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26 SMT Magazine • August 2017 2. High indirect and general and adminis- trative labor costs that must be absorbed and greatly inflate the labor sell rate. 3. Material cost differences—a potentially big issue and the subject of this series of col- umns. This is especially true for tier 3, 4 and 5 operations that don't have facilities in low labor rate locations. Tier 1 and 2 companies usually have multiple assembly operations with at least one in a low labor rate area. Thus, they can use a central procurement center to leverage vol- ume production for all their facilities and secure favorable low labor rate material pricing across all of their facilities. 4. Government policy such as corporate tax, tariffs and regulation that affects the cost of do- ing business. Notice that the differences in direct or raw labor rate as a function of geographic location do not even make the list. Why? Even though the difference can be substan- tial, the direct labor rate is a relatively small fac- tor in product cost when examined in the con- text of reducing labor cost by reducing labor content through automation. This content re- duction is realized regardless of where the as- sembly is being done, but has a far greater im- pact on cost in high labor rate regions. When the other costs that are associated with variable numbers 1–4 are accumulated and piled on, the difference in direct labor rate has a minor im- pact on competition. Of course, companies in high labor-rate re- gions who have trouble competing will use the pretext of having to go up against uncontrolla- ble, low direct labor rate operations to avoid ad- dressing the controllable root cause of the prob- lem—numbers 1 and 2. Even though both are controllable through a well-educated staff and workforce, low labor rate competition provides a convenient excuse for failure. There is similarity here to requiring in-cir- cuit test (ICT) on 100% of the assemblies built even through a 100% functional test will fol- low. The pretext is ICT is used as a process con- trol tool. Actually, its purpose is to separate the good cir cuit boards we build from the bad cir- cuit boards we build—those with assembly de- fects. The good boards go in one pile and the bad ones go into another pile—often the bone pile. As discussed in a previous column, increas- ing assembly yields can significantly reduce the labor cost associated with rework, as well as the frequency of performing ICT. In fact, if a func- tional test is being done, ICT can be eliminat- ed altogether. Why? It doesn't pay back to do ICT on ever y board if it only identifies 1 in 200 boards tested as having an assembly defect. ICT can then return to its proactive function of help - ing to validate and control the assembly process. However, there are valid uncontrollable rea- sons for competitive cost issues. These are num- bers 3 and 4 (unjustified differences in material cost and government policy). My kingdom for equitable material prices! Richard the III has abandoned screaming for a horse and has taken up looking for material pricing that is not a function of geographic lo- cation. Typically, our assembly house doesn't because they don't know any better. Material is material, right? The assembler generally calls the price paid for this material as raw "M." It is generally the price paid by the product assembler to the ma- terial distributor(s) to purchase the unique ma- terial for a particular product assembly. It usual- ly does not include common expendable com- modities such as solder and cleaning solutions. Distributors are the source of this material un- less the assembler is ranked as a tier 1 or tier ANALYZING THE COST OF MATERIAL IN TODAY'S GLOBAL ECONOMY, PART 3 " Even though the difference can be substantial, the direct labor rate is a relatively small factor in product cost when examined in the context of reducing labor cost by reducing labor content through automation. "