In November 1999, an article appeared in Science magazine describing the development of a single molecule switch chip, a basic component of any future chip manufacturing system using chemical processes known as self-assembly. The article described a process which has succeeded in the laboratory in creating arrays of molecule sized switches from which information can be stored and retrieved. The process is dramatically different from that which is used to build today’s semiconductor chips.

Molecular Electronics Corp. is a company formed in December 1999 to exploit the immature but commercially enormous potential of these new computing circuits.

The co-founder and CTO of Molecular Electronics is Mark Reed, the author of the Science magazine article in November 1999, along with Rice University chemistry professor, James Tour, also co-founder of the company. The memory structure designed into the new “moletronics” is likely to have more faulty components than today’s semiconductors, but billions of circuits that function correctly. Other companies operating in the same new technology era include California Molecular Electronics Corp., which went public in February 2000.

LAS VEGAS - The distributor consolidation drive chalked up two more deals last week, with Reptron Electronics confirming earlier reports (EN, March 20, April 17) by signing a letter of intent to acquire Saratoga, Calif.-based Western Micro Technology’s semiconductor components distribution business, while Avnet acquired BFI-IBEXSA International, Inc., a $54 million European specialist distributor of radio frequency/microwave and other components that will complement Avnet’s purchase of North American-based Penstock last July.

The Reptron deal only includes Western Micro’s component business, which had around $60 million in revenues last year, and not its systems business, which had about equal numbers producing total ‘94 company revenues of $119 million.

“This makes us a national distributor, east to west,” said Reptron president/CEO Michael Musto, who was interviewed here last week at the Electronic Distribution Show and Conference. “We are very excited.” Tampa, Fla.-based Reptron has been aiming at national distributor status, and recently acquired New England-based Cronin Electronics (EN, Off The Shelf, March 27).

Industry leaders Arrow and Avnet have been aiming for international status in recent years through acquisitions, and Avnet said last week that BFI-IBEXSA “operates in all European countries.” The French-headquartered firm is “the leading technical pan-European specialist distributor of RF/microwave components, magnetics, sensors, connecting devices and other specialty components,” according to Avnet, and with BFI-IBEXSA in Europe and Penstock in North America, “Avnet is the leading global distributor in this niche of the high technology market.”
No exact purchase prices were revealed for either the completed Avnet or proposed Reptron deals.

More industry consolidations can be expected, according to Reptron’s Mr. Musto. “In the future, the industry will do a lot more joining together of forces. It has got to happen. As gross margin pressure becomes more prevalent all distributors are starting to see it,” with a solution combining distribution forces to reduce the cost of doing business. It is important to keep the spread between cost and gross profit. You will see more consolidation.”

Many here noted that semiconductor distributors are increasingly counting on sales of highvolume memories, which can have thin margins. By combining forces and creating economies of scale, distributors argue they can lower their overhead as a percentage of total sales.

Industry acquisition thrusts had been expected to provide fodder for many conversations here at EDS ‘95 (EN, April 17), and numerous driving forces were cited. Reptron’s goal to become national stems from the push by many customers and suppliers to deal with fewer, more broadly-based distributors, many contend, and more combinations of regional distributors to offer nationwide coverage can be expected. Cost and margin pressures such as those cited by Mr. Musto were also listed by others here, with many noting that highly competitive PC and other consumer makers leading the current business surge are demanding ever lower component prices.

Competition between industry leaders Arrow and Avnet may also have sparked consolidations. Arrow recently pushed ahead of Avnet to claim the number one spot in distributor sales through acquisitions, and both have been rapidly expanding offshore. Many observers wonder what other new industry pairings might be in the offing, and whether any new combination could create a third distribution powerhouse approaching Arrow and Avnet, which currently tower several billion dollars in sales above their closest rival.

“There will be continued acquisitions,” predicted Insight Electronics president/CEO Michael Rohleder. “The industry’s in love with large acquisitions. Everybody loves to talk and speculate.”

