It had long been accepted that as products move through their life cycle towards standardization, manufacturing migrates offshore. Eventually, even leading edge products are also produced overseas with the help of new technology and an in- creasingly symbiotic global economy. But circumstances have changed. The compo- nent costs of offshoring have increased along with the risks that go along with it, specifically threats to domestic intellectual  property.

For this reason, PCB manufacturing is returning home. Recent events indicate companies are re-examining decades old paradigms and even reversing established manufacturing trends. In 2012, Sony UK Technologies enabled process automation by adding just two holes to one of their PCB designs. They then resumed manufac- turing the board domestically after offshoring it for years in  China.

If you are sending your PCB manufacturing off shore, what factors weighed heaviest in your decision making? How do you know if offshore manufacturing still makes sense for you? This article considers both simple and complex ideas for cost-benefit analysis to help guide your decision process.

Larger manufacturing industry trends are beginning to take hold in the PCB world. With high volume manufacturers like General Electric profitably ‘reshoring’ large scale production, PCB manufacturers are taking note  and  challenging  old  para- digms. PCB design complexity is increasing and production volumes are dropping,  and many manufacturers are finding that the realized savings from offshoring may not  offset the  risks  associated  with it.

A growing list of factors is tipping the scales back in favor of domestic PCB manu- facturing. Three basic elements from this list underpin a simple cost-benefit analy-  sis.  They are:

?    Rising wages abroad
?    Persistent high overseas transportation costs
?    Limited improvement of speed to market

In the case of low volume, single-run PCB manufacturing, a simple measure of the    cost  delta  between  domestic  and  offshore  production  illustrates  dwindling  sav- ings. The average manufacturing wage abroad is increasing 18-20% per year while domestic worker productivity continues to improve, adding to the appeal of home grown manufacturing. Overseas  shipping  remains  expensive  just  as  cheaper  do- mestic energy is lowering the cost of production here in the US. Delays have always  cost money, so the additional time still required for an offshore vendor to manufac- ture and deliver a PCB becomes a bigger issue. As the cost differentiators narrow        or even reverse with changing conditions both here and abroad, the trend toward reshoring  is  gaining momentum.

Rejecting the “Take What You Get”   Philosophy
Problems with Quality Assurance (QA) are helping to accelerate this reshoring trend. Quality issues occur frequently and are usually preceded by  an  absence  of  trans- parency. Collaboration with offshore manufacturers is inherently limited, and the loosely-coupled relationships foster a ‘take what you get’ transactional paradigm.
This leaves the product manager to hope and assume his PCB is properly manufac- tured to design while  offshore.

Offshore quality control issues are expected to fuel the return of at least $2.5 bil-       lion in electronics manufacturing to the US over the next three years. PCBs repre-     sent a significant portion of that amount, meaning projects requiring small to mid-  level PCB volumes can no longer settle for offshored product that almost meets – or fails to meet – design   requirements.

Your Intellectual Property Won’t Protect Itself
The  same  PCB  designs  not  being  manufactured to  spec  are increasingly at  risk of piracy. GE reshored its Geospring water heater in 2012, even though they had
already initiated production abroad. The move was motivated by the need to protect the company’s intellectual property. If the intellectual property of one of the world’s largest corporations is fair game, what is the risk to a PCB design from a company     with  fewer  legal resources?

Online PCB chatter about reverse engineering in Chinese facilities illustrates the frustration felt by product managers who send production abroad to save money. The money saved offshore is promptly lost if you suddenly find yourself competing with a cheaper version of your own   design.

At Sunstone, we have found that asking the right questions leads to the best    outcomes when considering offshore versus domestic PCB  manufacturing.  Lower volume PCBs face greater relative risk to the bottom line, so risks of offshoring can help make domestic manufacture more appealing for this type of product.

Reshoring may even be the preferable — though not obvious — choice for higher volume PCB manufactures. With larger production volumes, even modest per-unit savings can appear attractive on the surface, suggesting that offshoring is the right choice. However, those savings paint only half the picture. Our experience tells us    that less easily quantifiable factors pose greater obstacles to offshoring than rising Chinese  wages  or  high  crude oil prices.

When weighing the pros and cons of offshore manufacture, we  advise  two  critical actions:

?    Carefully consider the less apparent problems associated with offshoring.
?    Ask questions aimed at challenging both   options.

Offshoring Production Can Onboard Problems
As easily identifiable costs associated with overseas PCB manufacturing rise and gain attention, you should also consider less apparent complications. If you plan to off- shore PCB manufacturing, carefully examine the impact to your domestic    operations.
Offshore Manufacturing Does Not Automatically Equal Savings
We encourage our customers to avoid evaluating the potential costs of offshore PCB  manufacturing along only two dimensions. Rising transportation  fees  and  overseas wages tell an incomplete story. There are real, indirect costs that may be minimizing     or  even  eliminating  savings  from offshore manufacturing.

If you carry more inventory than necessary to optimize your transportation buy, the real expense of  overseas  shipping  also  includes  the  costs  to  store,  handle,  and insure excess supply. An offshore supplier unable to support your Just In Time (JIT) inventory requirements translates into unfulfilled orders and lost business. When offshore PCBs come close — but fail to meet — design specifications, the resourc-
es required to re-tool the boards or adapt the product to accommodate them masks the real cost of low  yield.

Once these potential hidden costs are considered, the net savings from offshoring may not justify the risk to your overall   operation.

