Why Design for Environment Makes ‘Cents’ in the Electronics Industry

1. Why Design for Environment Makes ‘Cents’ in the Electronics Industry by Pamela J. Gordon, CMC President, Technology Forecasters Inc. April 19, 2006

2. A One-Slide History of TFI Information, Insight, Interaction for Effective Manufacturing Relationships 2006: Buyers’ Guide 2001: published book 2001: ODM; added China-based research 2002-3: Pricing Model and 1999: 1st Quarterly Forum 1990: 1st Contract Mfg. from a Global Perspective report 1995: World-Class Outsourcing Guide; Customer Retention Research Founded 1987 www.TechForecasters.com

3. DfE Almost Always Results in ProfitHundreds of examples in electronics industry and others √ = Yes / √= Some / X = No

4. Then, why are most electronics companies slow to adopt Design for Environment? Let’s see what recent benchmarking studies tell us…

5. One Way to Make Cents:--Benchmarking Studies • Quickly compare own environmental strategies and progress with those of numerous others • Assess approaches of suppliers • Elicit attitudes, needs of customers • Find best practices, identify leadership positions 5 TFI benchmarking studies; 250 respondents Primarily telephone interviews OEMs, CMs, ODMs, component suppliers, recyclers, design firms, governments Funded by members of the Quarterly Forum (of which Agile Software is a Corporate Sponsor) Today

6. OEM Plans to Design for Easier Disassembly, Reuse, & Recycling

7. Concern About Recycling Requirements in Other Regions* *Regions on next slide

8. Non-EU Regions of Concern Regarding Recycling Requirements % of respondents (>1 response) APAC = Asia Pacific CALA = Central and Latin America

9. Are You Considering Remanufacturing Some of Your Products?--Once Used by One Customer, then Offering for Sale to Other Customers?

10. According to Component Suppliers Interviewed • In the lion’s share of cases, compliant components will not be more expensive • The opposite will be true after July 1, 2006 • Tie RoHS transition to cost-reduction plan • Components are being designed with reuse in mind • Components: great place to start for efficiency • Economic gain throughout life cycle • Chemical reductions are key • Smarts from Freescale: (C. Marple) • DfE is like quality, manufacturability, test, etc. • Upfront design is more effective, easier, cheaper • “You get what you design”

11. According to Contract Manufacturers* Interviewed • Better business model to shift all the way to RoHS 6 • --Rather than to RoHS 5 then having to shift again • Now starting to charge customers more for non-RoHS compliant products • Design for Environment (DfE) offered by nearly all large CMs and ODMs • And by some mid-sized and smaller CMs • Stressing cost savings * And Original Design Manufacturers (ODMs)

12. Benchmarking Study Highlights- CMs and ODMs - • Environmental services (Nov. 2005)* • Two-thirds simplify disassembly / maximize recycling • One-half reduces energy consumption • Only one or two help with government interface • Exemptions to Europe’s Restriction of Hazardous Substances (RoHS) Directive • Registration for Europe’s Waste Electrical and Electronic Equipment (WEEE) Directive *Funding: TFI Quarterly Forum member

13. According to OEMs Interviewed • Hundreds of cases in which design for efficiency has reduced costs • Competitive edge: Japanese companies’ different approach • Still most don’t see need for DfE

14. Ways to Minimize RoHS Costs • Use contract manufacturer / original design manufacturer way ahead of curve • When possible, convert non-compliant parts to compliant ones • so long as the conversion process is verified by third-party lab (e.g., E-Certa) • Employ software tools for • Efficient tracking of compliant parts • Design-and-manufacturing changes, and • Reporting of due diligence • Use RoHS as a business opportunity to • Weed out products whose time is really up – before the deadline, for many economic benefits • Tighten component selection and procurement processes • “While the patient is open…” (Dan Henes, Celestica) Converting leads, with due diligence

15. Unpeeling the Onion Degrees of approach to design for WEEE No product redesign Design for disassembly Use recyclable materials Reuse / Upgrade in next gen’s Lease products only No product Materials that “self recycle” Minimal product

16. Common Misunderstanding “WEEE is one of those regulations that cost us more money, right?” Other companies have used design for reuse/recycling for competitive advantage…

17. Competitive Benefits:Cost Reductions • Business benefits of product rationalization • Maximize profitability “Once the patient is open” • Reusing modules, for savings & customer loyalty • Smaller, lighter, faster, more reliable, etc. • Cost to manufacture, Cost to use • Customer satisfaction: • Reliability, longevity • Easy of returning

18. Redesign for Reuse/Recycle and Profit: Mechanical

19. Redesign for Reuse/Recycle and Profit: Mechanical (continued)

20. Redesign for Reuse/Recycle and Profit: Material

21. Redesign for Reuse/Recycle and Profit: Material (continued)

22. Redesign for Reuse/Recycle and Profit: Extend Life

23. Upping the Competitive Ante • Example: Acer and CSR • Accessing markets and B2B customers • Countering competitors’ failures • Keeping up with competitors’ successes • Risk avoidance (peak oil, etc.) • Customers’ selections • Competitive view of environmental leadership: Celestica • “We want to be viewed in the industry as the green leader and gain market share.” • “The one who does it first will get a warm reception from market place.” • “A lot of people look at letter of law and think they can just survive, or we can get business advantage.”