Many are reportedly weighing all options for their own firms. “We are snooping around, very busily looking for more acquisitions,” according to Bruce Goldberg, president of All American, which has been on an expansion drive. Asked if there was any possibility his firm might be acquired, he replied, “That’s always a possibility. Right now, everyone is talking to everyone, exploring all the possibilities, looking for the formula to be most competitive in the future.”

Nu Horizons, according to chairman Irving Lubman, is “always looking for acquisitions, but the fit would have to be right.”

Outlining various forces driving consolidation, Mr. Goldberg suggested some companies might want to see because “they haven’t kept pace with the changes in the industry” (such as providing costly new services, computer capabilities, etc.). There is pressure from two sides. Suppliers want to deal with fewer distributors who have more geographic coverage and better service capabilities, the most professional sales and management team. They don’t want to have 20 smaller guys to cover the country. Also, customers want to deal with fewer distributors, with more service capabilities and broad enough product capabilities to service all their needs. Part of the driving force from the supplier side, is they need to cut costs. One way to do that is to deal with fewer distributors.”

End-customers also need to cut costs, he said. “They need distributors to offer lower prices. Therefore the supply chain has to provide product cheaper. Our goal is to continue to increase economies of scale in order to provide the customer with products at a lower price.”

Currently, Mr. Goldberg said, All American is “competing in an environment where the biggest distributors can do business with SG&A as low as 10 to 12 percent of sales. Today we are in the 18 to 19 percent range and our goal by the end of the decade is to be 10 to 12 percent. I suspect most distributors in my size are 16 to 20 percent SG&A. I consider it acceptable today but it has to change. With technology and automation, you can increase production without increasing fixed costs.”

TTI’s VP of corporate sales, Craig Conrad, said “the marketplace won’t allow a lot of inefficiency.”

Areas requiring major overhead expenditures, according to Nu Horizons marketing VP Ben Schwartz, include MIS, sales operations and technical support.

Waldom Electronics president Roger Engle, said “whenever there is an upturn in the economy, people want to sell.” Also noting that “margins are not likely to go up,” he pointed to cost advantages of combining revenues and eliminating overhead through acquisitions.

Industry consultant George Perris, president of Sierra Marketing Group, Rocklin, Calif., noted “there are definitely margin pressures.” He added that distributors are also being pushed toward consolidations and national status because many large suppliers want to deal with “fewer distributors.” Component suppliers here also see many of the same trends.

“The cost of sales has to come down,” according to Jim Bruorton, Kemet Electronics director of worldwide distribution. Discussing how to do that, Terry Weaver, Kemet senior VP of sales and marketing, suggested increased reliance on systems instead of people, shorter cycle times, and “a shorter number of elapsed days for everything you do, in every step of the process. The key issue is time compression, along with quality and performance and reliability. The customers’ preferred holding time for parts is nanoseconds.” He added that distributors and component suppliers are affected by price battles in the computer market. With “computer prices down, the squeeze happens all the way down the line.”

The Reptron-Western Micro deal, according to Bourns distribution VP Patricia Moorman, reflects “the continuation of regionals becoming nationals. A true national distributor has to have a West Coast presence.”

Discussing its letter of intent to acquire Western Micro’s semiconductor business, Reptron said “it is proposed that Reptron acquire Western’s semiconductor components-related inventory and certain receivables, furniture and equipment for cash at a price of approximately net book value. In addition, Reptron will agree to assume certain of Western’s lease obligations.” No dollar figure was placed on the deal, which does not include Western’s computer systems, peripheral and software business.

Upon completion of the acquisition, Western Micro president and CEO Ron Mabry will join Reptron as a VP. Scott Munro will be Western’s president following the sale and head up its remaining business. He has lead the development and growth of the systems business to date, Western noted.

“This is a great opportunity for Western Micro,” Mr. Munro said. “The sale frees up the management team to focus its efforts entirely on the part of the business which has achieved the highest rate of growth in the past and which, we believe, represents the best opportunity for profitable growth in the future.

Combining computer technology with consumer electronics

Far from just a workplace phenomenon, the rapidly changing face of computing is affecting all aspects of our lives–but the effect is not always obvious. A concept known as convergence involves manufacturers taking the best, most useful components of computer technology and incorporating them into familiar household appliances to create “smarter” homes for the new millennium.

