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August 2014 • SMT Magazine 69 a compelling price, and much faster, being so much closer to the market. The continued demise of the traditional product distribution chain is also putting in- tense pressure on labor markets. Shopkeepers, in fact, any physical outlets of products, are un- der threat as direct shipping of Internet orders takes hold. the Changing Costs of Labor Reshoring would bring work opportunities back to the United States and Europe, with a focus on higher value and more in- teresting job roles within man- ufacturing than in the past, for example jobs as technol- ogy process managers rather than just people who "stuff boards." The increased degree of production and informa- tion technology raises the profile of the manufacturing job market. The principle for reshor- ing exists, although the old offshore argument of labor costs is still what people will focus on. The significance of the labor cost differential is of- ten thought of as being great- er than it actually is. Take our $100 product, for example, with an actual manufacturing cost of $20. Probably, at least 80% of that cost is for mate- rials, which leaves about $4 to the manufacturing operation itself. That $4 can be divided up be- tween the cost of machinery, operational over- heads, labor, and profit margin. Many of these costs scale with the labor cost but global items such as SMT and test machines are not affected as much. The first challenge for onshoring is to under- stand what effect the increased cost of labor will really have on competitiveness. Manufacturing operations have also been through a big change in recent years. It no longer requires a team of specialist engineers to prepare product data and perform the necessary SMT and test program- ming, the process preparation, for manufactur- ing. Whereas years ago, a single new product introduction would consume several people for several days, current best practice has this completed by one person in a couple of hours. The SMT machines themselves are also a much more reliable technology today, controlled and monitored by software. This can be linked to live "just in time" automated logistics manage- ment of materials delivery. The requirement for machine operators and materials logistics operators is again, by today's best practice, less than half what it was just a few years ago. The labor cost per person ratio has also changed signifi- cantly as labor rules in the United States have become more flexible and labor costs in places like China are in- creasing rapidly. The effect on the overall manufacturing cost of products, offshore as compared to on-shore, is far less compelling than it ever was. In context with our $100 product break-down and the cost savings of direct shipping, the real impact of offshore manufacturing cost versus cost effectiveness of manufac- turing close to the customer should be considered. Localizing Raw Materials The second challenge to re- shoring is related to raw materials. Products manufactured in China are made predominantly with raw materials made in China. What would be the difference in ship- ping if, instead of the product being shipped from China, you have to ship all of the raw ma- terials? The truth is that raw materials do con- tinue to be manufactured locally, for example, in the United States, but at far lower amounts and often intended for use in more critical ap- plications. Materials manufacturers also have gone through the same off-shoring process, fol- lowing the example of most of their customers in manufacturing. Materials manufacturers are eSSenTiAl pioneer'S SurViVAl guiDe REshORINg MaDE sIMPLE continues The labor cost per person ratio has also changed significantly as labor rules in the United States have become more flexible and labor costs in places like China are increasing rapidly. The effect on the overall manufacturing cost of products, offshore as compared to on-shore, is far less compelling than it ever was. " "