LA-OC SMTA Panel Talks Lean, Pb-Free and the Economy
Published: 28 May 2008
by Staff
That was the consensus of an expert panel last week at the SMTA Los Angeles/Orange County chapter during its monthly meeting. The discussion, A Winning Strategy for Today’s Global Electronics Assembly Industry, focused mainly on the economy, Lean and lead-free.
Circuits Assembly’s staff and the chapter board provided questions that generated the dialogue below:
Lean manufacturing is a much-discussed and practiced activity. However, in comparing metrics such as inventory turns among assemblers, the performance varies widely, with best-in-class companies reaching 20+ annualized turns, while most companies are in the mid-to-high single digits. In your opinion, how important are programs like Lean, and what are the factors that set the best-in-class companies apart from the rest of the pack?
Larry Aguilar: It’s about continually improving operations and focusing on all parts of the operation, where you think it will impact larger parts of the operation. It’s a consistent honing process, and companies that excel in Lean manufacturing will become the best in class.
Atul Mehta: Lean manufacturing is the key element in the success of any company; it’s a combination of good design, practical manufacturing, the most efficient use of space, minimizing downtime, eliminating defects efficiently – and as many as possible – and good communication. When you have all those connected together in harmony, and you can respond to customer needs, that’s the key to good manufacturing.
Deon Nungaray: Lean is a pretty popular buzzword these days. At General Monitors, we have been doing Lean manufacturing for more than 15 years. Part of the essentials of Lean Manufacturing is that you really have to use Lean in a way that’s going to suit your business more than anything. There are a lot of parts of Lean you can implement to your manufacturing process, but what you really have to do, which is what Atul mentioned, is hone in on the parts of Lean that are going to work best for your organization. For example, what’s good for me is not necessarily [good] for my vendor. If I want parts relatively quickly to get my components fast, I have to make sure my vendors have components fast. If they can’t supply me with components relatively fast, then that’s going to screw me up as far as Lean operations. So, it’s one of those things where you have to have your supply chain in line with your philosophy of Lean. And I think that’s going to play a very vital role in making sure the whole supply chain is in tune with what you’re doing as far as Lean goes.
Scott McCurdy: I call it “anorexic.” (Laughter)
Fundamentally, should the high-reliability segment of the industry – military, aerospace, etc. – embrace or fight lead-free? And what measures should they be taking to avoid component sourcing problems related to mismarked or counterfeit parts?
Matt Holzmann: This is already an issue at a high level in the industry, where people are getting concerned about mixing leaded with lead-free. And we’re working our way through it, but there seems to be some serious issues being dealt with by military and aerospace manufacturers. The answer really is to use these little devices that can tell you whether lead is in a component on virtually every lot. The bottom line is that you have all these different issues that can result in less reliable product. There’s a couple issues right now with lead-free that people are seeing: things like wicking copper out of the barrels on printed circuit boards because of the mix of the tin and copper and the migration toward the component; Intel is reporting something called ‘cratering’, and then a lot of the yield issues are still quite significant for a lot of people. So when you’re having to shoot things into space or when you’re having to put things into high performance aircraft, you really can’t fool around. For that, I’d still recommend they probably should stay with leaded.
Andrew Whittingham: We make surgical equipment and this subject is very important to us, and although we haven’t converted to lead-free, we’re being very proactive in making sure we’re prepared to convert to lead-free, if in fact we do. Corporately, we’re fighting hard to try to keep lead in the product, but I think that’s a battle we’re going to lose. I don’t think we can keep going expecting we’re going to manufacture with a lead solder too much longer.
Audience member: A lot of our customers, especially the automotive and the aerospace, are dealing with products with lifecycles that last in the five to 10-year mark. You need to forecast and select components that will be around that long, but most important, vendors now are trying to move into one or the other. They themselves don’t want to maintain two lines of the same product – one leaded, one unleaded – and they’re kind of buckling to pressure and saying, “Well, let’s move everything to unleaded.” Do you see this as a problem? In the medical industry, it’s similar in concept. You’re sourcing for a five- or ten-year lifespan, and you don’t know if that component selection is going to be around.
AW: We have a couple strategies depending on what type of part it is and how difficult it is to qualify the replacement part. If it’s lower cost, we’ll go ahead and make a lifetime buy. It might be five, 10 years’ worth of product; we may make a decision to redesign a product in five years. We’ll then look at all the components and then redesign at that time. So depending on the cost, the impact, the validations required, we have several different strategies we’ll employ.
Doug Dixon: First, from the materials side, we’ve looked at it as there’s going to be this hybrid process that’s going to continue for quite some time as components transfer to the lead-free process. That’s just not going to go away. In fact, with a lot of vendors supplying the components … whether it’s lead or tin-lead, it’s just a change in lot number, and it’s the same part number, so no real identification with these changes. The material approach we’ve taken is that it’s going to exist, so we’re developing materials to specifically address that type of market. I don’t think we’re seeing too many other vendors out there from a materials perspective actually denying those types of hybrid processes. We’re also looking at a lot of different alloy combinations, and ‘how do we bridge those types of gaps’ and ‘what does the actual solder joint look like when you’ve got a tin-lead solder paste and a lead-free component,’ and then you’ve got a termination or the circuit board itself. What’s the alloy you’re using on the board? What’s actually your liability when you take a look at it from a metals perspective? A lot of study is going into that.
