Reshoring Electronics Manufacturing and Supply Chain

Harinderpal (Hans) Hanspal
hans@thing.company
(c) Thing Company llc | Harinderpal (Hans) Hanspal | hans@thing.company | @hanspal
Electronics Products
Sourced and Made Locally
Thoughts on Reshoring Electronics Manufacturing

Manufacturers are expecting COVID-19 to have a massive impact on
their business
78.3%
Anticipate financial impact
53.1%
Anticipate change in operations
35.5%
Facing Supply Chain Disruptions
Source: National Association of Manufacturers Survey Feb/Mar 2020

COVID-19 has increased interest in reshoring of manufacturing
Source: Forbes
Source: Boston Herald
Source: Thomas Publishing CompanySource: Financial Times

China, the World’s Factory
China accounted for an estimated
37% of electronics production in
2018, up from 2.6% in 1995 while
low-cost geographies overall
accounted for 71% of the total in
2018 (25% in 1995). In the same
period production in the mature
geographies has fallen to 29% from
75% in 1995
http://www.rer.co.uk/image/data/Downloads/Yearbook%202019%204%20Page.
pdf0
0.5
1
1.5
2
2.5
3
3.5
4
4.5
1990 1995 2000 2005 2010 2015
TRILLIONS
World Bank Manufacturing Output 1990-2018 ($)
China
Canada
UK
Germany
USA
Japan
EU
USMCA
China enters
WTO
2001

Concentrated manufacturing of electronics, far from customers
creates supply chain roadblocks and has been an ongoing problem
Source: EE Times Asia
Source: Electronic Design
Source: US Census
Newsweek

Computer & electronics sector accounts for almost half the drop in US
imports from China due to COVID and is leading the charge to
reshoring
Percentage Drop in Imports
Source: Rabobank calculations, Macrobond, US Census Bureau.
Sectors Driving Reshoring

Are we ready?
Source: New York Times

Customers
(Buyers/Users)
Distribution
Channels
Original Equipment
Manufacturers
Suppliers
The global electronics sector is expected to reach USD 7.3 Trillion by
2025

Electronics are everywhere and impact every aspect of our lives, and
the future is full of bazillions more
Consumer
Electronics
$366BN in
2020
Automotive
$625BN by
2030
Medical
Devices
$602BN by
2025
IT
Equipment
$52BN by
2021
Internet of
Things
21.5BN
Devices by
2025

Investments in hardware startups (aka Original Equipment
Manufacturers) increasingly takes a larger share of total VC dollars
https://about.bnef.com/blog/hardware-startups-see-revival-vc/

Most hardware startups fail, others go down in flames wasting a lot of
money, rarely getting to SCALE manufacturing
https://www.cbinsights.com/research/report/hardware-startups-failure-success/
Only 24% raised a second round compared to 46% for tech companies generally

Shorter Product Cycles
& Updates
Privacy and Security
Planet Friendly and
Sustainable
"Set and Forget"
Operations
Hyper Personalized
No Ownership and
Single SKU
Direct from
Manufacturer
Quick Deployment
CUSTOMER
EXPECTATIONS
Buyer expectations of B2B and B2C electronics products and services
is shifting regardless of industry

DeployMaintain
Repair Operate
New Product
Introduction
Design
Engineer Scale
Production
PRODUCT
LIFECYCLE
Build
Service
End-of-Life Distribute
Refurbish
Resell
Retire
Recycle
Freight-In
Warehousing
Sales Channels
Freight-Out
Buyer expectations are driving OEMs to new business models requiring
lean and agile processes across the product lifecycle

e-Waste is a massive problem and regulations are putting additional
responsibility on OEMs to pay for eWaste recycling
All laws except California and
Utah use the Producer
Responsibility approach, where
the manufacturers must pay for
recycling.Flow of electronic waste worldwide in 2018, by disposal method

Post-Seed
$2M-$4M+
Seed
< $2M
Pre-Seed
< $500K
Idea
Design &
Engineer
Prototype &
Test
Pilot
Product Run
Small Batch
Ramp Up
Scale
Getting from Idea to FIRST CUSTOMER SHIPMENT of electronics
products takes more WORKING CAPITAL & TIME than shipping software
12-18+ Months 18-24+ Months
Inventory Costs (Raw, Work-in-Process, Finished Products, Spare Parts)
Non-Recurring Engineering & Tooling Costs
Founded: 2002
Launch: 2007
Founded: 2013
Launch: 2016
Founded: 2012
Launch: 2014Costs
Time

Not all electronics products are created equal
SENSOR WATCH PHONE TURBINE AUTOMOBILE AIRPLANE
Low Mix/Complexity
High Volume
1-10 Year Product Lifespan
Low Product Unit Cost
Low Customization
High Mix/Complexity
Low Volume
10+ Year Product Lifespan
High Product Unit Cost
High Customization
10s components< 10 components 100s components 1000s components 10,000s components 100,000s components

