Havoc in the supply chain
Staff -- Purchasing, 12/9/2004 2:00:00 AM
"The lead-free issue is so complex. People are misinformed, or uninformed, about what it means. It's going to create havoc next year," says Craig Conrad, senior vice president, chief marketing and strategic planning officer of TTI, a leading distributor of passives and interconnect products.
Conrad contends that the Restriction on the Use of Hazardous Materials (RoHS) legislation that will prohibit the use of lead and several other substances in electronics equipment sold in Europe beginning in July 2006 "will create chaos in the supply chain" as more suppliers switch to lead-free parts
A case in point: Conrad says one customer who does not sell in Europe told him that lead-free parts are falling off boards because suppliers did not inform the customer the parts were lead-free. (Lead-free parts require a different solder material than leaded parts and higher soldering temperatures.) New part numbers for the lead-free parts were not issued, the customer told Conrad.
And that's one of the key issues: how suppliers will designate conformance to the lead-free legislation. For its part, the National Electronics Distributor Association has called for suppliers to issue new part numbers to designate lead-free parts.
And, according to a survey conducted by Avnet of 53 suppliers and 13 electronics manufacturing service (EMS) providers, 52% say they plan to issue new part numbers for lead-free products. But that means that almost as many do not plan to change part numbers and instead just put a lead-free designation on packaging or designate lead-free in date codes or lot codes.
"That means 48% are not going to change part numbers," says Glenn Bassett, vice president of business development for North American distributor Avnet, based in Phoenix. "That is a problem. How do we track electronic component information throughout the supply chain?"
Avnet's survey—which was conducted by researcher and EMS industry consultant Technology Forecasters—also found that about 35% of suppliers say there is a potential for price increases because of the lead-free initiative. Fifty-three percent said there will be no change in price.
By contrast, the impact on leadtimes is expected to be minimal, if at all. Only 2% said the lead-free ban would impact leadtimes, 75% percent said they would not and 23% said they did not know.
Lead-free timing
More than half, or 56%, of suppliers say they expect 50% of their customer orders will be lead free sometime in 2005, while 12% say it will occur in 2006.
And while some suppliers will phase out leaded parts, others will continue to make them for a while. "There will be fewer leaded parts available and most likely the price will rise for them. "Our broker friends are going to make a lot of money," says Bassett.
At the same time, franchised distributors need to be careful so they don't lose money. "We have to figure which leaded parts we need in place and which ones we need to let go," says Bassett. "You don't want to get stuck with that bag of parts you can't sell," he says.
Distributors will need to be proactive in dealing with lead-free, says John Gabel, director of logistics for Arrow North American Components. "They need to nail down what each component manufacturer is doing with lead-free," and determine when each supplier will be compliant and how they will designate compliance.
In addition, he says, distributors will have to modify inventories to designate parts as lead-free, RoHs compliant and green, and may even have do a physical inventory of the parts at distribution centers for products, which won't be getting new part numbers. "Right now we are getting lead-free product. Some of it is labeled with a little Pb free symbol, some not."
Distributor sales forces will also need visibility to lead-free information so when a buyer calls, the right data can be provided. "If there is not a different part number, there has to be some way to differentiate a leaded part from a lead-free part," says Gabel. "It could be an internal part number or a manufacturer's code designation.
Ultimately, says Avnet's Bassett, the ban amounts to "a tax on the electronics industry and everybody has to pay it. Suppliers have to pay for it because they have to figure out how to move lead out of their systems. Distributors have to spend a lot of money on systemic changes, and to reorganize warehouses. Customers will have to spend a lot of money by putting new lines in place."
Still, he says, the lead-free ban is an "exciting issue in a very negative way. We want to say absolutely" that Avnet has a solution to lead-free. "We don't want to say we're not sure because we'll have to release that in our earnings announcements."
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