DN: As far as embracing or fighting the lead-free movement … it’s mostly related to a host of long-term liability issues, such as tin whisker growth, creep, and a bunch of other technical issues that are out there. No question about that. These are real issues that will eventually be worked out. As far as the lead-free liability data, the automotive industry has been using lead-free for more than a decade – maybe longer – but eventually we’re all going to have to transition to lead-free, so embracing or fighting, it doesn’t matter; we’re going to have to do it whether we like it or not. As far as the counterfeiting part of the question, that’s not a trivial issue, and the pharmaceutical industry has proven that. They have been trying to fight counterfeiting medications for many, many years; eventually solutions will come up, including RFID and stuff of that nature that will help solve the problem.
Is it possible the North American emphasis on defense and medical manufacturing could overshoot itself, with too many players angling for what is essentially a fairly small piece of the total electronics pie? And if that happens, what steps can companies take to reorient themselves?
MH: When you see an opportunity, the odds are other people are seeing it too. It’s just the way we work as human beings. So there’s a bit of a herd mentality in doing some of these things; I think that’s part of what we’re seeing. Everyone is getting military qualifications. There’s a lot more military work because there’s a war on right now. Basically, that will fade over the course of time, and there will be a reduction. After 1989, a large portion of the aerospace industry imploded, and a lot of the military defense industry did the same, so that’s why you have some of these huge monolith corporations these days. I think you have to establish a high level of competence so you can ride through these and differentiate yourself that way.
AM: My thinking is a portion of both the military and medical will definitely be outsourced. I don’t think there is much choice because of the pressure and complications. A portion of that could go away, too. So what can the companies do? Sectors are developing that have tremendous potential; one of them is the energy sector with all the oil and gas prices with the technology that is being developed in fuel cells, solar conversions and more volatile and efficient batteries, artificial intelligence, and nanotechnology … the fact remains that, as the product gets mature, whether military or aerospace, it [will get] outsourced to other countries.
SM: I think we need to focus more on technology; there are areas of the interconnect industry we’re kind of falling behind in, and I think it would behoove us to gain more foothold and take more steps to enhance the manufacturing capabilities here for high-def, interconnect, embedded passives, and some other things we’ve talked about for a long time, but that haven’t really taken hold. We need to expand technology-wise and get a bigger grip on that.
What do you expect will be the impacts of the weak dollar over time? What measures should US companies be taking to mitigate those effects?
MH: The good news is that today the United States is the low-cost manufacturing center. (Laughter) To me, this is a huge opportunity for American manufacturers to get their act together. We’ve been given a second chance here, and by doing this, by exporting, by designing, by being more efficient – these are all American qualities, and it has been forgotten because, unfortunately, an awful lot of the companies we work with – and for – have basically taken a supply chain management approach. Not a lot of OEMs build things anymore. And one of the problems we have with that is we have lost a lot of our infrastructure there, but what’s left of us is a lot stronger. So today, you look at this industry and you look at some of the stuff Atul just mentioned, and energy is going to be a huge factor. All of these different things are coming out of the labs; they’re coming out of American labs. But the problem we have is that, in a lot of these cases, some guy up at corporate says, ‘Well, you know, we can get it for 20 cents less in China,’ but at the same time, there’s that quality issue there. They don’t get the quality. We have an opportunity to do better, and to build the industry back up again. I don’t think it’s ever going to be at the level it was, but you have to remember, the size of this industry today is probably five times what it was 15 to 20 years ago overall. The number of board fabricators has been reduced, but the dollar volume of boards consumed is five times what it was 20 years ago – just not here. But if you have that cost factor, the shipping costs from Asia are greater; the cost of materials in some of these other countries is going to be much higher; if you have to import something, it’s going to be much higher as well. And since I sell a lot of foreign-built equipment, we have been able to maintain our prices. But I don’t know how long that goes on. If you’re an American manufacturer today and you’ve got your act together, I think there’s some huge opportunities that are going to start occurring.
DD: The biggest effect for me is I’m going to be walking to work. (Laughter) I can’t afford the gas anymore. No, I think we have a windfall opportunity within the Americas with the cost of the dollar in comparison to the euro. Companies are actually starting to look at the Americas now as a cheap manufacturing source, so to follow on, I think it’s definitely an advantage for those people who have capacity, capability and know-how. There’s opportunity within the market forecast I put out there – 3% for the Americas – with the dollar going down, I think that opportunity for the Americas goes way up. So I have a positive outlook for the industry. For me walking to work, that doesn’t look so good.
