested into new technology? And for suppliers, do you understand what your “value proposition” really is, and does it align with customers that need local suppliers like yours?
I believe the fabrication of printed circuit boards in North America is at a historic critical point of inflection. I fear the defense industry is at an equally dire juncture, one at which it needs to acknowledge the market reality and take action to maintain critical mass in order to ensure its long-term ability to procure high technology electronics – and then follow through by supporting the remaining smaller companies by embracing their diversity rather than trying to reduce the number of suppliers it interacts with.
Globalization, overall, has been a great thing for our industry. That said, for all the industry to thrive, local customers need to understand that to have local fabricators means engaging with smaller companies to a far greater degree than in the past. Equally, smaller fabricators need to put their best foot forward and demonstrate to Tier 1 companies their interest in, and value proposition for, a local supply chain.