Time for a Price Hike?

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If you manage a fabrication facility, we don’t envy you. You’re being hit on all sides with price increases, you’re traditionally leery of raising your own prices, but you must do something. Do you raise prices, trying to squeeze out more efficiency, or is it some combination of both?

We asked Prototron President Dave Ryder and I-Connect007 columnist Dan Beaulieu to share their thoughts on the current fab pricing environment, the need for greater cooperation, and some pricing strategies for fabricators who are nervously eyeing their bottom line.

Andy Shaughnessy: Dave and Dan, welcome. We’re here to talk about pricing strategies for fabricators. What should board fabricators do when the price of materials, chemicals, labor, shipping, and utilities are all increasing?

Dave Ryder: We’re getting notices from various suppliers every week about everything across the board going up. Sometimes it’s not a big percentage, other times it’s fairly significant. Back in January, after months of receiving these notices, we finally decided we couldn’t shoulder the changes in pricing any longer. So, we came up with a reasonable percentage that we felt covered the surcharges or additional charges that we had been hit with. We pretty much raised prices across the board, but there’s no additional profit in that number. This was simply just to cover the additional charges.

Dan Beaulieu: And in the end, Dave, you’re going to have a lot more. I mean, you have minimum wage issues, the gap with your employees, and insurance. I’ve seen this at every shop I work with, and I’m not working with billion-dollar shops. I work with shops from $48 million in revenue all the way down to $3 or $4 million, and it’s all the same. They’ve all been hit pretty hard. This isn’t to put any other industry segment down, but if you’re assembling boards, you have quite a bit more control. Assembling boards is basically about how well you can manage your supply chain, and how well you can purchase, that kind of thing. But on the board side, it’s a bit of black magic. Dave, would you say there are about 120 steps in building some boards, especially when you’re doing blind and buried vias?

Ryder: It ranges from about 35 steps to 120 steps or more, depending on the complexity. It isn’t as simple as just changing suppliers for this or that, looking for a lower cost. We’ve got a formula that works with the products that we use. We can’t randomly change vendors without disrupting our quality level.

Beaulieu: It’s heavy on equipment and keeping equipment up. We’ve got the black magic of the plating line. There are a lot of moving parts that have to be controlled, and that’s why we have all the quality systems, from AS 9100 and more. But still, it’s 120 opportunities to screw up.

Ryder: It’s heavily dependent upon the skills of the operators. Frankly, our biggest challenge isn’t so much getting supplies—it’s people. That’s a terrible challenge, and we’re not alone. Restaurants and on down the line are having those same issues. But in our particular processes, we’re more heavily dependent upon people than we are having automated equipment.

Beaulieu: Regarding the price issue, it’s tough for everybody. I just read the new book about Jack Welch called The Man Who Broke Capitalism. Welch had no interest in loyalty of employees; he was all about bottom-line money. He led the way to kill off American suppliers and take it offshore. That hurt us as well. It was all about cheap labor. While Americans back in the ‘80s and ‘90s were held to the highest standards, Asia was not. That has changed. I’m not saying that today, but that has changed. We’ve been behind the pricing eight-ball for decades, and it’s been hard.

On the other side, you’ve got customers telling fabricators, “Why don’t you just buy this LDI machine? Why aren’t you investing in your company?” Well, it’s really hard to invest when you’ve got minimum margins. That’s really what affects the price. I remember when a contract manufacturer (CM) came into a shop with their team to tell them that they were pricing wrong and building wrong, simply because they wanted it to fit into the PCBA business model. I don’t think there has been much sympathy for the pricing of PCBs. There have been alternate ways of beating the price of the domestic suppliers as well.

Ryder: That exact situation happened to us with our largest customer in the late ‘90s. They came in and tried to tell us how to price things based on how they price things as a CM. It’s such a different world; it just doesn’t fit. They tried several different board shops, ultimately firing the guy who was in charge of that program, and came back to us.

To read this entire conversation, which appeared in the August issue of PCB007 Magazine, click here.


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