24. Recommendations- Regulators - • As with EuP* invite industry to develop & present best practices • Harmonize requirements for recycling & other environmental issues between regions. • Promote voluntary recycling & other environmental steps, using Japan’s model—declare deadline beyond which regulation will be necessary should voluntary measures not be met. • Ensure adequate time between approval of laws & deadlines. • Have pilot producers & software companies “engineer” compliance process, for least “red tape” & most effective compliance by all. *Energy-using Products

25. Recommendations- Electronics Industry - • Create collectives not only for recycling products, but also for design for disassembly, reuse, and upgrade • Jointly fund and share methodologies • …for ease of implementation, standardization, & profitability for all concerned • Participate with European Commission as it finalizes EuP Directive. • EU wants to examine best practices • Include standards for data collection and management early • Set precedent for not only future EU regulations but also environmental & social requirements by other regions

26. Recommendations for OEMs- and for CMs offering design services- • Design products—from the start—according to reuse, upgrade, & recycling “rules” provides numerous financial & competitive benefits: • Quick, efficient, & cost-saving disassembly • Multiple reuse & upgrade of product (thus extending revenue opportunities) • Maximum recycling value (for revenue increase) • Profitable by‑product of “design for disassembly” is quicker, more efficient, & less costly original assembly • Invest a few thousand dollars in training design engineers (electrical, mechanical, & system) in DfE best practices TFI DfE Workshop, Toronto, Sept. 2005

27. Recommendations for OEMs Explore Models for Upgrade, Reuse, and Dematerialization • Managers at electronics companies with ‘throw away’ products say, “Reuse doesn’t apply to our products.” • Multifunctional teams can sketch out ways model can be used for competitive gain, cost savings, and enhanced customer loyalty. • At least one sponsoring executive • Finance / cost accounting • Marketing • Design / quality • Supply-chain / logistics • Legal / EHS • Use forward-thinking software

28. Recommendations- Continue to Learn Best Practices - • Next benchmark study: Due Diligence Strategies for RoHS Compliance • Compare approaches to RoHS due diligence • Adopt best practices for a sound due diligence defense for RoHS • Invite your colleagues, customers, suppliers to the next Design-for-Environment Workshop • June 7, San Diego • Highlights from guest speaker Manthos Economou of Palm, Inc. • Then, July 13 in Boston

29. 5 Recommendations for Meeting Requirements Profitably • Get executive sponsorship up-front: Use Lean and Green argumens • Maximize profitability, “once the patient is open” • Take advantage of existing resources for design, mfg., logistics, return, disassembly, etc. • Meet customers’ desires better than do competitors • Realize this is not a single event • Add power reduction to requirements document • Reduce overall ecological footprint of materials, processes, products, end of life

30. Management Approaches to the Market’s Environmental Requirements Macro shifts in how we design, make, use, reuse, and dispose of products Competitive advantage Fire Drill: Ad hoc implementations for compliance Tactical Strategic

31. Environmental Compliance:  Cost or Competitive Differentiator? Another basis for a prediction…

32. 40 Years of Increasing Content Scrutiny, and $ Affect on Industry 1970 US Industries -- EPA established ‘70’s Chemical Industry -- DDT ban ’80’s Petroleum -- Gasoline ‘80’s-90’s Construction, wood products ’90’s Food Industry -- “Nutrition Facts” table Each of these industries is just as profitable now (or more so) Extrapolate pattern of $ affect into the future… Now… Electrical/Electronics, RoHS Coming… REACH, IPP, EuP Perhaps… Energy / Water / Emission Monitors

33. With Increasing Scrutiny… • Be ahead of the curve • Without “fire-drill” pressure • Competitive advantage • Use robust data collection and management • It’s not a one-time task • A good time to tighten processes • Escalate environmental management to senior levels: it’s a corporate strategy

34. Some Last Words…“I don’t think DfE should be treated as extra or a separate entity, but rather a part of the design process. It’s just like quality – it’s not separate, but more a matter of individual responsibility.” -Michael Lavesque, ESI (Ontario, Canada, design firm)

35. Design for Environment Workshop, February 2006, at AER Worldwide Thank you! Pamela Gordon PGordon@TechForecasters.com