How to Create a Global Sourcing Strategy for Parts and Production in PCB Manufacturing

A global sourcing strategy should consider four dimensions when being formed (figure 1). These dimensions of geography, compliance and finance, resilience, and responsiveness are critical in building a robust strategy for parts and production in PCB manufacturing.  

The first dimension, geography, pertains to the physical location of suppliers and manufacturers. It involves considerations such as proximity to raw materials, labor costs, and market access.

The second dimension, compliance and finance, involves ensuring that all sourcing activities adhere to international laws and regulations. This includes compliance with labor laws, environmental regulations, and trade agreements. Additionally, financial aspects such as currency exchange rates, taxation, and cost structures also fall under this dimension.

The third dimension, resilience, refers to the ability of the supply chain to withstand disruptions and recover quickly. This involves considerations such as supplier reliability, risk management strategies, and contingency planning. Building resilience into the sourcing strategy can help mitigate risks and ensure uninterrupted supply of parts and production.

The fourth and final dimension, responsiveness, relates to the ability of the supply chain to adapt to changes in demand or market conditions. This could involve aspects such as lead times, flexibility in production volumes, and speed of delivery.

Figure 1: Global sourcing strategy dimensions

Sourcing Strategies

1. Geography-Based Sourcing

Geographical considerations play a significant role in sourcing PCB parts and production. Procurement teams acquire raw materials from a global network of suppliers, with major production centres in Asia, Europe, and North America, each offering distinct advantages in resources, technology, and logistics. 

Asia, particularly China, is known for its cost-effective manufacturing capabilities due to lower labour costs and large-scale production facilities. On the other hand, Europe and North America are recognized for their advanced technology and high-quality standards. However, geography also brings inherent risks. Environmental factors such as weather-related events can cause shipping interruptions and delays. For instance, a typhoon in the South China Sea could disrupt shipping routes and delay deliveries. In such cases, switching to a supplier at another location, say from Asia to Europe, can help companies navigate region-specific constraints and ensure continuity of supply.

Having a map of trade flows, and understanding the global footprint of suppliers is a useful insight to have when formulating a geography based strategy. Resources such as McKinsey’s Global Institute Global Trade Explorer are useful to visualise the flows of trade for different sectors. Figure 2 shows the trade exports for electronics for the top 40 trade corridors by value, making up 53% of the worlds trade in 2022

Figure 2: top 40 trade corridors by value in 2022 

Source: UN Comtrade (Refreshed 2023-12-12)

Visualization : McKinsey Global Institute

2. Compliance and Financial Considerations

Compliance is a cornerstone of responsible procurement. For instance, RoHS compliance is now mandatory for selling electronics in large markets like the EU4. Adhering to maximum thresholds for restricted substances allows access that non-compliant manufacturers miss out on.

RoHS (Restriction of Hazardous Substances) is a product-level compliance regulation that originated in the European Union. It restricts the use of specific hazardous materials found in electrical and electronic products (EEE).

RoHS compliance means that a product has been tested for the hazardous substances by an independent authority, and the tests confirmed levels of the substances below the RoHS threshold.

RoHS compliance is crucial for any PCB business as it sells applicable electrical or electronic products, equipment, sub-assemblies, cables, components, or spare parts directly to RoHS-directed countries, or sells to resellers, distributors, or integrators that in turn sell products to these countries.

Sourcing strategies need to fully consider the implications of RoHS when selecting suppliers.

Financial considerations also play a crucial role. Striking a delicate balance between affordability and quality is an art in PCB procurement. Savvy buyers delve beyond initial costs, considering the total cost of ownership, potential risks, and the long-term benefits associated with the selected suppliers.

3. Building Resilience into the Sourcing Strategy

Resilience in sourcing strategy is about ensuring continuity even when disruptions occur. One of the most effective ways to ensure supply chain resilience is to diversify suppliers, with a combination of offshore and near-shore suppliers for each component. 

A company might source capacitors from a supplier in China (offshore) and resistors from a supplier in Mexico (near-shore). This diversification reduces the risk of supply disruption if one supplier faces issues. Another strategy is to have a regional supply chain as well as a global one, providing a built-in redundancy so that if one is impacted then another can be relied upon. For instance, if a global supply chain is disrupted due to a pandemic, a regional supply chain can step in to fill the gap.

4. Keeping the Strategy Resilient and Current Amidst Global Turmoil

The global sourcing landscape constantly evolves, so businesses must continually assess and optimize their system. This includes regularly evaluating suppliers, monitoring market trends, and adjusting sourcing strategies. For example, a company might need to switch from a cost-focused strategy to a quality-focused strategy as market demands change. In the face of ongoing global turmoil, such as trade wars or economic recessions, procurement and sourcing teams need to be at the heart of business in an expanded mission. They need to stay informed about global events, understand their impact on the supply chain, and make proactive adjustments to the sourcing strategy.

Challenges to Consider for Global Sourcing Strategies for PCBs

Global sourcing strategies for PCBs face several challenges which need to be considered for parts and production manufacturing (figure 3).

