A dual Kanban approach cuts costs vs. Asia and ensures a predictable flow of finished goods.
Think globally, but act locally is becoming more of a factor in the electronics manufacturing services (EMS) realm. While customers want the cost advantages found in the lowest labor-cost markets, they are also realizing the impact distance can have on schedule flexibility, logistics costs and internal support requirements. Use of a dual facility strategy can help deliver competitive pricing without tradeoffs in schedule flexibility. Not surprisingly, Lean manufacturing principles enhance that strategy.
A good example of this involves a product used by restaurant franchisees with multiple models. While a restaurant headquarters specifies what equipment brands franchisees use in their restaurants, the franchisees make the decision on when to buy equipment and which model to buy. Consequently, while the total available market quantity of products is well understood, demand patterns are less easy to predict. The product was originally being built in China, but this type of demand variation made it difficult to manage efficiently.
The solution was a dual facility strategy using Midwest US and Mexico manufacturing facilities.
How does Lean manufacturing philosophy come into play? There are several elements:
Levelization of production. Forecasts showed 60% of the order would be for one model. The team determined the best split between facilities would be to have the Mexico facility build 80% of the high-volume production and build the rest at the Midwest facility, in close proximity to the OEM that performs final assembly. Systems commonality helps ensure visibility across both teams, the customer and the supply chain. Bills of material (BOMs) are loaded into Agile, and the procurement team has negotiated pricing based on total demand. A daily production schedule going out 12 weeks forward and backward is utilized, and schedule is adjusted based on actual demand. SigmaTron’s proprietary iScore system provided the visibility to manage production seamlessly through its ability to retrieve real-time data from the ERP system, provide “virtual” visibility into production status at both facilities, and analyze backlog and material status.
Process standardization. The two facilities teamed on project launch as though the production was taking place at a single site. The production team started the process by visiting the customer’s operations to ensure they fully understood the requirements. The Midwest facility’s manufacturing engineering team established the production process and then transferred it to Mexico. The Mexico test engineering team built the functional test equipment for both facilities.
Defect opportunity mitigation. Design for manufacturability and testability (DfM/DfT) was performed to ensure the printed circuit board assemblies (PCBAs) were optimized for production flow. The BoMs were scrubbed to minimize obsolescence risk.
Inventory minimization. The biggest potential issues in a dual facility strategy are growth in inventory and the cost of expedited orders if there is not sufficient finished goods inventory to meet changing demand. Systems visibility and electronic pull signals help minimize this in SigmaTron’s case. Industry-standard ERP software, along with the iScore suite of supply-chain management tools, is used. An MRP Share program provides suppliers with complete customer forecast visibility, plus current inventory and material on order. The iScore system supports vendor-managed inventory (VMI) and production driven replenishment (PDR) pull signals.
VMI is used, as needed, with component suppliers. PDR is triggered automatically when the iScore system checks inventory for shortages as shop orders are released. If a shortage is detected, a PDR pull signal is sent to the supplier, and parts are received in two to seven days.
An automatic replenishment system (ARS) is used for higher volume “C” items. The ARS brings these items in at regular intervals.
In terms of the finished goods components, the Midwest facility provides a daily Kanban shipment to support the customer. Mexico is shipping a weekly Kanban LTL (less-than-truckload) to the customer. This dual Kanban strategy ensures a predictable flow of finished goods to the customer’s production operations. The daily shipments from the Midwest facility enable rapid adjustments via pull signal should demand change. The weekly shipments from Mexico help reduce logistics costs. The dual plant strategy also minimizes the need for expedited border crossings that can occur when variable demand projects are entirely built in another country.
Results. When total cost is considered, products are now produced at lower cost in North America than they were in China. The dual facility strategy shortened lead-time to three days from Mexico compared to weeks from China, while adding the convenience and flexibility of daily deliveries from the Midwest facility.