Electronic News sat down to discuss the upcoming regulations for Europe’s Restriction of Hazardous Substances, the effect on individual players in the market and the growth of tin whiskers in unleaded solder, with Jim Smith, senior v-p of warehouse and distribution worldwide at Avnet Logistics; Mike Hunter, v-p of worldwide manufacturing at IDT; Dennis Kish, v-p of marketing at Actel; and Sirak Brook, business director at SST. What follows are excerpts of that conversation.
Electronic News: How big a problem is environmental compliance and will it be brought under control by the July 2006 deadline?
Smith: Whether it’s under control varies by supplier and by region. Frankly, the concern our company has is the realisation that a lot of companies are saying this isn’t a problem for them. We still see a lot of denial in the supply chain. Some companies are taking it more seriously than others.
Kish: We’ve been working on it for about three years. The time span that you’ve been engaged on the topic has a big impact on how ready you are for July 1. At this point in time, we’ve got it pretty well under control. We’ve been shipping products for about a year. But there’s a second set of issues that raises. As soon as you’re in position to ship, you can put your customer base in a position where they have mixed technologies on the same board. Then there’s a different set of issues.
Hunter: We’re in very good shape right now. We started querying our customers five to six years ago about what their needs were going to be. We started our programme three years ago, and we’ve been shipping product for well over a year. We tried to look at this from the standpoint of lead-free, then migrating to RoHS, and ultimately to green. Somewhere in the middle we decided it was easier just to go to green, so 99 per cent of our products are available today in green. The one per cent that’s not is flip-chip, and it’s RoHS-compliant.
Brook: We shipped our first non-Pb [lead] part in 2002. We’ve grown per unit each quarter. We are now fully RoHS compliant. We’re also a green partner for the majority of our customers. The big issue for us is when this transition really happens so we can do a full inventory management. And then going forward, companies in Japan, Korea and Europe require different documentation. That’s where we’re really having the problem. It’s not having the document, it’s meeting their standards.
Electronic News: Is the language difference on the documentation a big issue?
Kish: There’s generic information you can make available to everyone, but that’s rarely enough. You have to submit certification forms that you need to fill out individually. It takes time an effort to comply, not so much for the technology as the paperwork.
Brook: I agree. That is a huge manpower drain on our teams. The data is available. It’s just about putting it into a format that is acceptable to them.
Electronic News: China looks as if it’s getting ready to match RoHS with its own set of regulations. But the problem is that designs have already begun for products that will hit the market in 2006. What effect will these regulations have?
Brook: A lot of the consumer products that are manufactured in China for foreign consumption adhere to what the consumer market requirements are. As far as some of the parts with longer design cycles, that remains to be seen. The consumer market is really the one that’s been aggressive.
Hunter: It’s very customer-dependent, and even with a customer it’s very product-dependent. We see it in some boxes for telecom equipment, while other boxes haven’t decided to migrate yet. Whether that’s a function of particular markets and where the products will go, I’m not sure. But we’re seeing it in selective products along the way, not across the board.
Electronic News: Can products that were built before the deadline be sold after the deadline, or do they have to be removed from the shelves?
Smith: From our perspective, we see a huge demand for the continued supply of leaded products. There’s a whole host of smaller companies that have no plans to convert because, in their minds, they deal solely in the US. They don’t export any of their products to Europe or any other foreign government. But then California enacted its own set of rules. We’re trying to counsel the smaller companies that they should have a programme because while you may not export, maybe your end customer does. It’s amazing how many customers think that way. We also have some customers who say they only want leaded products because in their manufacturing process they’re not ready to take advantage of both technologies on the same board.
Electronic News: How many of your partners aren’t moving to RoHS-compliant parts?
Kish: We have a whole segment of our business that’s focused on military and aerospace.
Electronic News: They’re exempt for the moment. The military doesn’t want components falling off boards when bombs are dropped.
Kish: No comment. But ultimately we’ll see everyone getting in line for all the major markets in the world. The level of dialog regarding this topic has really elevated over the past year, and it’s become a marketing tactic if you are ahead of the game. If you’ve been investing in the alternate technologies, then you’re promoting it. RoHS compliance is on slide number one of our customer presentation now. Everyone will eventually be in compliance outside of the military market.
Smith: We have a lot of military customers, but they’re buying commercially made products. Raytheon is looking to take commercial-grade products out to third-party facilities, stripping the leads and replating them with military-grade products. I think it’s for the solderability issue to avoid tin whiskers. This is going to lengthen the supply chain and create additional costs.
Electronic News: This panel still didn’t answer the question, though. What happens to products that have lead that are sitting on the shelves?
Kish: My guess is they will be sold into the markets, because there is no true oversight of this program. One of the key mechanisms for auditing will be competition. Companies will begin to use their compliance as an edge, analyse what their competitors are doing and report issues that they see. It may take time before anyone’s non-compliance comes to light.
