Chris Thyen03.04.09
Lessons Learned in Globally Supporting High-Mix, Variable-Demand Projects
Device manufacturers face cost challenges with offshore outsourcing.
Chris Thyen
While offshore outsourcing can save money, hidden costs often crop up. In projects with variable demand or a fairly high mix of assemblies, logistics efficiency is critical in controlling these hidden cost drivers. This article will look at key issues in complex projects that often make offshore outsourcing of variable-demand products challenging. Some of the systems and processes used by Kimball Electronics will be cited as examples.
Understanding Key Challenges
An SAP ERP system is used to track inventory both locally and around the world. Photo courtesy of Kimball Electronics Group. |
Suppliers supporting that model similarly aligned their business infrastructure to a high volume focus. However, as long-distance outsourcing has grown in popularity, so has the need to support programs that don’t fit the high-volume model. Programs with higher mix, lower volume production do not fit seamlessly into an Asian or other low-cost regional manufacturing strategy.
Successfully running these programs requires a business model specifically focused on addressing the challenges that come with this type of a program. Key areas to evaluate in sourcing high-mix, variable-demand projects offshore should include:
• Program management support
• Material consideration
• Quality
• Variable demand production support
Supporting Program Management
High-mix, variable-volume production requires a strong program manager capable of assessing project requirements and ensuring resources are in place to address them. If the customer uses multiple manufacturing sites at the same company, there should be some level of global visibility into the customer’s projects as a whole. The program manager also must be capable of adequately managing expectations and prepared to offer viable alternative solutions when customer requests can't be met exactly as requested. Finally, the program manager must be capable of bridging the differences between U.S. OEM assumptions and typical assumptions in offshore manufacturing programs.
A program management model mustevolve to address these issues in several ways. First, a business manager must be assigned to each account, and he or she will coordinate with site-specific program managers worldwide. If a project is transferred from one facility to another, both the transferring program manager and receiving program manager should be involved, with teams from each facility closely coordinating the project to ensure regional differences in issues such as supply base, required inventories or mode of transportation align with project requirements. The business manager has oversight into the customer’s site-specific requests, and if multiple facilities are involved, the overall requirements for the project. In most cases, also having the business manager in the same country or region as the customer’s core team provides the convenience of comparable time zones and reference points, while also having familiarity with the build site and the site-specific program manager. Customers can communicate directly with site program managers, while the business manager provides a local interface, if one is needed.
Another area to address specifically is continuity the between facilities. It is critical to have a centralized engineering council and quality council that review each facility’s best practices and ensure that they are transferred to all relevant facilities. For example, systems and processes used to support high-mix and/or variable-demand projects in a facility on the East Coast of the United States are replicated at a facility in Asia as demand for that service continues to increase.
Materials Considerations
Materials management often is the biggest challenge when it comes to high-mix and variable-demand products. There are several potential issues. First, segments of the Asian supply base often are less eager to support lower volume production. This can translate to slow quotes on precision parts, lack of interest in accommodating lower volume orders or an inability to support extended product lifecycles.
The challenge for electronics manufacturing service (EMS) providers in this market is to develop supply base relationships and end-of-life product support capabilities that support the very different requirements of the high mix model.
Each account is assigned a business manager who coordinates with site-specific program managers worldwide. The business manager has oversight into both the customer’s site-specific requests, and, if multi-facility, the overall requirements for the project. Photo courtesy of Kimball Electronics Group. |
From an IT perspective, SAP has a base warehouse (BW) tool that makes it easier to analyze total materials spend both in terms of each supplier and of component-level commodities. This tool can be used to support internal efforts to consolidate suppliers. Initially, printed circuit board suppliers and electromechanical suppliers are analyzed, with the goal of consolidating each group into a select few and use the leverage of becoming a greater percentage of business within each key supplier to improve responsiveness and price.
Distribution also continues to be a key area of support for electronics components when their value-added services can contribute to lower total cost. Core distributors are supporting Asia through production. The distribution piece of the equation is definitely a factor in higher-mix programs, because it allows access to lower quantities of components at competitive prices. The BW tool also plays a role in internal inventory level analysis by providing visibility into existing inventory levels throughout the company. This makes it easy to migrate inventory between facilities as demand changes.
