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24 SMT Magazine • August 2017 Last month, we continued our discussion on the disparities that exist in the cost of the mate- rial associated with electronic product assembly. This is an important yet often overlooked factor in the ability of an EMS provider or con- tract manufacturer or original product develop- er (OPD) to compete in assembling electronic products. It was recognized that any increase in mate- rial cost based solely on an assembly operation's geographic location could, in itself, cause a con- dition that would not allow a turnkey electron- ic product assembler to successfully compete on the global landscape—notwithstanding the dif- ference that exists in direct labor rates. Previous research has uncovered the fact that material price variation of this kind is pres- ent. The magnitude of the price differences can- not be explained by shipping costs or differenc- es in the overhead costs of a particular compo- nent manufacturer or distributer's location. 1 Considering that material is typically 70–90% of the total recurring production cost of a prod- uct, it is clear that even small disparities in mate- rial cost as a function of geographic location can bur y the effect of labor rate differences. Regard- less, it is differences in labor rates that always get the attention of the media and the public. Why it Matters In the first column of this series, we estab- lished the true variables that affect the ability of a product assembler in a high labor rate lo- cation to compete in the global marketplace. 2 These are: 1. High assembly-yield loss causing labor costs in high labor rate operations to balloon due to expensive rework. (Not an issue in low labor rate regions where rework labor costs can diminish the effect of poor process develop- ment and control.) by Tom Borkes THE JEFFERSON PROJECT Analyzing the Cost of Material in Today's Global Economy, Part 3 JUMPING OFF THE BANDWAGON