[tinwhiskers] Something for your Elected Representatives:
- From: Steve Smith <steve@xxxxxxxxxxxxxxxxxxxxxx>
- To: tinwhiskers@xxxxxxxxxxxxx
- Date: Thu, 22 May 2008 12:55:43 -0700
Please send this to your senators and congresspersons;
http://ap.pennnet.com/Articles/Article_Display.cfm?ARTICLE_ID=329119&p=36&dcmp=APKNews
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|The Riley Report |
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|The $38 Billion Blunder |
|By George A. Riley, Ph.D., contributing editor |
|Lead-free compliance has cost the electronics industry more than $38 |
|billion to date, a total increasing by $3.7 billion annually, according |
|to a survey of the economic impact of the RoHS directive on the |
|electronics industry. This is nearly double the estimate of $20 billion |
|commonly quoted by non-enthusiasts, and minimized by proponents. |
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|Survey |
|Technology Forecasters Inc. conducted a comprehensive survey and |
|detailed data analysis, sponsored by the Consumer Electronics |
|Association. TFI obtained web survey data from more than 200 companies |
|world-wide, with a representative distribution of geographic locations, |
|seven categories of products and services, and six revenue categories. |
|Follow-up telephone interviews with selected survey respondents obtained|
|more details and qualitative inputs. |
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|Analysis |
|Results were compared by location, industry sector, company types and |
|sizes, and other measures. |
|The cost analysis cross correlated key data to categorized company types|
|and revenues. Industry cost estimates are extrapolations within the |
|categories for 90,000 companies globally, based upon the 2002 industry |
|census: 50,000 OEMs, 36,000 component suppliers, 3,000 EMS, and 1,000 |
|others. The result is a total cost of $38.25 billion to date. |
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|Labor Costs |
|The major accounting costs of compliance were labor, inventory changes, |
|and lost sales. Reaching compliance required an average of 5 to 10 |
|full-time-equivalent employees per company. Contract manufacturers spent|
|the most on business process and system updates, while component |
|manufacturers and OEMs spent the most on redesigns and BOM reviews |
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|Inventory Costs |
|Inventory costs of compliance included both carrying costs and scrap. |
|Inventory increases due to RoHS were reported by 57% of respondents. The|
|average inventory rise for compliance was 21% at a carrying cost of |
|$688,000. Scrapped inventory value averaged $698,000. |
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|Lost Sales |
|Respondents reported lost sales averaging $1.84 million. Delayed new |
|product introductions and discontinued EU sales were common causes. Lost|
|sales were exacerbated from delays by suppliers unprepared to support |
|the manufacturers when needed, partially because requirements for |
|proving conforming products were found to be vague and unclear. |
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|Manufacturing Costs |
|Higher manufacturing costs after conversion to lead-free were reported |
|by 77% of participants. The average cost increase reported by OEM or |
|added by contract manufacturers is 11.6%. Increases may result from |
|higher lead-free materials costs, processing costs, reduced throughputs,|
|and lower yields. |
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|Continuing Costs |
|The survey identifies the average annual costs per company of |
|maintaining compliance at $482,000 per year, and a total industry cost |
|of $3.7 billion annually. Note that this includes only the costs of |
|maintaining compliance, not the higher manufacturing and materials costs|
|of lead-free products discussed below. |
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|Opportunity Costs |
|Opportunity costs are difficult to quantify. However, the foregone |
|productivity of hundreds of thousands of technical people devoting their|
|efforts to a political project, rather than a productive one, is |
|significant. The total accounting costs of becoming compliant averaged |
|1.1% of industry revenue, about a third of average annual industry R&D |
|spending. Thus, the lost opportunity cost is the equivalent of the |
|foregone benefits of a 33% increase in industry R & D spending. |
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|Windfall Profits |
|As the old saying goes, "It's an ill wind that blows nobody good." The |
|squandered $38 billion did not disappear into thin air. In fact, much of|
|it fills the coffers of those who profited from the political decision |
|to "solve" a non-problem by discarding a proven technology for an |
|untried one. |
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|Beneficiaries might include, for example, consultants, trainers, and |
|instant experts of all stripes who quickly created a lead-free advising |
|sub-industry. It certainly includes the manufacturers of equipment that |
|required replacement or upgrading to meet lead-free needs. It perhaps |
|includes even the trade press who saw a lead-free spike in advertising |
|revenue. |
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|But these one-shot beneficiaries are paupers compared to those who now |
|have a lead-free annuity in an on-going stream of increased revenue. |
|Perhaps this explains how materials suppliers, such as solder |
|manufacturers, continue to preach lead-free benefits and minimize the |
|faults, including the increased environmental hazards, of lead-free |
|solders. |
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|The EU classified their decision to proceed with RoHS as a political, |
|not a scientific one. We all know that politicians frequently squander |
|large amounts of other people's money on chimeras. Unfortunately, the |
|cost, quality, and environmental negatives of the $38 billion lead-free |
|wind may yet blow us more ills than benefits. |
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Best regards,
Steve mailto:steve@xxxxxxxxxxxxxxxxxxxxxx
www.consultingscientist.us
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