Analysts have been touting convergence for years, eventually expecting a central PC to control everything in your home from the television to the heat and electricity. In the consumer electronics industry convergence means convenience. It’s the result of a race for the consumer’s time, says Sonia Khademi, president and CEO of interactive television service provider CableSoft Corp. based in Burlington, Massachusetts. “The Internet portals want TV viewers and the networks want to regain the time consumers spend on PCs. Everyone is lobbying for a viewing world.”

The early stages of convergence have already begun to infiltrate our daily lives by changing mundane objects such as televisions and telephones into appliance/PC hybrids known as information appliances. International Data Corp., a Framingham, Massachusetts-based information technology market research firm, expects 55.7 million information appliances to be in use worldwide by 2002, up from 6 million in 1998.
Computer maker Gateway was the first to blur the line between appliance and PC with its Destination series of PCs, which start at $1,999 and are designed for the living room with large monitors (over 29 inches) and a built-in TV tuner. WebTV uses a set-top box to provide Internet access via your television in a less ambitious (and cheaper) way of combining the features of the TV and PC. The $200 device, manufactured by several companies including Philips and Sony, is so far the most widely used example of convergence. Lately, though, there’s another set-top box stealing some of WebTV’s thunder.

ReplayTV, a sort of digital VCR, was introduced earlier this year in Las Vegas at the Consumer Electronics Show. The device, developed by Replay Networks (www.replaytvcom), uses Internet and computer technology to help viewers catch their favorite shows. The $699 device plugs into a regular phone line and downloads television programming information from the Internet. TV viewers can then program Replay TV to find and record their favorite shows and store them on the unit’s hard drive. “People aren’t convinced they want to watch TV on computers,” says Replay spokesperson Ron Kalb. “But they’re missing their favorite shows.” He maintains that ReplayTV is not intended to replace computers or televisions, but rather to bridge the gap between the two.

“I don’t believe you’re ever going to watch Gone With the Wind on a PC, or do your banking on your TV,” says Khademi, whose company develops information services for cable operators. The company leverages the resources of the Internet for cable subscribers and its SnapFacts service lets subscribers access channels of information from the Internet with a click of the remote control. Users have access to up-to-the-minute information on local weather, sports, restaurants and entertainment.

Television isn’t the only area of the home that’s getting a high-tech makeover. The Consumer Electronics Manufacturers’ Association points out that information appliances such as Internet-enabled telephones–Cidco Inc.’s iPhone, for example–were hot items at its annual Consumer Electronics Show in January. The device, which costs $39.95 at the Website, features a graphical screen for displaying Web pages and can be hooked up to a keyboard so users can send e-mail.

Not only is convergence transforming the home, but it has also made its way behind the wheel. In January, Clarion Corp. wowed both the computer and auto industries with its AutoPC , a device that merges computer functions with a car’s audio system. “People already use cellular phones and are toting laptops around with them in the car,” says Steve Roth, Clarion marketing manager, “so why not give them wireless access to e-mail and a satellite navigation system, as well?” Clarion’s $1,299 AutoPC device also includes extensive speech-recognition capabilities to keep drivers’ hands on the wheel.

Analysts agree that the appliances we have seen to date are just the tip of the iceberg when it comes to convergence. But does that mean we’ll live in a technologically crazed world more suited to computer scientists than consumers? Not necessarily. Says Khademi, “Information appliances must cater to behavior patterns of people. If [prospective customers] see the technology, we’ve lost them.”

Packaging machines for new or existing lines are easier to operate and change over than they ever were before. Today’s packaging machines also accommodate a greater variety of heights, diameters, finishes, or dosage regimen counts.

These benefits are mainly a result of the replacement of mechanical parts such as gears, shafts, and cams with electronic components such as servo motors and drives. Fully electronic motion control allows each function to be servo-controlled so that product and format changes can be executed at the touch of a button and manual adjustments can be minimized. “All servo machines allow operation across a virtually infinite set of parameters,” says John Kirk, vice-president of sales, liquid packaging, and pharmaceutical operations at Robert Bosch Packaging Technology, Inc. (Minneapolis, MN).

