Customer Commitment to Lean Print E-mail
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Written by Steve Fraser   
Thursday, 31 March 2011 13:53

A joint focus can reduce capital commitments and improve quality.

Customer involvement is critical for an electronics manufacturing services provider to optimally implement Lean manufacturing. Contractors who implement some level of Lean principles will enjoy the costs savings that come from an efficient factory. However, true customer savings usually require a strong teaming effort that also involves the supply chain. The greatest savings from Lean are often achieved two or three years after customer and contractor Lean practices are fully aligned.

Note the benefits derived don’t necessarily lead to immediate price reductions. Instead, initial improvements tend to contribute to reduction of hidden or less visible costs. For example, truly Lean projects have the greatest schedule flexibility. This can reduce the customer’s working capital since pipelines can be shorter and also eliminate the opportunity costs that arise when supply doesn’t meet variable demand. Joint focus on Lean also can increase overall quality. At the factory level, this obviously benefits the contractor more than the customer. However, when this improved quality also translates to fewer field returns, the customer benefits from field service cost-reduction and higher levels of customer satisfaction in its end-user markets.

At Epic Technologies, we see five key areas where customer support is critical in optimizing Lean.

Product development. With most customers, implementing Lean philosophy in early product development occurs in subsequent projects rather than initial projects. As customers see the value of Lean in existing projects, they become more open to earlier contractor involvement in design processes. From a benefits standpoint, close teaming in this area can reduce working capital, reduce product development time and avoid issues that could drive poor quality or poor supplier delivery performance. Areas where we like to see customer support include:

  • Implementation of recommendations on component selection that increase component commonality across the product line and minimize the likelihood of component obsolescence.
  • Minimization of sole-sourced parts.
  • Adoption of approved vendor lists (AVL) that utilize high-quality suppliers willing to support Lean principles related to lot sizes and schedule flexibility.
  • Adherence to our design guidelines.

DfM and design for procurement. Even when early involvement in the design cycle is not possible, DFM and component substitution or AVL change recommendations can be adopted as products are updated. While the most comprehensive recommendations can be made during the early stages of product development, Epic does design analysis as part of the project launch of existing products to ensure customers are aware of any potential manufacturability or testability issues prior to the start of production. Product analysis is based on advanced product quality planning (APQP) principles. The analysis reviews the design against proprietary design guidelines based on a combination of our internal Lean philosophy and industry-standard guidelines. The bill of materials is analyzed for potential obsolescence, quality or availability issues. The subsequent report includes a ranking system designed to inform customers of the relative importance of each recommendation.

Areas where we ask for customer support include visibility into specific project goals, and adoption of most important change recommendations.

Forecasting and material bonding strategy. Creating a just-in-time (JIT) environment in a variable demand EMS business model can be challenging. Teaming with the customer and supply base to understand historical trends and establish adequate bonds and replenishment streams is critical to supporting variable demand. Our model focuses on managing exceptions vs. constantly expediting to support “surprises” in demand.

We use a kanban “pull” system, postponement of commitments and electronic data interchange (EDI). Strategic suppliers produce to the MRP forecast and ship to EDI release signals. Buffers are established at key locations in the pipeline and are 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 customer side of the equation, agreements are also set up. Customer-focused teams (CFTs), led by an account manager, drive the program management process. Each customer and the CFT account manager reach agreement on forecasting methodology, optimum bond sizes and pull signals.

The first step in the process is defining a customer order replenishment methodology. Typically, this considers the infrastructure in place at the customer (i.e., ERP system, EDI, portal access, etc.). The next step is determining how replenishment/pull signals for products will be generated, such as portal access, email, fax or phone, etc., again based on customer preference. (Every customer tends to have a unique toolset, 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 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 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 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. 

For the process to be effective, both customers and suppliers often have to modify traditional systems. While customer goals for on-time deliveries are the foundation of any planning methodologies, the level of visibility into demand, data required and timing of how data are provided is driven by us.

Supplier support is also critical. An optimized system requires that suppliers agree to support a strategy of maintaining predetermined buffers close to point of use and working on pull signals. Not all suppliers are willing to do this. In some cases, customers are requested to switch to suppliers willing to support this system.

Customer support in this area contributes to schedule flexibility and inventory minimization, because materials lead-time drives both inventory levels and response time. This is also an area where maximum benefits often accrue in year two or three of the project because of customer reluctance to make immediate changes to the AVL.

Team on continuous improvement initiatives. While a contractor has the best visibility into manufacturing-related defects that occur in its processes and into issues that develop in the supply base, the customer typically has the best visibility into failures driven by post-manufacturing handling and reliability issues in the field.

The faster root causes of quality issues are identified, the less they cost. We use a reliability lab and Six Sigma techniques to identify root causes of quality issues. However, corrective action often involves customer support. For example, when a customer does final assembly in-house, damage may occur in the customer’s final assembly processes. Identifying complex, multi-party issues typically involves cooperation between contractor and customer engineering teams and may result in corrective action in both entities’ processes.

Inefficiency or redundancy may also exist in the working relationships between customer and contractor throughout the product realization process. Value-added value engineering (VAVE) projects can help identify areas for improvement. While this may drive additional customer engineering time during the analysis, that time is typically more than compensated for by the cost savings generated.

Include contractor in business strategy discussions. There are two schools of thought in outsourcing: One supply chain management strategy focuses on reducing costs through partnering and strategic supplier relationships. The other focuses on reducing cost through frequent cost analysis and uncertainty. In complex relationships, partnering will always deliver the best results. As mentioned, aligning product development and AVL selection with Lean philosophy helps deliver the largest gains in cost reduction and schedule flexibility.

The more visibility a contractor has into customer business strategy, the more suggestions for improvement or additional value-added services can be offered. We tap our supply chain in terms of developing technology trend roadmaps and doing component lifecycle analysis. This information is shared with customers. The result is strong partnering arrangements that provide design and continuous improvement recommendations aligned with both immediate needs and long-term customer strategy.

A customer’s willingness to modify a design or process normally drills down to one thing: the return on investment. Consider this example: The project involved 98 SKUs and a total of 750,000 units. Demand was variable. The average on-time delivery (OTD) to customer request in 2010 for that project was 97.75%. Those annualized OTD metrics even included two new product introductions. The engineering team performed VAVE projects that also helped this customer reduce annualized cost by 6% in 2010.

Overall OTD performance to customer request is consistently over 97% in our factories. The reason is a combination of a holistic Lean philosophy and strong customer and supplier support.

Steve Fraser is vice president of operations at Epic Technologies (; This e-mail address is being protected from spambots. You need JavaScript enabled to view it .

Last Updated on Thursday, 31 March 2011 16:48


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