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The cost of compliance
The July 1 deadline for compliance with the European Union's Restriction of Hazardous Substances directive is almost here. Established in response to the increasing amount of consumer electronics products ending up in landfills, RoHS is clearly beneficial for our environment. However, it is an expensive proposition for manufacturers, distributors and OEM customers alike.
The significant expense is closely tied to the struggle to identify and manage RoHS-compliance requirements — from technical and qualification issues to inventory control, forecasting, part-number management, communication and documentation. There's no escaping the additional costs and complexity, but communication along the supply chain can mitigate their impact.
Qualification of parts
With varying bills of materials (BOMs), a semiconductor company could face a multitude of qualifications, resulting in quickly mounting costs. For example, if a semiconductor company used three fabrication vendors with different passivation schemes, it would need to do at least three qualifications. To add further complexity, if the semiconductor supplier had three unique package types with different BOMs, it could do as many as nine separate qualifications. The requalification exercise is a time and resource drain for semiconductor companies choosing to become RoHS-compliant. With so many parts involved across so many technologies, the supply chain will be significantly affected.
Aside from inventory issues, customers have additional technical challenges to consider. With a variety of raw materials used in semiconductors, customers should be aware that the reflow profile is different for RoHS-compliant vs. standard devices. For example, the peak reflow temperature profile for RoHS-compliant material is 2,600°C, vs. 2,400°C for standard packages.
Customers also need to understand the manufacturer's plans to offer standard and/or RoHS-compliant material. Will backward and forward compatibility be offered? Backward compatibility is available when RoHS-compliant devices are able to go through the standard reflow process. Alternatively, forward compatibility is supported when standard devices are able to utilize the RoHS (lead-free) reflow process. Because of these compatibility issues, and depending on the manufacturer's offerings, customers may not be able to put a mix of standard and RoHS-compliant devices on the same board — a factor that could increase costs and inventory levels.
Forecasting and inventory control
Forecasts are sent to assembly houses for raw materials such as substrates, lead frames and molding compounds. To achieve accuracy, the semiconductor company needs to understand customer requirements, including exemptions or waivers from the RoHS directive.
Forecasting is further complicated as semiconductor companies continue to announce new products. The question that arises is: If the product is announced before the July 1 compliance date, should the manufacturer first offer it in a RoHS-compliant package, or one containing lead?
That question begs another: Are customers exempt from compliance, or are they getting waivers?
Of course, the supplier must trace back to its raw-materials forecast, which is even more difficult because there is no historical data or existing customer base to leverage as a reference point.
It's important to note that raw materials, such as substrates, have expiration dates. If these materials are overforecast and subsequently expire, the material will need to be retested or altogether scrapped. Either way, this can be a drain on resources for the manufacturer — both in time and in expense.
On the other hand, if raw materials are underforecast, cycle times will increase, resulting in longer lead times for customers. To reduce cycle times, semiconductor companies are overbooking raw materials with assembly houses in order to ensure supply. That creates another set of problems, however. Overbooking can cause shortages, resulting in price increases and even longer lead times for the customer.
Another cost of RoHS compliance is inventory expense. Because of the exemptions and waivers discussed earlier, it is extremely difficult to predict when customers will ultimately need compliant devices and which products will be required. What's more, even those customers affected by the directive are migrating at different rates. A sudden, unexpected shift from standard to RoHS-compliant devices can leave suppliers with incorrect inventory levels. Similarly, if customers do not transition as quickly as the distributor anticipated, or if the customer is exempt, the inventory will sit on the shelf and eventually be returned to the manufacturer as a stock rotation.
For customers exempt from the directive, some semiconductor companies will continue to supply both RoHS-compliant and standard, lead-bearing devices. Supporting both will increase inventory levels and inventory costs.
Distributors have an added challenge if customers utilize electronic manufacturing service providers. Typically, a distributor will pipeline inventory for the EMS. If the EMS, without warning, switches to compliant devices when noncompliant material is already pipelined, there may be an inventory shortage of RoHS-compliant devices. Further, the distributor now will have excess inventory of standard parts, which will likely be returned to the manufacturer.
Certainly, distributors and manufacturers alike are understandably wary of overstocked product. The implications of excess inventory are a significant hit to days of outstanding inventory, an increase in inventory costs for the manufacturer and a potential for inventory write-off. And if money is tied up with incorrect inventory, it becomes difficult for the manufacturer to build additional product for customers. The bottom line is that clear customer, distributor and manufacturer time lines and transition plans from leaded to RoHS-compliant devices are critical for accurate forecasts.
Identification
If a new part number is assigned to a RoHS-compliant device, the customer then has the unenviable task of finding out what identifier each manufacturer uses for RoHS-compliant devices — and you can bet each manufacturer will use a different identifier.
If manufacturers decide to discontinue standard devices, then customers who are exempt from the directive will need to find new suppliers or switch over to compliant devices. Customers may be hesitant to convert because of reliability concerns. For example, military and aerospace customers are concerned about the risks and potential liability of using pure tin, a common lead replacement, since tin whiskers can compromise reliability by causing short-circuits. Thus, when 100 percent pure tin is used, semiconductor manufacturers are frequently asked by customers to supply reliability data. Of course, there is an associated cost to suppliers to obtain that data.
The lack of a standard way to identify compliant vs. noncompliant parts can cause significant problems for the distributor. Although some suppliers are using date code or revision level to differentiate products, those identifiers may not be consistent across all product families. As a result, distributors may need to keep a matrix of product families vs. revision levels.
In any case, without industry standards, clear communication is required between distributor and supplier regarding part numbering as well as transition plans to switch to compliant devices. In addition, the distributor needs to segregate all inventory — both standard and RoHS-compliant — which increases costs and resources for the distributor.
Communication and documentation
Overall, the lack of a standard coordination of information creates another, often ignored problem for the supply chain — that is, the expense associated with RoHS support activity. The development of collateral materials and the completion of customer surveys are an expensive proposition. And as the deadline approaches, the number of customer surveys is increasing. Some require only the RoHS-compliant part number, while others ask for detailed information on substances contained in the devices, down to the content level of each substance, measured in parts per million.
It is critical that we protect the environment and human health, and the RoHS directive goes a long way toward doing so. In the process, however, it imposes a number of challenges and costs upon manufacturers, distributors and customers.
To minimize or eliminate those consequences, communication among all parties in the supply chain is vital. Clear communication will help control the costs and resources required for achieving RoHS compliance by July 1.
Cindy Newell is senior manager for tactical marketing at Actel Corp. She can be reached at cindy.newell@actel.com.
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