MECHANICAL ELECTRICAL ELECTRONICS CONNECTIVITY SOFTWARE PACKAGING
Physical products are made up of many components that need to be
DESIGNED, SOURCED, FABRICATED and ASSEMBLED
(c) Thing Company LLC Confidential - Do Not Share | Harinderpal (Hans) Hanspal | hans@thing.company | @hanspal
Metal, Plastic, Fabric,
Wood, Glass,
Composite
Screens, Cables,
Power Sources,
Batteries
Sensors,
Semiconductors,
Integrated Circuits,
Printed Circuit Boards
, Storage
Ports, Antennae,
Wired, Wireless
Embedded, Edge,
Mobile, Cloud,
External Data Sources
Branding, Materials,
Interactive, Flexible,
Smart

OEM supply chains are multi-tiered, global and involve many
suppliers and contract manufacturers
https://www.predictiveanalyticstoday.
com/iphone-supply-chain/
https://s3-prod-europe.autonews.com/s3fs-
public/CA5426991.PDF?adobe_mc=MCMID%3D084
19304579124193301202501356805438831%7CMCOR
GID%3D138FFF2554E6E7220A4C98C6%2540AdobeOr
g%7CTS%3D1596560996
https://www.researchgate.net/figure/Immedi
ate-suppliers-in-Dells-global-laptop-supply-
network-Barnes-2008_fig2_236658896
https://www.seattletimes.com/business/boeing-aerospace/boeing-to-cut-
management-layers-in-streamlining-of-supply-chain/

OEM must manage a supply chain that needs to be RESILIENT, ELASTIC
and ON-DEMAND
•Industrial, Electrical,
Software, Packaging
Industrial Design
Agencies
•Raw Materials,
Semiconductors,
Sensors, Storage,
Screens, Cables, Power
Sources, Batteries,
Antennae, Ports
Component
Suppliers
•Metal, Plastic, Fabric,
Wood, Glass,
Composite, Printed
Circuit Boards,
Packaging, Electronics
Manufacturing Service
Providers
Fabrication and
Assembly Contract
Manufacturers
•Embedded, Edge,
Mobile, Cloud, External
Data Source Partners
Device-to-cloud
technology
providers
•UL, FDA, FAA, IEEE, ISO,
ETC
Testing and
Certification
Providers

Commercial and Open Source hardware & software technologies
enable OEMs to build prototypes and finished products FAST, COST
EFFECTIVELY and full of RICH (SMART) FEATURES
New Materials &
Additive Manufacturing
Hardware Dev Kits,
Sensors & Electronics
Power Sources & Battery
Technology
Device & Edge
Connectivity
Technologies
Embedded & Edge
Software Platforms
Device-to-Cloud IoT
Platforms
Embedded, Edge &
Cloud AI/ML Platforms &
Applications
Human-Machine
Interfaces

SMART products, enabled by software, maximize EFFICIENCY &
PRODUCTIVITY by collecting and analyzing data from devices and NEW
ECOSYSTEMS
Source: https://hbr.org/2014/11/how-smart-connected-products-are-transforming-competition

This requires EVERY OEM to become a “full-stack” hardware AND
software TECHNOLOGY COMPANY, requiring new skills
40% of the on- board
components in car are
estimated to be
electronics based. (Frost &
Sullivan)
Software represents 10% of
overall vehicle content
today for a large car
(Mckinsey)
Average share
of software is expected to
grow at a compound
annual rate of 11%, to
reach 30% of
overall vehicle content in
2030 (Mckinsey)
https://www.cbinsights.com/research/industry-market-map-landscape/

It takes more SKILLED TALENT to build hardware products compared to
software-only products
Software Hardware
Mobile Software
Engineer
Frontend Software
Engineer
Backend Software
Engineer
DevOps Engineer
Industrial Designer Materials Scientist Mechanical Engineer Electrical Engineer
Embedded Software
Engineer
Supply Chain
Manager
Testing & Certification
Engineer

Productivity gains in US have shrunk China’s labor cost advantages,
but low labor cost is NOT the reason why China dominates electronics
manufacturing
“The truth is China
stopped being the low
labor cost country many
years ago. For us, the
number one attraction is
the quality of people.”
Tim Cook, CEO, Apple
https://www.bcg.com/publications/2018/china-next-leap-in-manufacturing.aspx

HIRING skilled MANUFACTURING, HARDWARE and SOFTWRE
professionals is difficult due to skills shortage, takes time and puts
billions of manufacturing GDP at risk
https://www2.deloitte.com/us/en/pages/manufacturing/articles/future-of-manufacturing-skills-gap-study.html

