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July 2017 • SMT Magazine 83 The entrants always ask the same questions after being given their word to spell: "What is the country of origin? Are there any alternate pronunciations? Please use the word in a sen- tence." Then, they inevitably ask the modera- tor to repeat the answers to all those questions all over again! These are beautiful young people. But, you can't help but wonder what the psychologi- cal effect is on them—even the winner? I don't mean to sound unkind, but is this the kind of academic achievement we want to celebrate and emphasize? It seems it is. And, it is consistent with what academia subconsciously praises as academic achievement as students move from the prima- ry to the secondary to the post-secondary seg- ments of the educational pipeline. It is success built largely on the skill to "memorize, regurgi- tate and forget," as Murray Gell-Mann, world- renowned particle physicist, Nobel Prize win- ner, and co-proposer of the existence of the Quark, credited upon receiving his Doctorate in Physics from MIT. 3 Genuflecting at the altar of an academic grade point average that is built primarily on learning for learning, without regard for learn- ing for earning, is not in the student's (i.e., aca- demia's customers, best interest). 4 What are the basic cost variables that influ- ence the ability of an electronic product pro- ducer to compete? Labor 1. Raw labor ($/hr.) 2. Indirect labor ($/hr.) 3. General & administrative cost ($) 4. Rework labor cost ($/hr.) 5. Overhead (controllable & uncontrollable) ($) Material 1. Raw material ($) 2. Material markup ($) a. Material attrition b. Material scrap c. Material handling Raw (direct) labor costs are established by some combination of the laws of economics and local labor laws. They are dependent on where the labor is utilized. The material that the applied labor adds val- ue to (i.e., inspection, kit, prep, assembly and functional test) is almost all manufactured in the same few geographic regions (Pacific rim, Mexico, India). However, unless a Tier 1 or 2 as- sembler is using huge quantities of components from the same manufacturer, they are pur- chased from distributors, not the manufacturer. The distributor will buy material from many manufacturers, stock the material, mark the material up and sell the material to an assem- bler. The price that the distributor establishes is based on: 1. The cost that the component manufacturers charge 2. The distributor's overhead cost that must be loaded and absorbed in the component price 3. The quantity the assembler orders 4. The currency that will be used to pay for the material (e.g., US dollar (USD), Yuan, etc. 5. Any applicable import and export tariffs 6. The location where the material is shipped (although not publicized) A more direct example of pricing disparity based on geographic location is the price of au- tomated assembly equipment. Consider what the same automated component placement machine (i.e., pick and place) made by the same equipment company has sold for in China and the U.S.—a significant price disparity exists. Why? Is it number 4 or 5 or 6, above? Is it the costs associated with shipping this large, heavy item? If it is F.O.B. point of shipment, this item is not included in the equipment price anyway. Or, is it some combination of the above factors? Considering number 4, 5 and the shipping costs does not result in pricing parity. Let's examine item 4: "The currency that will be used to pay for the material..." As an ex- ample, consider the purchase of a reel of 5000, 0603 SMT resistors in both U.S. and China. The resistors are manufactured and put on tape and reel in China. Further, assume the price for the reel of re- ANALYZING THE COST OF MATERIAL IN TODAY'S GLOBAL ECONOMY, PART 2

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