One of the biggest challenges in implementing an effective Lean manufacturing operation is developing a supply chain willing to support Lean principles. Electronics manufacturing services (EMS) providers have the additional challenge of integrating their customers’ preferred suppliers into this Lean philosophy.
The EMS model is even more complex as the EMS provider and its customers and suppliers must be willing to partner in Lean strategy to achieve best results. The approach must be flexible enough to support a variety of needs from a diverse customer set, yet structured enough to support a holistic Lean approach. In this type of Lean model, the EMS provider acts as the supply chain manager, developing Lean suppliers and focusing on cost competitiveness. Suppliers conform to EMS recommendations on ordering triggers, bond sizes and delivery requirements. The EMS provider also serves as a subject matter expert to the customer, providing recommendations on Lean deployment initiatives, product development, supply protection and cost management. Customers support this effort by adopting design for manufacturability/testability recommendations where possible and aligning forecasting methodologies with the contractor’s recommendation.
So, what are the key steps in creating this teaming environment?
In a successful Lean supply chain management model, centralized commodity managers negotiate pricing, along with the terms and conditions associated with a Lean supply model. Regardless of prior experience, team members go through training on Lean processes as part of their orientation so that they are familiar with the framework that the Lean supply chain must support. The end result is that prior experience and relationships are now clearly focused on structuring agreements that support the company’s Lean sourcing model.
In this model, suppliers are asked to:
• Provide local stocking programs with buffers;
• Transact based on pull signals vs. materials requirements planning (MRP) signals and fixed purchase orders;
• Provide bond reports vs. MRP order acknowledgement; and
• Agree to minimized excess and obsolete component liability.
Suppliers who agree to support those requirements are designated strategic suppliers and given preference in future sourcing activities. This can have significant benefits. For example, EPIC’s four strategic printed circuit board suppliers saw their business with the company grow 50-80 percent after agreeing to the stocking/Kanban terms.
On the customer side of the equation, agreements are also set up. The company’s program management model uses customer-focused teams (CFTs) led by an account manager. The CFT account manager reaches mutual agreement with each customer on forecasting methodology, optimum bond sizes and pull signals.
The process starts with development of a customer order replenishment methodology. Typically, this considers the infrastructure in place at the customer—i.e., enterprise resource planning (ERP) system, electronic data interchange, portal access, etc.). The next step is determining how replenishment/pull signals for products will be generated, such as portal access, e-mail, fax or phone, etc., again based on customer preference and available IT infrastructure. Every customer tends to have a unique tool set, adding to the challenge of Lean implementation. The CFT also defines points of order management interface among the organizations, usually identifying peers that are as close to the factory floor and points of consumption as possible.
Order replenishment lead time is based on:
• Actual manufacturing lead time based on product specifics (technology, test requirements, coating/potting requirements, etc.);
• Transit lead time from the company to customer consumption point; and
• Desired safety stock at customer location.
Once these issues are addressed, initial finished goods Kanban bin sizes are established. The account manager communicates with planners to implement pull signals that reflect those bin sizes. Production is then launched and bins are filled with the highest volume assemblies typically prioritized. The account manager continues to periodically monitor bin sizes to ensure that finished goods bins are adequately sized to provide an uninterrupted flow of material at the customer site, while minimizing overall inventory exposure and maximizing inventory turns for their company and the customer. Bins are resized as appropriate with customer approval.
Account management duties also include tracking CFT performance to defined Lean metrics, including on-time delivery and inventory turns.
A Proactive Approach to Maximizing Lean Benefits
The true benefits of a holistic approach to Lean manufacturing are reduced waste and improved throughput which ultimately drives lower costs and enhanced schedule flexibility. However, reaching that point requires that inefficiencies identified and eliminated as early as possible. Component availability, materials quality and component obsolescence are three potential drivers of inefficiency that must be carefully managed. In this model, the materials team has component engineers focused on component life cycle management and value analysis/value engineering (VA/VE).
Managing risks in this area can be a challenge with medical customers because of the design modification constraints driven by the product qualification process. A true partnership needs to consider both sides of the equation. Customers need good data to best understand the costs and tradeoffs behind design or supplier change recommendations. At the same time, since activities as simple as minimizing use of sole-sourced parts in the design phase can bring a ten- to twenty-fold savings during the life of the product, it is important to carefully consider contractor recommendations for design changes.
Recommendations are made as early in the product development process as possible, where EMS providers can have the maximum influence on bill of materials and approved vendor list decisions. Tools and expertise are also in place to address issues that may arise later in the product lifecycle.
SiliconExpert’s lifecycle management software is used in this process to:
• Check component lifecycle status;
• Perform engineering parametric analysis;
• Monitor product change notifications;
• Check RoHS/Hazmat status; and
• Analyze market data.
This is used both in design analysis during product development and in obsolescence management over time to assess and address sustainability issues. It facilitates monitoring of global market conditions and provides early warning on component ability and obsolescence issues.
In this model, the tool is paired with a strong commodity management team focused on both customer and supply base issues. At a supply base level, commodity managers are focused on developing strategic suppliers who understand Lean philosophies, developing global pricing and terms to provide flexibility in sourcing regions, and performance monitoring. At a customer level, commodity managers focus on customer issues that include Lean deployment, product development support, supply protection and cost measurement.
Supplier expertise is leveraged to support this proactive approach through in-house sessions focused on technology road maps and market trends.
Value analysis/value engineering is used to further address customer requirements over the life of the product. The primary focus of VA/VE efforts are:
• Cost reduction;
• Operational performance improvement;
• Product quality improvements;
• Identification of cost avoidance actions on future programs;and
• Product life extensions.
The VA/VE process typically is used to cost reduce products that have not gone through value stream analysis or for older products with high obsolescence risk. The material engineering team picks VA/VE projects based on two criteria: a customer willing to team in a VA/VE initiative and a project likely to yield strong results.
The first step in this process is setting up a workshop and inviting the customer’s engineering team. BOM is analyzed for single source components and alternate components. Custom components and associated secondary operations are also analyzed. A major goal is to identify potential cost reduction opportunities that don’t involve extensive redesign and/or a complete product re-qualification effort.
For example, in one case eliminating an unneeded deburring process on a fully enclosed heat-sink saved $150,000 without triggering a re-qualification requirement.
During each workshop, a list of cost reduction items is identified. EPIC’s team manages the list, but coordinates with customer resources for analysis and approvals. Typically, there are agreements on sharing these identified cost reductions for a set time period.
Benefits Depend on Commitment to Lean Principles
The degree to which customers benefit is driven by both the degree to which they accept improvement recommendations and the length of time they have embraced Lean principles. Enhanced schedule flexibility is the most immediate benefit. Cost reduction, in both product cost and working capital are typically achieved over time as focused design and more efficient supply chain management is applied to reduce unique part count and finished goods inventories.
Todd Baggett is EPIC Technologies’ Senior Vice President–Sales & Account Management. He can be reached at firstname.lastname@example.org.
Learn to implement key elements in developing a material strategy that supports Lean manufacturing.
By Todd Baggett, EPIC Technologies
Published January 11, 2012
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