Voices: Cherokee International: Where in the world are design and manufacturing?
By Margery Conner, Technical Editor -- EDN, January 18, 2007
When electronic-hardware companies perform research on where to build manufacturing facilities, they must consider more than just which country has the cheapest labor rates. In this brave new world of electronics design and manufacturing, concerns such as a country's technology, supply-chain infrastructure, point of consumption, and flexibility are equally important.
Cherokee International, a vendor of ac/dc- and dc/dc-power supplies, is no neophyte to offshore manufacturing: With its headquarters in Tustin, CA, Cherokee has design centers and manufacturing throughout the world. Tustin, CA, and Wavre, Belgium, are design centers and manufacturing locations for high-volume, low-mix quantities. Cherokee's Guadalajara, Mexico, facility has in the past handled the company's higher volume products, and its facility in Bombay, India, has long manufactured its magnetic components. Recently, Cherokee underwent a re-evaluation of its operations, so it performed a global analysis of where to locate its next generation of manufacturing and design. At first glance, Mexico seemed the logical place to expand design and manufacturing. However, considering proximity to the customer, the opportunity to call on the Asian market, and other factors, Cherokee decided to build in Shanghai, China. EDN asked Mike Wagner, vice president of marketing and an electrical engineer who started out as a power-supply designer, what led to Cherokee's change of manufacturing strategy.
Why did you look at moving manufacturing from Mexico? Aren't Mexico's labor rates among the lowest in the world?
Yes, Mexico has low labor rates—not the lowest—but there are other important factors to consider, and Mexico just didn't come up on top when we factored in the other aspects.
So, if labor rates alone weren't the determining factor, what were the other key influencers? They must have been significant, because you already had an operating facility in Mexico.
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In addition to point of consumption and supply-chain location as two main issues, we also made a consideration for finding engineering talent that could support a future design center. Also, more North American and European customers today are doing their system integration for their end products in China. Finally, we expect to call on the Asian market, which is growing considerably. We believe that Asia will become a significant consumer of our power supplies.
Was China a slam dunk relative to labor rates, then?
Actually, no, because China's labor is not the lowest priced. For example, India has marginally lower labor rates.
Why not build in India, which has a famously excellent engineering-education system, and, besides, you had some infrastructure there already?
Yes, but India's educational strength is more known for software engineering rather than analog engineering. China has a much stronger power-engineering educational system, and analog expertise is the key. Plus, we don't see India's being nearly as robust a customer in the future for power-supply consumption. India also doesn't really have an electronics-supply chain. So, if we were to manufacture power supplies in India, we would have had to pay to ship materials from China to India for manufacturing, and then we'd have to pay added freight and duty to ship the finished product back to the end customer in China. China is a self-contained system of engineering, parts, labor, and customers.
Building a facility is always a gamble. Why didn't you go with CM (contract manufacturing) and sort of ease into manufacturing there?
We've avoided CM because we feel that we can better control our quality by having common processes, equipment, and training across all our facilities. That way, we own the entire manufacturing process and do not depend on a CM whose schedule is fluctuating and subject to other customers the CM supports.
How do US engineering costs compare?
Chinese engineers cost about a third of US engineers, but the higher priced US engineers also have higher level skills sets, at least for now.
