Power supply manufacturer chooses China over Mexico

I was talking recently with MikeWagner, VP of marketing at power supply vendor Cherokee International — and a EE who started out in power supply design — about their newCAR2500 2500W front end/rectifier (which has pretty impressive stats: 27W per cubic inch and an efficiency of 92%, all for $399 — you'll see more about it in an upcoming power roundup piece.) We got to talking about how Cherokee sees the future shaping up, both for design and for customer markets, and Mike related Cherokee's decision-making process for where to locate its next-generation power supply manufacturing plants, as well as some of its design. Although labor rates are important, they're not the dominant factor: In this Brave New Globalized World of electronics design and manufacturing, concerns such as a country’s supply-chain infrastructure, point of consumption, and flexibility are equally important.

Cherokee already has design centers and manufacturing throughout the world. Tustin and Belgium are design centers and manufacturing locations for high-volume, low-mix quantities. Cherokee’s Guadaljara, Mexico, facility has in the past handled the company’s higher volume products, and its facility in India has long manufactured its magnetic components. So 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 China. I asked Mike for some details on how Cherokee ended up in China – and also, how US engineers stack up in the global design market.

(EDN) Why did you look at moving manufacturing from Mexico? Aren’t Mexico’s labor rates among the lowest in the world?

(Mike) 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.

(Mike) 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?

(Mike) 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-educational system, and, besides, you had some infrastructure there already?

(Mike) 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?

(Mike) 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 they support.

How about US engineering costs? How do they compare?

(Mike) 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.