This adjustability not only enhances flexibility and accuracy but also may increase uptime and reduce product waste. For example, if a servo-controlled vial-filling monoblock with multiple heads experiences a problem with one head, that head can be turned off while the remaining heads continue to fill and the closing station compensates accordingly. Without this capability, the entire machine would have to be shut down, and product and production time would be lost.

Other innovations in today’s state-of-the-art packaging equipment include modular designs and balcony, or cantilevered, construction. The former makes it easy to add features and expand machine capabilities as needs change. The latter improves machine hygienics and operator ergonomics because motors, drives, and other moving parts are placed behind a vertical wall rather than below the machine. This position not only separates particulate-generating activity from the clean areas but also improves accessibility of these parts for maintenance and service and results in a narrow machine that is easy for operators to reach across. In addition, a balcony design streamlines airflow around the machine because there are fewer horizontal surfaces to impede it.

Another trend is the replacement of programmable logic controllers with PC-based control. Computer control combined with servo technology expedites shutdown and startup and increases productivity. It also can provide feedback control whereby the system monitors machine performance and can self-correct if operations start drifting out of specifications. However, many pharmaceutical manufacturers prefer that adjustments be made by a qualified operator and simply program the controller to provide alerts about off-specification trends or fault conditions.

Operator interfaces have moved from panels with buttons, switches, and knobs to easier-to-use touch screens. Software for these control systems and operator interfaces often is Windows NT- or Windows XP-based, which are systems familiar to many operators, thus shortening the learning curve. Typical features include graphical depictions of machine performance, drag-and-drop programmability for easy set-up and changeover, and data collection and archiving of production statistics. The latter is particularly essential for compliance with 21 CFR Part 11 requirements related to electronic signatures and record keeping.

Control systems also can provide access to machine manuals, documentation, and extended diagnostics. An intranet or Internet interface makes it possible to monitor machine operation remotely by means of a standard Web browser. This interface can alert operators and supervisory personnel about machine faults through e-mail, a pager, or a cell phone. In some cases, fault alerts also can be directed to the machinery builder’s technical support staff for remote diagnostics and repair or the dispatch of service personnel.

Other state-of-the-art features include an integrated uninterruptible power supply so that data are not lost in the event of a power failure and inline quality control devices such as vision systems or check-weighers. With onboard quality control devices, 100% inspection can be achieved without the need to slow line speeds. If 100% inspection is not desired or practical, systems can be set to automatically check a designated sampling of containers.

Today’s electronic machines typically require fewer change parts than did their mechanical predecessors. However, sometimes change parts are needed because the finishes, diameters, or heights of the containers to be run on the line are too different to share tooling. In such cases, changeover is expedited by the use of quick-connect/disconnect hardware, tool-less adjustments, color-coded change parts, and standardized parts trolleys. The latter arranges parts on a cart in an orderly sequence so that operators or mechanics have everything that is needed for changeover at their fingertips.

Although pharmaceutical manufacturers have not adopted isolator-equipped machines as quickly as some experts had expected, there is a clear trend toward these machines that create a cleanroom environment within an enclosure. “Isolator-equipped machines were viewed as a large risk, but now they are seen as viable,” explains Jeffrey Jackson, product manager of pharmaceutical operations at Bosch. “Everyone is going to be adopting it in five years,” he predicts.

“FDA has started to be more clear about the benefits of isolator technology,” notes Kirk. “Some manufacturers are adopting isolator equipment to be proactive, assuming it will eventually be required,” he adds.

A number of factors are driving pharmaceutical manufacturers to purchase state-of-the-art equipment. “Regulatory requirements are a huge driver,” says Kirk. Another major influence on new equipment specifications is the proliferation of drugs and packaging formats, which is spurring demand for flexible machines that can handle a wide range of container sizes and shapes. In today’s pharmaceutical production facilities, it is not uncommon to fill 15 or more different vials on the same line, especially in the United States where vial sizes are less standardized than in Europe. Moreover, the evolution of new technology also is encouraging investment in new equipment.

