Roy Sakelson’s editorial in CircuiTree’s April issue cited the growing trend among raw material suppliers of raising prices to the PWB industry. Specifically, he cited increases in epoxy resins, copper foil products, and dry film photoresists. These increases occurred over the past year, and spiked in February of this year. The explanation for them was the expected one. It’s simply a matter of supply and demand. Worldwide demand for electronics materials was growing, while the costs of energy, transportation, and raw materials like tin, aluminum, and copper were rising. Over the past year, those prices rose by any where from 17% to 58%. A further explanation was that these suppliers had absorbed all cost increases since the beginning of the PWB industry downturn in the spring of 2001, and this was the first opportunity they had for some price relief.

Sakelson also cites another trend, and that is the decision by material suppliers to initiate distribution agreements and technology partnerships with other material suppliers. The aim of these movements is to broaden the product lines of the respective suppliers, and to complement their technology strengths in order to develop new products and new markets. As Sakelson says: “Why spend the money on developing a sales infrastructure in a certain region, when one can simply leverage the relationship of an existing company? Why not create technology alliances that might lead to future applications for one’s product, instead of going it alone?”

My point in referring to these trends is simple. They demonstrate clear and compelling illustrations of basic economic and business principles, which PWB producers need to recognize and apply. For example, the issue of price increases in electronics raw materials is clearly a reflection of supply and demand activity. It’s basic Economics 101. With demand increasing from earlier levels, and no new capacity generated over the same period, the opportunity presented itself to raise prices. And having suffered revenue and margin dilution in the past, suppliers of those materials would be derelict not to seize the opportunity.

But why doesn’t that rationale apply for PWB producers? Demand for boards has risen, as demand for computer, telecommunication equipment, automotive and appliance products has increased. The most recent figures show demand rising by 3.5 to 5% since January of this year. Meanwhile, supply has not changed. If anything, effective supply – that is, supply adjusted for specific geography, technology, and product application – may well have decreased. Through PWB mergers, EMS acquisitions, and OEM outsourcing to offshore suppliers, available capacity to satisfy specific demand may have declined. So clearly, if there’s a time to shed the attitude that you can’t sell boards unless you lower prices, that time is now. If anything, I’d say it’s a time to consider raising prices, selectively.

The second trend that Sakelson cites raises the issue of Supply Chain Management (SCM). Electronics materials suppliers who enter into distribution and technology agreements with other suppliers, are merely recognizing the reality of the supply chain concept, and adapting to it. They’re doing so by employing a simple but effective strategy of partnering and alliance building. Every company, small or large, regardless of the industry, has, and is part of, a supply chain. Very simply, the supply chain is a structural concept for integrating the flow of product and information from original source of supply to ultimate satisfaction of end-user needs. Accordingly, the chain extends backward to immediate suppliers, and forward to customers and end-users. The development among materials suppliers is merely one manifestation of supply chain strategy. By entering into distribution and technology alliances with other suppliers, they have shortened the process of product development, and strengthened the process of marketing and distribution. Obviously, this is only one application of supply chain management reasoning. I would assume there are additional opportunities for these suppliers to employ SCM strategy back to their suppliers and forward to their customers, who, incidentally, are PWB producers.

And so I ask, why don’t PWB producers employ the same rationale? They are part of their customers’ and suppliers’ supply chains. Through partnerships and alliances, backward, forward, and within the same industry tier levels, seek to develop relationships, which integrate the flow of processes and information for revenue enhancement and cost improvement. As I suggested raw materials suppliers could be candidates for such relationships. But so could other PWB producers with complementary technology or market segment access. And, conceivably, even select EMS and OEM customers could be interested. Now, if ever, is the time to consider such out-of-the-box strategies.