Half of US and European Hardware startups outsource to EMS providers
in China
Source: http://hardwareclub.co/pages/hardware-startup-report

40% of ALL electronics manufacturing is OUTSOURCED and is expected to
continue to grow as OEMs focus on product design and their customers
$ For Year Source
Printed Circuit Boards
(PCBs)
$62.4B 2018
Prismark
Partners
Electronics
Manufacturing Services
(EMS and ODM)
$542B 2018
New Venture
Research
Electronic Equipment
(Including Components)
$1,892B 2018
Reed
Electronics
Research
https://newventureresearch.com/the-worldwide-electronics-manufacturing-
services-market-2020-edition/

Electronics Manufacturing Services (EMS) companies are tiered based
on revenue, and offer range of services to help OEM address skills
shortage and reduce the idea-to-scale timeline
EMS
Services
Design & Engineering
Services
Prototyping & New
Product Introduction
Supply Chain
Management Services
Finished Product
Manufacturing
Warranty, Repair &
Refurbishment Services
Build-to-Order
Fulfillment Services
Tier 1
$5B+
revenue
Tier 2
$500M -
$5B
revenue
Tier 3
$100M to
$500M
revenue
Tier 4
< $100M
revenue

Printed Circuit Board (PCB) fabrication and assembly is highly
fragmented with 1800+ companies globally
0
100
200
300
400
500
600
United
Sta
tes
C
a
nadaC
hinaIndiaJa
pan
South
Korea
M
a
laysiaTaiw
a
n
G
erm
any
United
Kingdom
O
ther
480
41
489
121
9 3 20 72 59 90
542
Global PCB Manufacturers & Fabricators
0
50
100
150
200
A
labam
a
A
rizona
A
rkansas
C
a
lifornia
C
olorado
C
onnecticutFlorida
G
eorg
iaIllinoisIndiana
Iow
aKa
nsas
1 13
1
162
11 6
26
6
55
2 1 2
USA PCB Manufacturers and Fabricators
Source: http://www.pcbdirectory.com/

Majority of EMS providers in the US cater to High Mix, Low-Volume and
High-Margin products with Low Mix High Volume located in Asia
Mostly
in Asia
Mostly Domestic
Very Few
https://www.rbbsystems.com/blog/bid/301811/why-high-mix-low-volume-does-not-equal-small-batch-job-shop

EMS providers have their own struggles, also driven by B2B and B2C
buyer needs, and require economies of scale to improve margins
Short Product Lifecycles
Uncertain Demand
Complex Global Supply-
Chains
Supplier Quality
Management
eWaste & Sustainability
Regulations
Shrinking Operating
Margins

Outsourced & offshore supply chains can create massive delays and
cost overruns for larger companies too
https://www.seattletimes.com/business/boeing-787rsquos-problems-blamed-on-outsourcing-lack-
of-oversight/
https://www.supplychaindigital.com/scm/boeing-787-dreamliner-tale-terrible-supply-chain-
management
https://www.strategy-business.com/article/19984?gko=c8d43
Source: https://www.compositesworld.com/columns/aerospace-
composites-in-the-more-for-less-era

Offshoring requires more WORKING CAPITAL, TIME and TALENT to
resolve roadblocks in manufacturing for hardware startups
Ensuring quality
Designing manufacturable
product
Financing production
Scaling production
Managing supply chain
Finding contract manufacturer
Source: http://hardwareclub.co/pages/hardware-startup-report

And hampers adoption of AGILE and LEAN processes to eliminate
waste in the product DEVELOPMENT and PRODUCTION cycles
No Defects
No Overproduction
No Waiting
Fully utilized talent
Minimize Transportation
Minimize Inventory
Minimize Motion
Reduce Extra-processing
Build
MeasureLearn
Lean Manufacturing Lean Product Development

Getting to profitability requires managing costs across multiple areas
in addition to reducing “landed unit cost” of finished product
Raw Materials
&
Components
Fabrication &
Assembly
Reworking &
Scrap
Production
Labor &
Overhead
Duties & Tariffs
Freight-In &
Freight Out
Warehousing
& Fulfillment
Selling,
General &
Administration
Defects &
Returns
Financial &
Billing Fees

AS-A-SERVICE and ON-DEMAND business models take longer to get to
profitability and require upfront capital for deployment and
operational costs
Customer
Acquisition
Costs
Device
Deployment
Costs
Customer
SUpport Costs
Device Parts &
Operational
Costs
Customer
Lifetime
Value
Device
Lifetime
Value
Average
Revenue Per
Customer
Average
Revenue Per
Device
Customer
Retention
Rates
Device
Retention
Rates