Flexible machines are particularly useful at companies that must perform frequent short rims such as clinical trial packagers because changeover is simple and less time consuming. This means shorter downtime for line cleaning and setup. In fact, because the results of clinical trials are extremely influential to the future marketing of a new drug, “FDA wants clinical trial packaging to reflect the production environment as closely as possible,” says Kirk.

The demand for flexibility also is driving increased adaptation of pick-and-place devices for functions such as tray loading, checkweighing, quality control sampling, and carton/case loading. An example of the marriage of servo and pick-and-place technologies is a new trayloader design (TRL 1030 trayloader, Bosch). Servo motors and drives eliminate the complexity of earlier, more-mechanical designs and replace them with smooth, reliable and flexible motion controls that ensure a cleaner operation and minimize vial acceleration and splashing.

A trayloader’s function is to load filled vials onto trays in a designated pattern for storage or transport for further processing such as freeze-drying. The new trayloader is designed to gently pick and place vials reducing the possibility of breakage. The unit is compatible with four-sided trays or trays with the holding ring already in place–a favored design because it eliminates the need for the operator to lean over the tray to place the ring.

“We began the redesign of the trayloader looking at ways to improve the motion of the machine and give the customer greater flexibility,” says Al Peterson, product development manager at Bosch. The servo-controlled robotic function eliminates the need to have fixed cams, gears, and levers, and the control system makes it easy to adjust the machine to accommodate various container and tray sizes and loading patterns.

The addition of servo controls creates a faster, less expensive system that requires less maintenance and fewer repairs. Further efficiency is gained with the use of a color touch-screen operator interface.

The TRL 1030 unit can handle trays that measure up to 40 x 24 in. (an increase of 12.5% from the previous model) while maintaining the same footprint as the earlier version. It will load as many as 400 vials per minute and as many as 20 rows per minute, depending on vial size and tray width. Vial sizes can range from 2 to 250 mL, and the system holds recipes for adjusting the machine for various vial sizes. The tray can handle other sizes with minimal change parts. An open design allows unidirectional airflow and cleaning.

MELVILLE, N.Y. — Arrow Electronics Taiwan Limited (”Arrow Taiwan”), a wholly-owned subsidiary of Arrow Electronics, Inc. (NYSE:ARW) in Taiwan, has launched an all-cash tender offer to acquire a substantial portion of the common stock of Taiwan-based Ultra Source Technology Corp. (TSE:3020) for a purchase price of NT$22.50 per share. If the tender offer is successful, it is anticipated that Arrow Taiwan will directly or indirectly own between 40% and 70% of Ultra Source at its conclusion.

In conjunction with this tender offer, Arrow Taiwan has entered into an agreement with key members of the Ultra Source Board of Directors and executive management team who have agreed to tender their shares and to cause the tender of other shares, representing, in aggregate, approximately 40% of the outstanding common shares of Ultra Source. The Board of Directors of Ultra Source is expected to recommend that all shareholders of Ultra Source tender their shares.

“Our partnership with Ultra Source will accelerate the growth of our leading position in electronics components distribution in this very important region,” said William E. Mitchell, President and Chief Executive Officer of Arrow Electronics, Inc. “Ultra Source customers will now have access to our broad and deep line card and Arrow will gain access to strong local suppliers in the consumer digital segments. The deep industry experiences of the Ultra Source management team, led by Mr. M.C. Wen, Chairman, and Mr. Vincent Sung, President, further strengthens our team,” added Mr. Mitchell.

Ultra Source, which is headquartered in Taipei, Taiwan and has approximately 200 employees, is one of the leading electronic components distributors in Taiwan with sales offices and distribution centers in Taiwan and Hong Kong and substantial sales in the People’s Republic of China. Total 2005 sales are expected to exceed $500 million.

“We are looking forward to having Arrow become our majority shareholder,” stated Mr. M.C. Wen. “With its rich experience in global operations, the world’s premiere suppliers, vast customer base, and strong financial resources, Arrow will help Ultra Source accelerate its growth in Greater China.”

“Taiwan represents an important market not only in itself but also because it serves as an important gateway into China”, said Harriet Green, President, Arrow Asia/Pacific.” “This partnership will create exciting opportunities for both Ultra Source and Arrow.”

