PMs are often closest to the customer and have the best visibility into areas needing improvement.

Gaining significant benefits from Lean manufacturing requires more than an EMS production floor focused on Lean principles. Achieving meaningful cost reduction requires a Lean-focused effort throughout the entire value chain, which involves implementation of Lean manufacturing principles at the EMS provider, within the designated supply base and at the customer site. While many functions contribute to the result, the EMS program manager plays a key role in helping orchestrate that teaming, as they often have the closest customer relationship and the best visibility into areas in need of improvement.

OEMs that implement Lean principles have the luxury of being able to phase in Lean practices throughout every aspect of the product realization process, from design to material procurement to production to demand fulfillment. Conversely, EMS providers face the challenge of a mix of customers with varying degrees of acceptance of Lean practices. Every customer wants the flexibility and long-term path to cost reduction that well-implemented Lean techniques support. However, not every customer is willing to make changes to internal practices to achieve optimum results. Just as with production Lean implementation, the smaller the effort the smaller the result.

Epic’s Lean manufacturing philosophy is known as Synchronous Flow Manufacturing. SFM focuses on increasing factory throughput by optimizing and standardizing production. Rather than optimizing the factory floor process-by-process, it takes a large-scale systems approach. Key implementation elements include:

• Detailed process mapping to understand key processes involved in transforming production inputs to customer-desired outputs.
• Identifying constraints in key processes that limit flexibility.
• Developing strategies to eliminate constraints, including working with equipment suppliers, material suppliers and employees to develop unique solutions for maximum flexibility.
• Standardizing the manufacturing solution through common equipment selections, which further improves assembly process flexibility.
• Developing simple tools that ensure rapid exchange of real-time information.

From a teaming perspective, focus on design is a critical starting point. Optimized design improves quality and will reduce cost of manufacturing. At a minimum, a focus on design for manufacturability/design for testability (DfM/DfT) is valuable. However, a more comprehensive focus that looks at component commonality and use of Lean suppliers can generate even better results.

In the project launch phase, the customer data package is analyzed and advanced product quality planning (APQP) techniques are used to identify potential areas for improvement. Improvement focus can include pad spacing, mixed technology conversion, double-sided to single-sided redesign, component orientation, component availability considerations, test coverage, and bare board array design. As with supply base optimization, this process can take time because a customer must often analyze and qualify recommended changes.

This focus helps minimize the twin bottlenecks of quality issues associated with designs not optimized for manufacturing or test, and potential raw material availability issues that can arise if the design incorporates sole-sourced, unique or limited availability components.

Some OEMs may face significant challenges in this area because regulatory approval processes within their industries may limit the cost savings from redesign of existing product. Similarly, even when extensive product qualification is not required, lower volume, high-mix product may make it difficult to cost justify redesign. In these cases, this focus may be more valuable as a tool used primarily in new product design.

Focusing the Supply Base

From a supply base standpoint, the SFM philosophy incorporates the following principles:

• Strong focus placed on developing and qualifying suppliers that embrace Lean manufacturing principles of short cycle times, flexible batch sizes and high quality.
• Suppliers must be responsible for managing production to forecast, yet deliver to “pull signals” vs. requiring firm release dates over an extended lead-time.
• Appropriate buffer sizes for current production rates must be established, maintained and continuously monitored for adequacy.
• Material buffers should be maintained in close proximity to the manufacturing facilities to permit frequent release of small batches to the production floor and maximum flexibility in responding to changing demands.
• The material pipeline must be proactively and regularly monitored over the medium-to-long-term horizon through bond reports to identify and resolve potential supply disruptions.

Epic addressed that focus with a kanban “pull” system, postponement of commitments and electronic data interchange (EDI) use. Strategic suppliers produce to the MRP forecast and ship to EDI release signals. Buffers are established at key locations in the pipeline and regularly reviewed and revised as market and demand conditions vary. Consignment, in-house stores and vendor managed inventory (VMI) programs are used with strategic suppliers to maintain buffers closest to the point of use.  

Pipeline status or “bond” reports are regularly reviewed with supplier teams to ensure buffers and replenishment streams are able to support planned production within a range of variation levels based on past historical demand, current forecasts, customer service lead-time guarantees to their end market, manufacturing lead-times and transit lead-times.

On the factory floor, a two-bin system and color-coded cards identify raw material and WIP status. Material shortages are easily visible on a walk through of the material area. Between facilities, an “E-Kanban” system permits employees to electronically view status of inbound material shipped from suppliers.

Customer Concerns

Achieving optimum bin sizing for every purchased part generally takes time, and in many cases, negotiation with suppliers and customers. For instance, each customer typically has an approved vendor list (AVL). The bulk of suppliers on that list may be common with other customers and therefore already supporting kanban min/max planning systems. Suppliers of custom or mechanical components may not be existing suppliers and may be reluctant to change lot sizes or production frequency to accommodate the SFM system.