AW: I agree with Doug about fuel costs and material costs. That’s really offsetting any savings; we’re very profitable in Europe right now because of the exchange rate, but the increase in fuel costs and the increase in material costs are really having impact.
Considering today's economy/market, what areas does your company plan to focus on to gain new market share, or is this even a concern for your current marketing strategy?
MH: We’ve been on a good run, so we’re thankful for that, but we’re trying to basically up our game. We’re adding engineers; we’re adding technology; we’re trying to become more efficient; we’re trying to really walk the walk. One of the things I’ve seen on the lines with a lot of companies is that, here in America, one of the things we do wrong is inspect defects out. And yield improvement is probably still a wonderful holy grail in high-mix global manufacturing. If you’re high-mix global, I think it’s much more difficult to see that sometimes. But overall, I think the manufacturing efficiencies of clients can be strongly impacted by using best practice, by basically close attention to process. All these things we were taught as engineers, but unfortunately, with our costs the way they’ve been, we haven’t been able to afford enough engineers to do a lot of these things. If you focus on continual improvement, if you focus on new markets: solar; eventually nanotechnology is going to present opportunities; energy’s going to present opportunities as time goes on, but there are those opportunities out there right now and you have to focus on them and be driven to excellence.
SM: The industry I’m in, we’re a printed circuit design service bureau, and what we’ve done is to expand the offerings we have beyond just printed circuit layout; so we’ve hired eight or nine EEs, and we’re doing more product development to offer more things – further in engineering services to help us diversify our company. We’re also going the other way a bit and doing more turnkey manufacturing … a one-stop shopping approach. That’s giving us a broader footprint … we expanded into the West coast last year, and we’re now the largest printed circuit design service bureau in North America. But we can’t forget – I come from 30-some-odd years as a board fabricator and watched that industry dramatically shrink here in North America. I don’t want to see those things happening at the design and engineering level. So we’re hoping North America as a whole tries to keep as much of the design and prototype here in the States.
Many of you have been in our industry through the highs and lows of our continuous changing economy; what are some of the things your business has done to mitigate these economic issues from affecting your bottom line?
SM: We’re taking a proactive approach and looking at where all the manufacturing sites or demands for materials are and basically moved factories globally according to where the demand is. So it’s optimization of the manufacturing footprint, optimization of anorexic manufacturing, trying to reduce as much of the raw material costs, and putting supply chain management philosophies [into practice], basically optimizing supply chain globally, not just locally.
MH: Is there anyone here from the purchasing department? Is it safe yet? (Laughter) The bottom line is the margins are tight these days for everybody, but everyone has to survive, so you have to do that, again, by trying to find new opportunities. You can’t sit still; you have to look around you; you have to keep your eyes wide open; you have to listen to people, talk to people and find [the opportunities]. They’re out there, and like I’ve said, we’ve found a few. And each of us has to find one or two that will help our companies, and this is the way you build it. Then you find a couple more. You just keep focusing on trying to find those niches. If everybody’s going into military and aerospace right now, maybe that’s not the best thing to do if you’re a small manufacturer just setting out in the process. But perhaps there are some other opportunities where someone is not looking – like medical, or even, if things are coming back to North America, consumer electronics. One of the fallacies I’ve seen is so many of these large corporations have gone from technology providers to marketers: Hewlett-Packard, Apple, a lot of these big companies, and the reality is you have to understand the means of production. There are things like embedded components coming out now where you’ll embed actives and passives. (This is all being done in production in Japan, by the way.) These are enabling technologies to build new products, but you have to know about them; you have to know how to build them if you’re going to be successful. So, reading the overseas journals, finding out what’s happening around the world and looking for those opportunities. They’re there. You just have to find them and exploit them.
What are some of the things you have focused on for your business to improve your profit margins?
SM: One of the things our company has done is adjust the compensation program for our employees. Since we’re a design engineering company, what we’re doing is rewarding, giving all the engineers the opportunity to earn more money based on a number of different factors congruent with the direction we’re trying to go: billable hours, useful time and capturing hours that normally would slip through the cracks. If you can focus on what’s important to the company, everybody wins. The company is more prosperous and the employee ends up sharing in that. We’ve looked at increasing the amount of training we do within our organization, and – I’m going to put my IPC hat on for a minute; I’m the president of the IPC Designers Council here in Orange County. I find it’s very important, just like what you’re doing coming tonight, to learn about new things and invest in your own career by rubbing elbows with the people who know something you don’t know or opening your eyes to different things. All that is helpful in improving your company’s future, if you can improve your own knowledge as well.
LA: At Qual-Pro, we’ve had successful growth over the past several years, as many of you have, and we’ve really started to focus on getting back to Lean manufacturing. We’ve invested our time training all our staff and we are all working on continuous improvement. We feel that through this investment, not only through the manufacturing floor, but in the office area, we’ve improved our time tremendously. We take orders and cut that in half to be able to communicate back to the customer quickly. We’re working with our customers to train them on how to do events themselves, so collectively we can work together.