Electronic News: Do you think the consumer gets all of this?
Brook: I don’t think so. People are rushing to adhere to governmental standards. It’s basically internal competition. The average consumer is not going to pay attention on the box if it’s non-RoHS compliant.
Electronic News: A lot of these components are commodity components. Can the companies making these parts afford to make the changes?
Hunter: When it comes to telecom, they’re going to be slow to convert. The actual total conversion will take time beyond that. I don’t see a hard and fast flip from one to the other. The consumer market may be different.
Smith: We’ve seen end of life or obsolescence creep into parts, particularly if there’s low usage or low demand. We’re seeing suppliers making a conscious effort to slim down their product offerings. We’ll have customers that have demand for those products. What does that force them to do? It has a cascading effect throughout the supply chain. I don’t think it will force people out of business, but a lot of them will be forced to redesign their boards. We’ve seen some of the demand shifts in products where a high usage of a leaded part changes over to high usage of a RoHS-compliant part. There’s a lot of confusion in that.
Electronic News: What’s the cost of shifting from non-RoHS to RoHS?
Kish: Most of the cost is in carrying inventory. We’re going to continue carrying leaded and lead-free products, so we have a dual set of product numbers that we have to add into the system. There’s overhead associated with that. There’s additional qualification activities and ongoing reliability testing. It’s non-trivial total cost, but a lot of it is deployment of resources inside of a company.
Hunter: We took a look at each part and how it performed in a customer’s hands over the last year. If we were going to restructure the part, anyway, what else needed to be fixed? Why not put it into a ‘green’ state? It’s a sunk cost. You have dual part numbers, one for leaded, one for non-leaded. You carry some level of inventory, and that grows as the market takes off and it will shift back down as the market gets more green.
Brook: The biggest concern for us is inventory carrying cost. If it’s five per cent of your business, then you can treat it like it’s a custom business with a build-to-order model. Once it starts ramping up as a percentage of your total shipments it becomes more of a concern. You have to ask yourself if this is going to be another step function or a linear increase. Quarter to quarter, our RoHS-compliant shipments keep rising. How do you start balancing this inventory? That’s the biggest concern.
Electronic News: There are two issues there. One is forecasting accurately. The second is whether you keep all the parts you’ve made or whether you do an economic analysis about which parts are important to keep.
Kish: About 80 per cent of our inventory is at wafer or die level. Whatever the numbers are, it’s only a 20 per cent impact at the package level. That gives us the ability to react to changes we see in the end market. That’s an attempt to mitigate the impact, although it’s certainly going to be substantial.
Hunter: We began paring down our offering in the beginning, taking a hard look at what we wanted to convert and those things it didn’t make sense to convert. We have our own factories. In the beginning when you’re 20 per cent/80 per cent, it’s not much of an inventory. When you get more to a 40/60 mix, you’re almost getting to where you’re two factories in one. You have to press your sales organisation and the customer base to get back to a smooth manufacturing environment. As we get to the point where we’re 80 per cent green versus leaded, we will re-evaluate our offering in lead and encourage our customers to make the conversion. You can’t carry it on forever.
Brook: We are all ahead of the curve. We are waiting for others who are holding up the transition. We benefit from it, but we also suffer from it. As much as we try to push, there’s someone else holding up the conversion. It may be a partner or an end customer.
Smith: It’s an interesting dilemma for distribution. There are companies that are far ahead while others aren’t clear about their plans, let alone at the individual part number. When you get a bill of materials and the customer asks you to tell them which parts are RoHS-compliant and which are not, we can scrub that bill of materials. A lot of the customers ask, ‘When should I start?’ That’s not a simple answer. We have 100,000 SKUs in our warehouse in Chandler [Ariz.], which is about 400,000-square feet. I don’t have enough room to put another 100,000 SKUs with different part numbers in there. If every manufacturer chose to duplicate the part number, it would create havoc.
Electronic News: How many are compliant today?
Smith: If you look at distribution Websites of the suppliers in America, about 35 per cent are in compliance and the balance are in some state of compliance.
Electronic News: What percentage won’t be there by the deadline?
Smith: We have no idea. We have more demands for data than we do for product these days about lead-free. Customers ask, by part, for the RoHS concentrations that are banned. If you go to the supplier Web sites, they all vary. Some are in PDFs, some are in HTML. You can’t put it into a relational database to sort it. Labeling and identification becomes a costly venture for both distribution and our customers.
Electronic News: Tin whiskers are a known problem in certain conditions. How many others are there?
Hunter: I don’t think we completely understand the source of tin whiskers today. We have decades of data for leaded products. We have thousands of hours of data about tin whiskers. But chemistry today is better than in the past. With a post plating and an anneal process, we can mitigate the circumstances. Are we completely whisker-free? I doubt it. But how big an issue will it be, either in the part itself or splintering off onto a board, we don’t know.