A customer’s reluctance to change from suppliers who don’t support SFM practices is often driven by valid concerns. In some cases, the customer’s pricing may be based on annual or quarterly builds of these components. In that situation, switching suppliers may drive cost increases in their internal production costs. In other cases, a sole-sourced supplier may feel they have the leverage to set delivery terms. In other cases, regulatory issues may limit a customer’s ability to change suppliers of critical components without a costly requalification process. In those situations, the total cost of noncompliance must be analyzed and discussed with the customer and supplier. Sometimes, the supply base complies and other times some holdouts may require less-than-optimum inventory buffers. Noncompliant suppliers may be designed out in subsequent product generations, providing some incentive for eventual compliance. In any case, Epic has been most successful when working in a close partnership with customers in educating suppliers on the value of SFM practices and implementing those practices. An optimized kanban strategy results in reduced working capital, a high percentage of on-time delivery performance, optimum flexibility in meeting unanticipated demand and high inventory turns.

The Program Manager’s Role

The program manager becomes the key driver of Lean practices in each new project. As illustrated by typical customer concerns above, that is not always an easy task.

In the Epic model, the program manager starts by developing the customer order replenishment methodology. This is often based on the customer’s available infrastructure (e.g., ERP system, EDI, portal access, etc.). The next step is determining how replenishment/pull signals for products will be generated, such as portal access, e-mail, fax, phone, etc. This is based largely on the infrastructure available at the customer to support these systems. Every customer tends to have a unique toolset, adding to the challenge of Lean implementation. The program manager also defines points of order management interface between organizations, identifying peers 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 Epic to customer consumption point.
• Desired safety stock at customer location.

Once these issues are addressed, initial finished goods kanban bin sizes are established. The program 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 program manager must then monitor bin sizes often to ensure 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.

Program management duties also include tracking customer-focused team (CFT) performance to defined Lean metrics, including on-time delivery (OTD) and inventory turns. (Epic’s internal goal is 12 turns a year, and the OTD target is above 99% based on customer requested date.)

A final area of program management focus in initially driving Lean focus is ensuring that CFT members and direct labor are highly cross-trained on customer products, permitting the greatest possible flexibility of resources.

Issues that Impede Lean Implementation Key issues that can slow achievement of optimum results include: Product has irresolvable manufacturability or testability issues. Sole-sourced critical components, particularly if the supplier is reluctant to support Lean stocking practices. Poor component supplier performance in quality or delivery. Resistance from customer on optimizing forecast methodology to accommodate Lean practices. Resistance from customer on DfM/DfT or component commonality design recommendations in new products.

Lean Results Metrics

The cost savings achieved is normally based on the combination of:

• Reduced factory cycle times.
• Elimination of frozen schedule windows.
• Minimization of both raw material and finished goods inventories.

Some cost savings are achievable immediately. However, the bulk of savings occurs once the project and supply base is fully aligned with Lean principles. Implementing Lean principles in product design or redesign processes drives additional savings. The greater the focus on using Lean principles throughout the product realization process, the greater the savings over time.

For example, a large medical device manufacturer customer was outgrowing internal floor space and needed suppliers that could minimize inventory on the factory floor and significantly improve flexibility and on-time delivery. The business was moved from a larger EMS provider in 2005. It set up first products on kanban and implemented Lean operating methodologies during the fourth quarter of 2005 (first 10 assemblies) and 2006 (balance of 50-plus assemblies). A min/max system was established, whereby bin replenishment is triggered upon consumption of the first bin. Bin size based on order replenishment lead time is shown in Figure 1.


Results after two years of production include:

• Order lead-time on PCB assemblies reduced from more than three weeks with previous supplier to three to five days.
• Inventory turns on assemblies improved from four turns to 26 (Figure 2).
• OTD performance improved from 55% in 2004 to 97% (Figure 3).
• Cost reductions resulting from DFx and Lean initiatives of more than $1.1 million (11%) for fiscal 2007.

Conclusion

Lean manufacturing is a powerful tool for generating cost savings. However, implementing Lean takes time and usually involves changes in forecasting practices, product design focus and optimum supply base cooperation. The magnitude of the result is typically tied to an OEM’s willingness to embrace recommended changes. The more systemic the focus, the greater the benefit. The program manager plays a key role in right-sizing bins and communicating needed project changes to the customer. The entire team plays a role in ensuring that goals for OTD and quality are met. The journey to a Lean process achieving maximum results requires a strong focus on continuous improvement and tight teamwork among the EMS provider, customer and supply base.

Bibliography

1. T. Baggett, “Can Lean Save Money in Medical Contract Manufacturing,” SMTA Medical Symposium, May 2007.
2. T. Baggett, “Does Lean Manufacturing Really Save Money,” Global SMT & Packaging, January 2007.
3. T. Baggett, “Teaming for Lean,” SMT Medical Symposium,  January 2008.

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

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