The tender offer will expire at 3:30pm, Taiwan time, on Thursday, December 1, 2005. Completion of the tender offer is subject to the receipt of certain regulatory approvals.

Arrow Electronics is a major global provider of products, services, and solutions to industrial and commercial users of electronic components and computer products. Headquartered in Melville, New York, Arrow serves as a supply channel partner for nearly 600 suppliers and 150,000 original equipment manufacturers, contract manufacturers, and commercial customers through a global network of more than 200 locations in 53 countries and territories.

Safe Harbor

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. This press release contains forward-looking statements that are subject to certain risks and uncertainties which could cause actual results or facts to differ materially from such statements for a variety of reasons including, but not limited to: industry conditions, changes in product supply, pricing, and customer demand, competition, other vagaries in the computer and electronic components markets, changes in relationships with key suppliers, the effects of additional actions taken to lower costs, the ability of the company to generate additional cash flow and the other risks described from time to time in the company’s reports to the Securities and Exchange Commission (including the company’s Annual Report on Form 10-K and Quarterly Reports on Form 10-Q). Forward-looking statements are those statements, which are not statements of historical fact. You can identify these forward-looking statements by forward-looking words such as “expects,” “anticipates,” “intends,” “plans,” “may,” “will,” “believes,” “seeks,” “estimates,” and similar expressions. Shareholders and other readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. The company undertakes no obligation to update publicly or revise any forward-looking statements.

New European Union (EU) rules on the use of hazardous substances in electronic equipment could pose major logistics headaches for U.S.-based manufacturers and component suppliers. The electronics industry not only has to develop new manufacturing processes, but also will have to keep better track of components and temporarily manage separate streams of compliant and noncompliant inventory.

“It is much harder than it sounds to track the contents of every product,” says Judith Glazer, director in Hewlett-Packard’s process development, supply chain services, and product processes organization. “It’s a daunting challenge.”

The rules are a reaction to a growing electronics industry problem–the increase in consumer electronics waste caused by the rapid obsolescence of computer and home entertainment products.

“In 2001, electronics accounted for between 2% and 5% of the waste stream,” says Chris Newman, of the U.S. Environmental Protection Agency, Region 5. “The EU estimates that electronics waste is growing three times faster than any other waste stream.” Of the 40 million computers that became obsolete in 2001, only 10% were recycled, Newman says.

The EU has issued two directives, which will, in effect, become de facto worldwide standards. The Waste Electric and Electronic Equipment (WEEE) recycling directive requires manufacturers to provide the means for consumers to return electronics waste free of charge by Aug. 13 of this year. By Dec. 31, 2005, manufacturers will need to finance the return of 75% of all products.

The Reduction of Hazardous Substances (RoHS) directive, which takes effect next summer, requires manufacturers to limit the amount of hazardous materials (lead, mercury, cadmium, hexavalent chromium, and some flame retardants) in everything from cell phones and radios to desktop PCs. There are exemptions for some products, such as servers and networking equipment, which will be reviewed periodically and eliminated eventually, as “green” manufacturing processes improve.

An Industrywide Shift

Although many companies have never even heard of the two directives, they will force an industrywide shift in both manufacturing and supply chain operations. “No matter where you are organizationally or in the supply chain, this is going to change your life, guaranteed,” says Peter Lachapelle, vice president for content and supplier relationship management at i2 Technologies. “It won’t matter whether you’re exempt or not.”

Hewlett-Packard has developed a social and environmental responsibility initiative to address not only RoHS and WEEE, but also other supply chain issues, such as labor practices among its component suppliers. Glazer, speaking at the 2005 National Manufacturing Week show and conference in Chicago earlier this year, said HP engaged its suppliers early on regarding hazardous substances. The company had to augment its supply chain management software to handle the additional tracking requirements. “We need to know that all parts are compliant, and our product data management systems have to track down to the part level,” Glazer says. “We depend on our suppliers to have good control processes, and we’re working with them to make sure those processes are solid. But it’s a challenge.”

Although companies such as HP, Sony, and Apple have been proactive, a large chunk of the electronics supply chain seems ill-prepared for these changes.

