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Implementation must be fast, with quantitative measures of performance.

Acquisition integration is a challenge for any company. The EMS industry poses specific challenges because customers aren't buying an end-product; they are buying the capabilities, systems, processes and internal culture used to manufacture their product.

In pursuing its acquisition strategy, EMS provider EPIC Technologies has tried to maintain a balance between achieving business growth goals and customer satisfaction. This focus has included:

• An evaluation during due diligence of acquired facilities and their customers' affinity toward EPIC Technologies' value proposition.

• A management process for operational analysis after acquisition.

• A strategy for standardizing corporate culture in newly acquired operations.

• A formal customer expectation analysis and satisfaction measurement process.

EPIC began expanding beyond its first manufacturing facility in Norwalk, OH, in early 2002 with the establishment of a greenfield site in Juarez, Mexico. The company completed the facility launch within 60 days, after completely renovating a vacant 70,000 sq. ft. facility, installing more than 80 machines, hiring and training more than 120 employees and providing first-article submissions on approximately 25 products. In December 2004, the company expanded its Juarez manufacturing capability, while adding a significant customer by acquiring an OEM's 125,000 sq. ft. electronics assembly operation in Juarez. In January 2005, EPIC also acquired the assets and business of Siemens Energy and Automation's EMC division. This acquisition added new capacity in two locations: South Lebanon, OH, and Johnson City, TN.

Due diligence. When an EMS acquisition fails to add to the bottom line, the problem is typically either failure to achieve the operational improvements projected in initial valuation assumptions or customer attrition.

How can this be countered? EPIC Technologies' model relies on operational standardization and a tightly focused value proposition tied to the company's Synchronous Flow Manufacturing (SFM) process. In evaluating potential acquisition candidates, the focus includes some core strategic questions:

• Does the operation add needed geographic reach or additional capabilities?

• What challenges would be present in adapting acquired operations to the standardized SFM process?

• Does the customer base appear to value the Lean manufacturing philosophy, and is the product mix appropriate for this focus?

In the two acquisitions described, the answer was yes. The Juarez acquisition added a customer that valued Lean principles and a facility in a region that had strong demand. The Siemens EMC acquisition added new customers as well as additional projects from an existing customer. The facility had already had some focus on implementation of Lean principles and also added new capabilities in engineering and failure analysis.

Operational analysis. Fully implemented, the company's SFM philosophy incorporates the following basic concepts:

• Align processes with customer needs.

• Team with suppliers to optimize supply chain practices.

• Appropriately size raw material kanbans to align with likely customer needs.

• Team with customers to optimize finished goods transfer methods.

• Minimize waste.

• Minimize travel time of inputs, WIP and finished goods.

• Eliminate excess WIP or finished goods through smaller lot sizes.

• Eliminate underutilized equipment by standardizing processes, minimizing changeover time and "right sizing" production capability.

• Empower employees.

• Standardize operating procedures across the organization and cross-train employees in multiple jobs.

• Use visible production status indicators to provide real-time indicators of operational efficiency.

• Have operators control factory scheduling based on visibility into current needs.

• Measure results.

• Use standard reviews to measure a consistent range of efficiency metrics in all facilities.

• Have a continuous improvement program that looks at reducing total cost and includes a focus on both measurable costs and opportunity costs driven by inefficiencies.

Standardization is key in both operating strategy and fast acquisition integration. EPIC has a standard facility layout that uses the same equipment and processes in every factory. As facilities are acquired, layout is evaluated against the standard formula, and excess equipment is either redeployed to other facilities or liquidated. Equipment not found in the facility, such as vapor phase reflow ovens and custom wave solder machines that have been optimized to support broader process windows, are added. For example, in the Johnson City facility, the analysis process determined that the current facility output could be handled on two SMT lines. Four other lines were redeployed to other facilities and the remaining lines modified to support the standard process flow.