Moving FINAL ASSEMBLY closer CUSTOMERS frees up WORKING
CAPITAL by significantly reducing freight, duties, and inventory costs
Before
Made in China
Factory-to-Warehouse: 5 Weeks
Inventory Turn: Months
$1599
After
Made in USA
Factory-to-Warehouse: 30 minutes
Inventory Turn: 6 days
$1299
Source: https://www.theatlantic.com/magazine/archive/2012/12/the-insourcing-boom/309166/
GE GeoSpring™ Hybrid
Water Heater

Final assembly close to customers enables OEMs to leverage agile and lean
methodologies to move fast and reduce product development and
production costs
GE GeoSpring™ Hybrid Water Heater
š Eliminated 20% parts first included in assembly.
š Reduced material costs by 25%
š Reduced equipment investment by 30%
š Cut program cycle time in half
š Reduced resources to build by over 50 %
š Saved over $8 million in development and
production
GE Dishwashers
š Labor efficiency improved by 30%
š Reduced inventory by 60%
š Reduced production time by 68%
š The production line requires 20% of the
space compared to pre-Lean
production
Source: https://hbr.org/2014/04/how-ge-applies-lean-startup-practices
“With FastWorks we’re learning that speed is our competitive advantage.”

Many industries have been reshoring, lead by Transportation
Equipment and Computer & Electronics products
Transportation
Equipment
Computer &
Electronics
Products
Electrical
Equipment,
Appliances &
Components
Chemicals Plastic & Rubber
Products
Source: Reshoring Initiative 2018 Data Report

QUALITY, SHIPPING COSTS, GOVERNMENT INCENTIVES and CUSTOMER
PROXIMITY are the primary drivers for companies reshoring
Offshoring Negative Factors Positive Domestic Factors
Quality, Rework,
Warranty
Freight Costs Total Cost
Delivery Inventory
Government
Incentives
Customer Proximity Skilled Workforce
Made in USA
Supply Chain
Optimization
Source: Reshoring Initiative 2018 Data Report

US MANUFACTURING CAPACITY UTILIZATION peaked in the early 1970s and
has been stable since 2015, but has dipped to historically low levels due to
COVID
https://fred.stlouisfed.org/series/TCU/
*Recession Period
Manufacturing capacity utilization in US factories – 2015 to present
2020*
76%
78%
60%
Manufacturing capacity utilization in US factories – 1972 to present
2008-2009*
2001*
1990-1991*
1981-1982*
1973-1975*
1980*
88%
63%
60%
68%
71%
84%
71%
79%
78%

North American Electronics industry growth is slow, but positive with
surging demand thanks to COVID
Source: https://www.ipc.org/ContentPage.aspx?pageid=Current-Industry-Trends http://www.ipc.org/ContentPage.aspx?Pageid=IPC-Releases-PCB-Industry-Results-for-April-2020

“Manufacturing-on-Demand” marketplaces and service bureaus provide
supply chain resiliency and elasticity for fabricated parts by leveraging
spare capacity in existing factories
3D PRINTING CNC
SHEET METAL
FABRICATION
INJECTION
MOLDING
URETHANE
CASTING
PRINTED CIRCUIT
BOARDS

“Made in China 2025” is China’s answer to “Industry 4.0”, and China’s
investment (as % of GDP) in advanced manufacturing technology has
been outpacing US
https://industrytoday.com/comparing-global-industry-4-0-readiness/
Comparing Global Industry 4.0 Readiness
New information
technology
High-end numerically
controlled machine
tools and robots
Aerospace
equipment
Ocean engineering
equipment and high-
end vessels
High-end rail
transportation
equipment
Energy-saving cars
and new energy cars
Electrical equipment Farming machines
New materials, such
as polymers.
Bio-medicine and
high-end medical
equipment.
http://english.www.gov.cn/policies/latest_releases/2015/05/19/content_281475110703534.htm

Revitalize American Manufacturing and Innovation Act of 2014
convened public-private institutes under one umbrella, supported by
NASA, the NSF, and Departments of Commerce, Defense, Education,
and Energy

Reshoring questions to ponder…
Skilled Talent How do we fill the manufacturing skills gap and train, retrain and upskill
talent?
Supply Chain Can the electronics manufacturing ecosystem be reconfigured to
become local and regionally distributed?
Manufacturing
Capacity
Is there capacity available in existing electronics manufacturing
infrastructure to support reshoring?
Technology
Gap
What infrastructure upgrades are needed to modernize existing
electronics manufacturing infrastructure in the US to support reshoring?
Incentives and
Investments
What government incentives, investments, and public-private
partnerships are needed to update talent, ecosystem and infrastructure?

Thank You
Feedback?
Harinderpal (Hans) Hanspal
hans@thing.company

Reshoring Electronics Manufacturing and Supply Chain

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