A silver lining of the Covid-19 pandemic is the hope that, after decades of manufacturing decline in Australia, companies and governments alike are beginning to see the benefits of seriously supporting the industry.
The revealed vulnerability of our supply chains and the risk to our health system has sparked numerous calls for a
fundamental shift in policies to better support our manufacturing industries.
The coming months and years will tell if this results in a revival of the industry. Regardless, Australian manufacturers are now questioning the perceived wisdom of manufacturing in Asia.
For decades, companies reaching a certain critical mass have moved their manufacturing offshore. In the past, the business case for doing so was clear because many manufacturing processes were so labour intensive. However, a range of factors has all tilted the balance back in Australia’s favour. In PCB assembly, designs now use surface mount technology which is levelling the playing field. We can buy the same machines they use in Asia and, with automation, the labour input is much reduced.
As evidenced by Circuitwise’s recent win of a contract with Siemens in direct competition with an Asian manufacturer, it is clear that Australian manufacturing is now competitive with Asia, at least in the space of PCB assembly.
Manufacturers need to question their automatic assumption they should manufacture in Asia and take into account the full range of factors outlined below. When these factors are valued and a price is put against them, the becomes clear the new smart move is to manufacture in Australia.
Local manufacturers can quickly generate short runs of Printed Circuit Board Assemblies (PCBAs) and deliver them to you significantly faster than overseas companies. This enables designers to quickly evaluate prototype designs and reduces the overall project timeline. A key benefit is gaining valuable feedback on the manufacturability of the design, which is not easy with foreign suppliers. Rapid prototyping enables design flaws to be picked up early and reduces the likelihood of expensive reworking later on.
Delivery speed and reliability
For companies that value speed of delivery, manufacturing in-country brings obvious benefits. In-country shipments are not subject to strict custom rules and regulations that not only add cost but can introduce delays. A simple mistake with incorrectly completed forms can see parts and shipment stopped or returned. Another overlooked benefit of retaining all elements of your supply chain in-country is that the major holiday periods across your supply chain are aligned. Manufacturing in Asia requires a balancing act when their major holiday periods clash with your production schedules.
The benefits of dealing with native English speakers in your supply chain cannot be overestimated. Miscommunication due to language and cultural barriers can have costly consequences, including misunderstanding simple written instructions. A key cultural problem is the tendency of Asian manufacturers to only tell you what they think you want to hear and to be respectful to the point of not being helpful. This means that they can be reluctant to proactively suggest improvements to your manufacturing processes. At worst they can make errors and be reluctant to admit or correct them, for fear of losing face. The most common problem is the tendency to answer “yes” to every request. Can you meet this tight deadline or tolerance requirement?
Australian manufacturers excel at customer focus. As a generalisation, it is reasonable to assert that we are more responsive to requests. By contrast, Asian manufacturers are renowned for doing everything they can to win a contract, after which the responsiveness steadily declines. We have customers coming to us for quotes after not hearing from their existing manufacturers for weeks. Of course, some Asian manufacturers are better than others and over time these issues may abate. However, even if you can find a good one it takes time and many expensive foreign trips to build a trusted relationship.
Conscientiousness is a key intangible factor that is nonetheless real. Australian workers in manufacturing are among the most skilled in the world, highly trained in manufacturing execution systems and quality control. An often undervalued metric is the stability of our workforce. At Circuitwise our staff have average employment of over 10 years. By contrast, Asian manufacturers have a high churn rate in their workforces, particularly after the Lunar New Year holidays, with a corresponding dip in quality as newcomers are onboarded. Our loyal workforce leads to pride in work and a level of conscientiousness that translates to reliability and quality in your Australian Made product.
Design for manufacture support
Building a close relationship with an Australian manufacturer can lead to superior design outcomes by passing on recommendations on Design For Manufacture. Every time a new design arrives for prototyping, it is standard for Australian manufacturers to provide feedback on ways to minimise the cost of manufacture. From spotting component end-of-life risks to leaving adequate space to enable selective soldering, Australian manufacturers are generally more helpful, largely due to the cultural communication reasons outlined above. Download our Electronic Manufacturing Checklist for a comprehensive list of manufacturing tips.
While quality control is mandatory for most manufacturing organisations, regardless of country, it is easy to argue the benefits of Australian quality. From a systems point of view, Australian manufacturers have invested heavily in computer systems to remain competitive and this leads to a level of sophistication that is hard to match. Its also easy to work with local manufacturers to define what you need in terms of traceability systems and maintenance of records, in the knowledge they can be relied upon. To gain that level of reliability in Asia requires strict auditing to be confident. Most companies rely on in-country quality control inspectors who are vulnerable to corruption practices endemic to most Asian countries. While these problems can and have been overcome by big-name brands from Western countries, it comes at a cost often not affordable for medium-sized businesses.
Competitive and reliable pricing
It may come as a surprise that Australian PCB assemblers have now reached price parity with Asian manufacturers. Historically, Asia was cheaper because old electronic designs had a lot of hand-placed components, which made the manufacturing process labour intensive. However, new designs increasingly use close to 100% surface mount components and pick-and-place machines now operate at 120,000 components/hour. Using such highly automated technology has allowed Australia manufacturers to reach price parity with Asia. Our recent winning of a contract with Siemens in the face of a direct comparative analysis with an Asian manufacturer proves this point.
Another aspect of pricing that often takes manufacturers by surprise is the tendency of Asian manufacturers to increase their pricing at any excuse, after first winning the contract with a low price. A small design variation can lead to price hikes that are hard to justify.
A pick-and-place machine at Circuitwise
Manufacturing in-country brings certainty of manufacturing input costs. When manufacturing off-shore, input costs are subject to currency fluctuations which can make it difficult to adjust the price of the product. Of course, the Australian dollar will vary against the currency of export markets the pricing process is much simpler.
Intellectual property protection
Some companies manufacturing in Asia have found their innovative design copied by an Asian competitor suspiciously quickly. While it is difficult to pinpoint the culprit in any given case, Asian countries are notoriously lax on policing piracy of intellectual property. When you manufacture in Asia, you are practically required to supply your intellectual property in the form of hardware designs and/or firmware, to enable the manufacturing process. Australian companies are subject to a much higher standard in the rule of law and can generally be relied on to handle your information confidentially.
No tariff vulnerability
The recent trade wars between the US and China have raised another risk that previously was not even considered. While relations with Australia and its Asian neighbours is relatively stable, there is no guarantee this will not change. With Covid-19, countries around the world are revisiting their free trade policies and considering the reintroduction of tariffs. The more globalised your supply chain is, the more vulnerable you are to sudden changes in tariff regimes that could put your company out of business. While this can be helped if you export your products, manufacturing totally in Australia reduces your supply-side risk.