This week at the International Relay and Switch Technical Conference (IRSTC) I had the pleasure of moderating a panel discussion concerning commercial issues faced by manufacturers, distributors and material suppliers to the relay and switch industry as they and their customers prepare for RoHS compliance. The following is a summary of this panel discussion and a look at what may be ahead as the deadline draws near.

Comply with RoHS or Not? A Question OEMs Must Answer.

July 1, 2006 is the deadline for RoHS compliance for all products being shipped to the European Union. Most manufacturers with significant shipments to Europe have ensured their products do or will comply and are now cleaning up paperwork to document compliance. Some have made a decision to stop shipping products to Europe. Another group is scrambling to try to comply. 

Aside from Europe, RoHS compliance requirements for the rest of world are still not clear. The United States has not enacted any federal requirements, but the state of California seems to want compliance sometime in 2007. Japan seems to have requirements equal to RoHS and may enact more strict requirements in the future. While China keeps saying yes it will enact RoHS, then no they won’t, and then yes they will.

Should RoHS Compliant Products Have a New Unique Part or Mark?

The idea of changing part numbers to indicate RoHS compliance has drawn much debate.

Proponents of new part numbers like the fact that compliant and compatible products can be differentiated for parts that are not. This is particularly important when a product has gone through a design change so it meets RoHS. This eases inventory management of old non-compliant inventory for OEM’s, distributors and product manufacturers.

The drawback to creating new part numbers is the work and potential confusion it creates. When a part number is changed manufacturers must establish new part numbers and change design and manufacturing databases. Their distributors and customers must also change their systems to obsolete the old number and switch to the new. This also creates the need to change bills of material (BOM’s) and approved vendor list (AVL) information. Errors in interpretation in any of these information systems can lead to future order, manufacture and shipping problems.

Another option is keeping part numbers constant and place a RoHS compliant mark on the product or product package, although there is no “official” mark to signify RoHS compliance.

There is no clear best solution to this and each manufacturer is choosing its own methods.

A Sea of C of C’s

No standard forms have been established to document that a product complies with RoHS. Because of this all sorts of documentation asking for different types and amounts information are flowing between OEM’s and manufacturers and distributors. Some these are Certificates of Compliance (C of C’s), material declarations, and IPC1752’s, to name a few. While form IPC 1752 seems to be the intended central document there is no clear understanding in the industry that it is.
 
Routing of compliance requests is also creating multiple efforts. A component manufacturer may receive a documentation request from an OEM, fulfill that request, and receive a request for the same information from a distributor so they can provide it to the OEM. While everyone in the supply chain needs to have the documentation, the duplication of requests is creating inefficiencies.

A Point of no Returns

What should or can be done with parts that do not comply with RoHS? The obvious answer is to have them consumed in markets were RoHS requirements are not in place. If an OEM has decided to make only compliant products and their suppliers will provide compliant components, should the OEM be allowed to return old non-compliant parts? The same question can be asked concerning distributors. If returns are allowed, how long a period of time should be permitted for the process? There are no clear answers to these questions.
 
At some point in the future, someone will have a small or large quantity of parts that are not RoHS compliant. How should unwanted parts be disposed? Putting them in a landfill or incinerating the parts does exactly what regulations are meant to prevent.

Lead Times May Grow

OEMs and distributors are working down inventories of non-compliant components in anticipation of new compliant part availability. This could lead to large demand spikes for new parts once they are available. The closer new part availability gets to the July compliance deadline the more likely this becomes.

This same scenario could also affect raw material and piece part delivery to component manufactures.

What is the Cost and Price of Compliance

There has been and will be a high cost of change for RoHS compliance. Manpower to redesign product, qualify new materials and processes, support documentation change and new documentation requirements, and accept returns and dispose of non-compliant parts. Many new compliant products will incorporate higher cost materials or processes. The total cost to implement RoHS compliance is impossible to estimate; however, most people in the industry feel the cost has been huge.

So if the one time cost of change has been so great and the ongoing material costs are higher than pre-RoHS, it would be logical for component manufacturers to seek higher prices for compliant parts. However, this does not seem to be the case. In today’s highly competitive relay and switch market a component manufacturer is very reluctant to be the first to try to raise prices, even if they can demonstrate legitimate cost increases caused by their customer’s request for a new product.

Aside from the manpower and materials cost that companies have incurred to comply with RoHS, there has also been lost opportunity cost. The requirement of RoHS and time to prepare for compliance has been the last five to six years. This stretch of time has also been one of the worst economic periods seen in the electronics industry. Many companies have made dramatic decreases in manpower to increase productivity. For many companies the need to rework existing products for RoHS compliance has tied up the resources needed to pursue truly new products. New products are the growth engines for manufacturing companies and for many switch and relay makers this engine has been stuck in neutral.