Early in operational strategy formulation, management developed a methodology for measuring and sharing performance information known as the Plant Operating Review (POR) system. The original version monitored approximately 60 metrics company-wide down to the floor level. These metrics were formally reviewed daily and weekly by project personnel, monthly by the plant managers, and quarterly by senior management. This system formed the foundation for continuing operational analysis. Following the Siemens EMC acquisition, the POR system was modified based on suggestions from the acquired team. The revised system uses the original metrics list and measurement frequency and now also considers external benchmarks and longer-term performance trends. The current review process starts with a summary of overall company financial performance metrics, and then focuses on specific productivity and operational performance in the following functional areas: human resources, quality, manufacturing, sales, purchasing and finance. The functional managers responsible for performance to measured metrics are also responsible for defining the external benchmarks relevant to their areas. Review frequency is consistent with the timing established in the original system.

Corporate culture integration. Vision sharing starts the day the deal closes. There is open communication between company management and the acquired team. While there is a clear direction for change established, existing processes and new ideas from the acquired team are evaluated. If a new concept represents an improvement, it is incorporated in the model companywide.

The best driver of integration of corporate cultures is a formula of centralized training combined with standardized job descriptions. Just as the operational strategy focuses on increased flexibility through equipment standardization, the strategy for operator cross-training focuses on creating a flexible workforce that could be deployed to areas of the factory in rapid response to customer demand. There is organizational consistency in job descriptions, training topics and processes, and workforce deployment strategies in all facilities; this information is easily accessible through a company intranet system. For the most part, employees who are industry certified or "EPIC-Certified" through train-the-trainer processes conduct training.

Customer satisfaction measurement. Customer satisfaction measurement primarily exists in two forms. At least one key contact at each customer fills out a monthly scorecard via the Internet measuring standard metrics such as quality, on-time delivery and pricing/cost reduction performance. A more detailed annual survey conducted via email measures:

• Overall performance satisfaction at EPIC compared to satisfaction with the customer's other EMS providers.

• Perception of management and key support competencies.

• Relationship with project team.

• Responsiveness to problems.

• Perception of price competitiveness.

• Plans for future business allocation.

This annual survey is sent to multiple contacts at each customer and includes areas for detailed comments and suggestions for improvement. Survey data are reviewed at the plant and corporate level. Program managers are charged with developing corrective action plans related to customer improvement comments or areas that rate low in any survey.

Maintaining the highest levels of customer satisfaction during acquisition does not occur without a learning curve. For example, customers that haven't embraced Lean manufacturing like the added scheduling flexibility, but may be slow to adopt recommended changes related to forecasting methodologies or approved vendor list. Program managers often must drive this conversion a step at a time.

Quantitative improvements. To understand the overall effectiveness of the strategy, it is helpful to look at some of the measured metrics. Quantitative improvements at the company's most recent acquisition have included:

• Elimination of customers' obligations for firm schedules with pulls / "ship on demand" while improving on-time delivery of customer requests from 74% to 87% (the goal is 98% as achieved in other EPIC facilities).

• Reduction in revenue associated with past-due orders of 90%, to $300,000 from $3 million.

• Reduction in production square footage of 43%, including transfer or elimination of four production lines while supporting the same amount of revenue.

It is also significant to note that during its period of greatest growth in 2005, it also achieved record levels of third-party recognition. Awards measuring customer satisfaction presented in 2006 for performance measured during the prior year include:

• Three Circuits Assembly 2005 Service Excellence Awards. EPIC won three of five categories in the medium-sized EMS company segment including: Technology, Dependability/Timely Delivery and Responsiveness based on third-party customer interview scores.

• Siemens Medical Solutions USA Inc. 2005 Supplier of the Year. This award was presented to the company's Johnson City facility based on cumulative supplier scorecard results throughout 2005.

Customer affinity for the new business model will always play a role. This necessitates a focus on customer base expectations during due diligence. The EMS provider will likely have to "sell" its expectations for forecasting and preferred supply base to its customers as changes are implemented.

The rewards of both sides taking the time to assess expectations and team to achieve critical goals are improved operational performance, increased schedule flexibility, and both visible and hidden cost-reduction.

Todd Baggett is vice president of business development at EPIC Technologies (epictech.com); todd.baggett@epictech.com.

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