Circuits Assembly Online Magazine - The Supply Excellence Project at Ericsson and Solectron

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How a major OEM and EMS firm teamed to cut lead time by 75% on a complex, custom telecom product.

To meet customer orders for just-in-time deliveries, Ericsson and Solectron collaborated to design a more effective supply chain that reduced manufacturing lead-times drastically. The two companies worked together to develop a streamlined process, blending elements from both Lean and Agile manufacturing. As a result, the delivery performance to commit reached an average of 99% for a highly complex "node" telephone switching system. The acknowledged lead-time was reduced by 75% - including a full available to promise (ATP) check.

Ericsson, the largest global supplier of mobile wireless communication systems, faced increasing demands from its customers to cope with increased volatility and to reduce lead times. Solectron was under pressure from Ericsson to adapt supply-chain processes to produce both higher product quantities and quicker delivery response time.

The product was 100% build-to-order, with zero finished goods and a complicated integration.

The Solectron site in Europe supplied Ericsson with large, very complex telephone switching systems called nodes. A node consists of a number of cabinets, each about the size of a large refrigerator, linked to a central processor. Each cabinet is packed full of electronics and is linked to others via a vast array of custom configured custom cabling. A node can consist of one cabinet or 10 depending on the customer order. No two nodes are the same and the final configuration is unknown until the customer places the order.

Therefore, the production system is a configure-to-order (CTO) environment. PCB assemblies are built-in and then configured into magazines; the magazines are then configured into cabinets. Each node has approximately 450 assemblies. Finally, the deliverable product is completed when all the required cabinets are cabled together and tested as a complete node. Final system test takes a maximum of three days of continuous testing, depending on the complexity of the node.

The resulting supply chain is extremely complex. The chain starts with components for assemblies, which are built in Europe and China, various items of metalwork and mechanics, CPUs and literally miles of cables. One order consists of approximately 2,000 different parts from 150 suppliers.

Even in a stable environment with a predictable demand forecast, many variables can prevent a smooth flow of the supply chain and detract from delivery performance (Figure 1). Add the ever-growing expectations of Ericsson's customers and excellence in supply performance becomes challenging indeed.

FIGURE 1: Under the preexisting business model, manufacturing and fulfillment were joined.

To balance increasing volatility for a highly complex product with shorter lead-time expectations, Ericsson and Solectron initiated what the companies called the Supply Excellence Project. The project aimed to optimize the supply chain to speed Solectron's delivery performance. The short-term focus was to improve deliveries, and the long-term vision was to position Solectron to meet the demands of Ericsson's end-customers.

After Solectron and Ericsson agreed to a formal project structure, the joint steering team tracked the progress of the project every two weeks during review meetings. The project was divided into sub-projects, each with a formalized and well-documented scope.

The five sub-projects were defined as:

ATP project. The goal was to redesign the processes and supporting IT so ATP happened in hours, automatically.
Buffer inventory. The project strategically built inventory to support demand variability in CTO environment.
Systems integration (NPC) project. Reduced manufacturing/test times, CTO, to achieve lead-time of less than three days.
Pick and pack project. Enabled short lead-times for selected products without any value-add.
Supply chain project. Focused on decoupling of supply center and fulfillment center, PCBA inventory buffering, tactical supply chain improvements and manufacturing lead-time reduction (Figure 2).

FIGURE 2: The new model added buffer inventory but reduced lead time by 60% in manufacturing and 75% overall.

Sub-project managers were appointed from various functions within the Europe site. Reporting lines were clear, as were the targets. Key performance indicators (KPIs) were identified, each with aggressive quarterly targets for the remainder of the year with longer targets set for subsequent years.

Weekly publication of the KPIs commenced immediately, giving high visibility of progress to executive management at both Solectron and Ericsson. In addition, the KPIs were continuously communicated and accessible to all employees (Figure 3). A steering committee met every second week and sub-project managers were brought together each week to formally review the progress of each sub-project plan. Primary focus was on delivery performance for which the target was set at 98%.

FIGURE 3: Large overhead monitors kept running score on Solectron's performance.

The initial sub-projects addressed the full scope of the supply chain, from improvements in component sourcing to faster completion of the final product. A key element was decoupling node manufacturing from assembly manufacturing, whereby the internal supply chain of completed boards was to be redeveloped to match the way external suppliers were managed.

Other key indicators included: creating a strategic buffer of material to absorb short-term fluctuations in demand, automate the ATP process to reduce the time for Solectron to confirm order fulfillment and reduce node manufacturing lead-time. Additionally, the team concentrated on differentiating the process for dealing with orders for "simple" product from the way complex node orders were handled. A KPI was established to measure how quickly Solectron could Pick and Pack simple products.

Lean Meets Agile

During the past few years, Solectron has been driving the transformation toward Lean manufacturing and Six Sigma. In an effort to increase efficiency, techniques have included reducing work-in-process (WIP), moving toward single piece flow, implementing "lightning" changeovers and removing non-value-added tasks from all processes.

Ericsson, on the other hand, follows the principles of Agile manufacturing. The principles of Agile are designed to address unpredictability in an environment of constant change, which explains the use of buffer inventory. Agile manufacturing focuses on the ability to accomplish rapid changeover between the manufacture of different assemblies. Lean is about taking things that can be controlled, such as the manufacturing process, and continuously improving them. When Solectron and Ericsson agreed that the main KPI was delivery precision to the requested delivery date it was easy to see how to use the Lean concept to get an Agile supply chain that could fulfill customers requirements.

Combining the forces of Lean with the Supply Excellence Project was key and progress toward meeting the KPIs set by Ericsson accelerated. The NPC lead-time project also gained momentum and manufacturing lead-time (MLT) for nodes reduced significantly. Very quickly, the delivery performance to commit reached, and stayed above, the 98% target and within a few months the MLT was cut by more than 60%.

At a high level, probably four major factors explain the success of the supply project. First, the successful implementation of the inventory buffer (Agile thinking) permitted the integration site to absorb week-to-week demand variances. Second, the huge reduction in the Node MLT (Lean thinking) means that product throughput is much quicker than in the past. The third reason for success was the focus of the combined management team of the two partners. Last, Solectron and Ericsson collaborated to identify where expert resources would offer the most benefit. These factors, combined with the management team's daily focus on the KPIs, generated a "success culture."

Results

Solectron reached a high delivery performance rate. The supply chain had stabilized: the delivery performance reached an average of 99% for the previous quarter and acknowlegded lead-time was reduced by 75% - including a full ATP check.

Solectron and Ericsson created a winning concept by working collaboratively and blending elements from both Lean and Agile manufacturing. The next step is a more robust supply chain that will have world class performance on delivery precision to requested delivery date. The average lead-time should realistically be cut by another 50%.

Ylva Andersson is director of supply chain, Solectron (solectron.com). Jan Melin is VP, operations sourcing and supply business unit systems, Ericsson (ericsson.com). Rolf Broström is director of operations excellence, operations sourcing and supply, business unit systems, Ericsson. Lindsay Ballantyne is supply project manager, Solectron. Dave Cooper is VP, supply chain solutions, Solectron. Lennart Ivarsson is VP of global program management, Solectron.