Complex design requirements, driven by the rise of IoT and AI devices, necessitate flexible, miniaturized, and complex PCB designs. Quality assurance is crucial, requiring manufacturers to have certifications like ISO 9001 and the ability to produce high-density interconnect PCBs. Cost-effectiveness is a delicate balance, as competitive pricing should not compromise PCB quality and performance. Reducing lead times is critical in a fast-paced market, and any delay can result in loss of market share. Supplier reliability is essential for uninterrupted production, and the chosen supplier should be capable of scaling production based on project needs. Global supply chain disruptions, such as trade wars and pandemics, can impact PCB delivery and costs. Rapid technological changes require continuous adaptation in PCB design and manufacturing processes. Limited local suppliers can lead to higher costs or longer lead times. 

By understanding these challenges, businesses can develop effective strategies for efficient PCB procurement. Below, we dive deeper into each one.

Figure 3: Challenges for global sourcing strategies

A: Complex Design Requirements: The rise of IoT devices, AI-related hardware, and the demand for environmentally friendly devices have led to unique design challenges for electronics manufacturers. For instance, a smartwatch, an IoT device, requires a PCB that is flexible and miniaturized to fit into the compact form factor. Similarly, an AI-powered drone might need a PCB with a complex design to accommodate advanced sensors and processors. These requirements pose significant challenges in terms of material selection, layout design, and manufacturing processes.

B: Quality Assurance: Ensuring that the PCBs meet stringent quality standards is paramount. This involves evaluating manufacturers’ certifications, production capabilities, and quality control processes. For example, a manufacturer might need to demonstrate ISO 9001 certification, which ensures quality management systems are in place. They might also need to show their capability to produce high-density interconnect (HDI) PCBs, which require advanced manufacturing techniques. Regular audits of their quality control processes, such as solder paste inspection (SPI), are also crucial.

C: Cost-Effectiveness: Balancing quality with cost is a delicate task. Competitive pricing should not compromise the quality and performance of the PCBs. For instance, a manufacturer might offer a low price by using substandard materials or skipping essential tests, which could lead to PCB failures in the field. Therefore, it’s crucial to consider the total cost of ownership, including the costs associated with failures and recalls, not just the initial price.

D: Lead Times: In a fast-paced market, reducing lead times is critical. For example, a smartphone manufacturer might need to launch a new model every year to stay competitive. This requires a PCB manufacturer who can guarantee timely delivery to ensure that project timelines are met. Any delay in PCB delivery can lead to delays in product launch, resulting in potential loss of market share.

E: Supplier Reliability: Establishing a relationship with reliable suppliers who can consistently meet your demands is essential for uninterrupted production. For instance, a car manufacturer might need a steady supply of PCBs for its infotainment system. If the supplier fails to deliver on time, it can halt the entire production line, leading to significant losses.

F: Scalability: The chosen supplier should be capable of scaling production up or down based on your project’s needs. For example, a startup might initially need a small batch of PCBs for prototyping but should be able to scale up production quickly once the product is launched.

G: Global Supply Chain Disruptions: Issues like trade wars, pandemics, or natural disasters can impact the supply chain. For instance, the COVID-19 pandemic led to lockdowns and disruptions in global logistics, causing delays in PCB delivery. Similarly, a trade war could lead to increased tariffs, raising the cost of PCBs.

H: Rapid Technological Changes: Keeping up with the latest PCB technologies and trends is a constant challenge. For example, the transition from through-hole technology (THT) to surface mount technology (SMT) required significant changes in PCB design and manufacturing processes. Similarly, the emergence of new materials like high-frequency laminates requires continuous learning and adaptation.

I: Limited Local Suppliers: Depending on the region, there may be a limited number of local suppliers, which can pose a challenge. For instance, a company located in a remote area might have access to only a few local PCB suppliers, limiting their options. This could lead to higher costs or longer lead times due to the lack of competition.

Conclusions

In conclusion, creating a global sourcing strategy for parts and production for PCB manufacturing involves careful consideration of several factors. To navigate this complex landscape, businesses can take the following tangible actions:

Diversify Suppliers: Consider sourcing from a mix of offshore and near-shore suppliers to ensure supply chain resilience. This can help mitigate risks associated with disruptions in a particular region.

Ensure Compliance: Make sure your suppliers adhere to international regulations like RoHS and have necessary certifications such as ISO 9001. This not only ensures quality but also opens access to larger markets.

Balance Cost and Quality: Look beyond initial costs and consider the total cost of ownership. Ensure competitive pricing does not compromise the quality and performance of the PCBs.

Stay Current: Regularly evaluate suppliers, monitor market trends, and adjust sourcing strategies as needed. Stay informed about global events and their potential impact on your supply chain.

Plan for Scalability: Choose suppliers who can scale production based on your project needs. This is particularly important for startups and businesses in growth phases.

By implementing these actions, businesses can build a robust and effective global sourcing strategy for PCB manufacturing. This will not only optimize your supply chain but also contribute to your overall success in the market.