Issue link: https://iconnect007.uberflip.com/i/1447212
38 SMT007 MAGAZINE I FEBRUARY 2022 the party, and we've made gains, although not enough to offset the direct labor increases. Another surprise to me was factory costs, leases, and real estate. Because of that remote workforce, I thought commercial industrial real estate would go down. Instead, it has sky- rocketed; it was a surprise, but it's up like everything else. Equipment costs are brutal right now because of what our customers are going through. We buy equipment from OEMs, who are typically our customers, and they're getting hit with cost and lead time increases. It certainly seems like a big inflationary envi- ronment. Matties: With the mention of lead times up to two years, can you expand on that? O'Neil: It used to be a 52-week lead time, and "we just don't know how to tell you that it's been discontinued," or that "we haven't gotten it out of the lab yet." ere can be 51 weeks of supply already committed, and you can be in line at 52, so it's different. One part that seems to be improving is the decommit and recom- mit chaos. We had those three or four months of chaos on the lead time, where one day you heard it was two weeks, and the next day it was 52 weeks. How does the thing that you ordered two weeks ago suddenly turn into 26 weeks when it's supposed to be here today? In years past, you would see that maybe once a week. But it went from one or two things per month, to one or two things per week, to one or two things per bill of materials, to a handful of things per bill of materials. It's an exponen- tial set of problems, so more resources must be dedicated to validating the supply chain data and ensuring that we've got tracking numbers. You come to not trust your "trusted" suppli- ers because you keep getting burned. You need to validate everything, because you can't get a production schedule without having some vis- ibility on materials that you can rely on. Nolan Johnson: And that specific challenge is a direct labor cost as well. O'Neil: Totally. Lack of reliable visibility hurts scheduling, which causes related inefficiencies, which negatively impacts overhead absorp- tion, and it stacks onto that pricing pressure. We try to absorb it, just like the PCB fab indus- try did for decades. We've seen customers ask, in a way, what the pain is, and how they will have to share in it. For the most part, there's an acceptance that costs, and therefore prices, are going up. We want to be seen as partners. ere are some things we can do to mitigate the cost increases, and we're encouraging our custom- ers to do some of the same things as well. Look at your order, your order quantities—are you betting it all on a just-in-time methodology? Can adjustments be made to give the supply base more visibility to a longer window, giving them some more tools for planning, and that hopefully can offset some of the pricing issues? With the supplier consolidation putting more spend in fewer places, especially in the PCB fab realm where you can take off a bigger chunk Joe O'Neil