“Every company in the electronics supply chain, from parts manufacturers to retail outlets, needs to have strategies to comply with these regulations,” according to a January report from AMR Research. “Right now the wrong questions are being asked by the wrong people in the development of these strategies.”

Many smaller companies and some raw-material suppliers may be unaware of the new rules. Based on the questions asked at an EPA session led by Newman at National Manufacturing Week, many sheet metal fabricators and other suppliers don’t even know what RoHS is.

“I’d feel more confident in a large supplier in the U.S. being compliant than a smaller one in, say, China,” says Eric Karofsky, analyst at AMR Research. “To put your trust in a component supplier right now is a big risk, and it’s a burden that some of the smaller companies can’t bear.”

“The majority of suppliers are several steps removed from the direct impact of this,” says Lachapelle. “The industry is asking them to make fundamental process changes, and that won’t be done overnight.”

Geoffrey Bock is an engineer with TUV Rheinland of North America, which runs a certification program for RoHS compliance. He works with medical device and monitoring device manufacturers, and from what he’s heard from his clients, there is cause for concern. “At the 20 or so companies I’ve consulted with, they’ve sent out questionnaires to their suppliers,” he says. “Only 20% responded that they’re compliant, on average. A large chunk–40% to 50%–don’t know. The rest didn’t respond at all.” Several companies have set up verification programs, via either third parties or internally, to test for hazardous substance levels in their finished goods.

Symbol Technologies, one of the largest manufacturers of wireless communications and automatic data capture equipment, has set up a Web site to collect information from its component suppliers about hazardous substance levels and compliance timelines. “The first thing everybody had to do was find out where they were at in terms of hazardous materials content,” says Tom Collins, senior vice president for supply chain operations at Symbol. “As we move forward, we’re going to have test results from all of our suppliers. If some don’t want to play, we will need to replace them.”

While RoHS is more of an engineering and information management problem, WEEE will be a massive reverse-logistics headache if not handled properly. Luckily, third-party providers and industry consortia are providing workable solutions. Individual countries also have recycling programs, often paid through taxes on recyclable items. Symbol is contracting with a third-party provider to handle its WEEE compliance, and is preparing for new product-labeling requirements. “By August, we need to label all equipment that is above the required levels on hazardous substances,” says Collins.

Take-back Costs

To save on take-back cost, many companies are donating or refurbishing equipment, or selling it on eBay. This not only generates some revenue or tax breaks, but also relieves the manufacturer of the end-of-life responsibility.

The transition to new designs based on the environmental directives could lead to inventory management problems as well. Manufacturers will need to know which product is compliant, which isn’t, and where it all went.

“A few companies I’ve talked to have said they’re going to stockpile their old stuff for repair purposes,” says Bock. “But if you do that, now you have to separate and organize those inventories, and you must have two different part numbers so that you can tell the difference. You really don’t want that.”

While introducing new part numbers can be problematic and expensive, managing mixed inventories with the same number will require IT systems that can track those parts that are compliant. “You have to separate those inventories to maintain outbound quality control,” says Jim Smith, senior vice president for warehousing and distribution worldwide at Avnet Logistics. “You have to identify those products inbound, in storage, and outbound. And people often assume products flow just one way, which isn’t true. Used or returned parts might come back in different packaging that doesn’t indicate RoHS compliance. How do you deal with that?”

The danger for manufacturers is that parts made with lead-free solder require a different manufacturing technique than leaded parts–especially where temperature is concerned. Lead-free solder can grow what are called “tin whiskers” that can cause equipment failure later in the part’s life.

At Symbol, all of the company’s components are serialized and tracked. “We’ll have pools of part numbers that will reflect what meets the new criteria and what doesn’t,” says Collins.

The company is not changing its part numbers for RoHS, however. “New part numbers ripple through the customer base and ripple through the field,” Collins says. “That just increases the complexity of all your inventory processes. The form, fit, and function of the part have not changed. If we use the same part number, it will be transparent to the customer.”

According to Collins, the new lead-free components will be backward-compatible with pre-RoHS equipment.