Risk Can Unleash Additional Costs
Offshore PCB manufacturing does incur risk, and mitigation of that risk places bur- den on your domestic team. This creates additional hidden costs that can  quickly  add up  to  offshore manufacture actually being more expensive than   domestic.
How much time and effort do you spend coordinating and policing offshore PCB manufacturing?

An overseas manufacturer in a time zone ten to fourteen hours different from yours literally builds your board while you sleep. Unfortunately, if you need to collaborate about the project with someone on the offshore team, one of you will be getting
up in the middle of the night to do so. Disruptions to routine like this come with a  cost. Cultural differences can lead to miscommunications, misunderstandings, and expensive   mistakes.

In order to ensure an offshore PCB build is properly executed, some measure of do- mestic resource must be diverted to focus on it. The critical question is, “how   much?”.

Ask the Right Questions
To be fair, offshoring can also save significant amounts of money if it is a good fit for your needs. From our experience, once you measure the true cost drivers of offshore production and identify its impact on domestic operations, the answers to a few      more key questions will illuminate what choice will create the best results for you.

Does Your Volume Justify the Journey?
Volume is one critical factor in determining whether to use a domestic or offshore manufacturer. Offshoring favors established PCB designs requiring high-volume runs with long lead times. The larger potential  aggregate  savings  better  insulates  your bottom  line  against  less  apparent  offshore  manufacturing costs.
The return on offshore manufacturing investment diminishes quickly when dealing with lower volume or prototyping production. Offshore production manufacturers are optimized for large runs and will not deviate from process to devote additional attention to non-conforming projects. This QA risk alone should give lower volume producers  pause.

A domestic resource offers more transparency to the manufacturing process, and collaboration happens faster and with less effort. Issues resolve quickly, which minimizes risk to yield and PCB    quality.

Depending on your annual volume, even a single trip to Shanghai or Chennai to address quality issues could reduce or eliminate potential savings from offshoring. Overseas site visits really guarantee nothing. If your product requires a more agile process that includes design conception or prototyping, you make yourself vulner- able to a wide range of new variables and pain points.

Excellence is Relative
During prototype design, you need effective communication and coordinated effort to succeed. Transition plans, phase-ins, phase-outs, and revision control demand immediate attention that  is  sometimes  unavailable  because  of  time  zone  differ- ences or language barriers. Respected PCB  fabricators  in  the  US  build  their  busi- nesses by excelling in these areas, while offshore vendors simply aren’t structured     to  provide the  responsive  support often  required in  such situations.
Even if  you  have  an  established  PCB  design  to  manufacture, unless  you  are pre- pared to overstock to accommodate your offshore vendor, larger production runs    will  take  precedent  over  yours.  This  widely  accepted  practice  impacts  scheduling and can ripple through your supply chain, adding up to significant delays in getting     the finished product out the door. Domestic manufacturers are structured for bet-     ter flexibility, able to provide real time support, and more likely to better meet the needs of low volume production. If you operate on a JIT basis, fabricators located in your  hemisphere  also  pose  less  of  a  scheduling risk.

In  cases  where  offshoring fits  volume  and  scheduling  needs,  be  prepared to  deal with cultural differences in business paradigms. What you may consider a problem    with scheduling or quality may be your offshore vendor’s idea of premium service     and products. Does your offshore supplier share your vision of good customer ser-  vice? If your foreign PCB supplier does not buy into or understand your expectations,   no amount of intercontinental oversight will bridge that   chasm.

Are You Getting What You Paid For?
Once your boards arrive from the offshore fabricator, yields become your next con- cern. We again encourage multi-dimensional analysis of the production. Instead of targeting a percentage yield and checking a box, also consider consistency of yields over time along with the board’s functional reliability in the end product.

Long term reliability is a key measure. Counterfeit components routinely find their   way into PCBs manufactured offshore. Some substandard parts are  easy  to  spot, others not so much. A Rolex knock-off purchased from a Hong Kong street vendor requires some time before the cheap internal parts fail and the faux precious metal tarnishes. Likewise, counterfeit components in your offshore PCB may stand up  to initial testing, then fail after your product is in use. Counterfeit components impact product performance, end customer satisfaction and eventually your reputation in    the marketplace. This makes for a high price to pay, but a difficult cost to measure

Are potential savings worth the risk to intellectual property?
Your  intellectual property is at greater risk once it moves offshore. The threats to   your IP are complex, vary from country to country, and require substantial financial commitment to combat. Domestic patent, trade secret, and mask work laws are an- tiquated and provide minimal protection. Little or no motivation exists in places like China to protect US corporate intellectual property. Their laws aimed at protecting foreign IP are mostly toothless and carry limited enforcement effort with them.

As we pointed out, even GE chose to reshore its product rather than spend financial resources battling  the  threat to  their  IP  in  China.  Smaller  companies  realistically have few options for securing their IP. Thoroughly vetting partners to determine reliability can help, but most companies are making a leap of faith when they send  their IP offshore.

Offshoring no longer guarantees a lower cost of production. Threats to intellectual property in countries like China have heightened interest in reshoring. As a result,  trends indicate  PCB  manufacturing  is  returning home.

Making the right decision  about  domestic  versus  offshore PCB  manufacturing depends on a thorough cost benefit analysis. Your  results  will  vary depending  on volume and design requirements. We encourage our customers to look for hidden costs of offshoring and seriously consider its less quantifiable pain points, like the impact on inventory management and burden on the domestic    operation.

When you remove hidden assumptions and question offshoring paradigms, the an- swers you find will guide you toward better outcomes. You might find that a domes- tic manufacturer that specializes in low volume, high-mix manufacturing provides a viable alternative to offshoring your project.