The Quality Equation
Quality is a critical issue in medical device manufacturing. It is no mystery that the medical market differs from the consumer products market in several ways. There are medical industry-specific quality standards and a strict regulatory environment. Practices that are acceptable in consumer products, such as allowing the EMS provider to substitute parts on a portion of the approved vendor list without approval are not acceptable on most medical devices. Traceability and reporting requirements are far more rigorous than most industries. In addition, higher-mix products drive a need for robust automated traceability systems.
Successful multinational transfers of work involve detailed planning in terms of timing, manufacturing, quality and logistics requirements. Photo courtesy of Kimball Electronics Group. |
Variable Demand Production Support
Another area of focus in high-mix, low-volume manufacturing is variable-demand production support. This is exacerbated by two challenges within low-cost regions. First, many facilities primarily are equipped with high-volume production lines. Secondly, there is typically a much larger inventory pipeline of finished goods in offshore manufacturing. This can make rapid response to changes in demand pricey in terms of shipping costs.
One way to respond to this challenge is through the adoption of Lean Sigma and 5S principles, with a strong emphasis on reducing work in process, changeover time and aligning finished goods inventory with anticipated demand. The biggest challenge in offshore support of high-mix production is achieving economic shipping quantities. In some cases, mutually agreed upon finished goods Kanbans are hubbed at a U.S. location and shipped to the customer as required. The hub facility manages demand and issues pull signals to replenish its stock. This allows for a more predictable product flow and the ability to support variable demand while also consolidating shipments economically.
A Variable Demand Example
An EMS provider is manufacturing printed circuit board assemblies (PCBAs) at its facility in Florida for a manufacturer of patient monitoring devices. The project has a mix of product families with varying degrees of market-driven margin sensitivity. The customer saw value in migrating some product offshore but was very concerned with the potential for intellectual property theft.
The end result was that a large PCBA with some manual assembly content was selected for migration to the EMS firm’s facility in Thailand. It was a mature product with low engineering change notice requirements. Volumes are variable, but with the labor cost reduction, maintenance of inventory buffer stock in Tampa is cost effective. The functionality is still programmed in Tampa and the final functional test is in Tampa. From a traceability standpoint, the boards are serialized in ways that identify factory of origin.
A formal transfer-of-work (TOW) process was used for the migration planning. The Thailand engineering team travelled to Florida to watch the board in migration prior to running a qualification production run of 50 boards. The Florida facility provided the kits for the production run to minimize variables. A 500-piece validation run followed the qualification run. A logistics value stream map was drawn up. In addition to logistics flow, product handling requirements, shipment container and packaging were analyzed to determine if any potential issues exist that may impact product quality given the change in transport methods. Once customer validation was complete, ramp-up began and Thailand began sourcing material to the approved vendor list.
Customer benefits include the ability to smoothly transition mature products to lower cost manufacturing regions as their market cost dynamics change in a facility that offers the same level of regulatory compliance as the original facility. The TOW process ensures there are adequate qualification procedures and that all issues that potentially could impact product quality are carefully analyzed and addressed.
There was also a strong framework for program team interaction between both of the facilities.
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With good planning, high-mix and variable-demand production can be sourced at a low cost globally, even in lower-cost regions that traditionally support high-volume production. However, it is important to establish systems and processes that handle this type of production outside of the high-volume business model.
From an OEM perspective, it is important to determine whether or not the perceived savings justify the move offshore.
In cases with a mix of lower-volume product families, the savings may be justified, but extremely low-volume products or products that are at the end of life still may be better served by manufacturing closer to home.
Chris Thyen is subsidiary vice president, business development for Kimball Electronics Group, a subsidiary of Kimball International, Inc. Thyen joined Kimball International in 1994 and became director of business develop-ment for industrial and public safety markets for Kimball Electronics Group in May 2007. He earlier held engineering and operations roles within General Dynamics, Delco and TRW. During his first 12 years with Kimball, he held leadership positions as vice president, director of quality and director of technology within the home, healthcare and hospitality industries in the seating, laminates and contract manufacturing services sections. For more information about Kimball Electronics Group, visit www.kegroup.com.