Staying Power in the Fiercely Competitive EMS Business
With a level playing field in terms of access to talent, technology, knowhow, infrastructure, and financial resources, how can an EMS company build a successful business year after year, decade after decade? There may not be a magic formula that works for everybody in this fiercely competitive business. As a matter of fact, having a differentiated strategy relative to the competitors is one opportunity for success. With the ever-growing pricing pressure is there any alternative to penny pinching? In my opinion, not only are there successful alternatives to penny pinching, but they are necessary for long-term success. The teachings of a competitive strategy led by Michael Porter states that in a commodity market there is only one long-term winner. That is the lowest cost leader because he can lower the price until everybody else leaves the business. So unless you are the Walmart or Amazon of the EMS business, you may want to consider a differentiation strategy.
One EMS in the St. Louis area has used a number of successful strategies, some of which are counterintuitive, that have led to a successful business since 1963. There may be lessons to learn when dissecting Siemens Manufacturing Co. Inc.’s strategies. (No relation to Siemens AG, the multinational conglomerate).
The first striking revelation about Siemens Manufacturing Co. is that it does not specialize in any specific industry segments or applications. As illustrated in Figure 1, Siemens Manufacturing Co. serves numerous industries.
According to Director of Business Development Mike Siemens, a diverse spectrum of clients provides less volatility in demand since various industry’s segments tend to be countercyclical to others. A growth in some industry sectors often compensates for downturn in other segments.
There is always a risk of being everything to everybody, which usually leads to being nothing to anybody. There is also a concern that by gearing up the factory to satisfy the most demanding customers, such as the automotive sector, expensive solutions go unappreciated by the less demanding clients.
But what if we could look at this strategy in a different light? Are there best manufacturing practices valued by a wide variety of industry segments that also reduce production costs?
Before the 2008 industry downturn, Siemens Manufacturing Co. implemented a lean manufacturing practice to run its operation more efficiently at a lower cost. This was a company-wide initiative that proved hugely beneficial over time. Let’s drill down to a specific process and analyze how the company operates.
President John Siemens III states that because the pick-and-place machines do a great job, the company focuses more on the reflow and screen printing processes where there is room for improvement. Operational Excellence Manager Kelli Lubenkov believes that the RoHS thermal process is critical due to the narrow process window brought on by the heat tolerances of some of the components. The company has established the practice of profiling every new, unique PCB assembly before starting production. Additionally, previously run PCB assemblies are profiled after production line changeover to verify that the oven is ready to process the assembly in spec. This is an expensive practice because it leads to additional production downtime as well as an extra labor cost associated with technicians performing such a time-consuming manual task numerous times daily. EMS companies in North America tend to produce a large variety of assemblies in a high-mix/low- to medium-volume production environment. Siemens Manufacturing Co. is no different, with up to half a dozen changeovers per line per day. Client benefit is obvious in terms of better quality products that carry its name and reputation. However, such an expensive practice contradicts the trend towards lower cost.
Siemens Manufacturing Co. takes a holistic view to running their factories efficiently. Verifying that the reflow oven is ready for an in-spec reflow reduces cost associated with rework and scrap. The company recently was reminded of the cost of poor solderability when it acquired another EMS company. Before implementing the best manufacturing practices at this facility, $7,000 worth of assemblies were scrapped due to incorrect reflow.
All this profiling downtime is costly, and part of lean manufacturing is to seek out opportunities for improvements. The company wanted to significantly improve the time it takes to dial in an oven for a new assembly, as well as to speed up profiling after oven changeover. The first step was to acquire prediction software that would identify the most appropriate oven recipe for a new assembly. With literally billions of possible oven recipes, the old-fashioned, manual “trial and error” approach was wasting time. Also, the manual tweaking of the oven recipe depends on operator skill, and it tends to lead to oven recipes that are not optimized for quick oven changeover. While the new oven setup software eliminated the trial and error approach, it still relied on running manual profiles.
Siemens Manufacturing Co.’s second step was to invest in a KIC automatic profiling system (Figure 2). Once the automatic system has been programmed, oven changeover is a simple matter of loading the product file, and the automatic system will notify the operator the instant the reflow oven is ready to run the next assembly in spec. Not a moment of unnecessary downtime is sustained. The 2-6 manual profile runs per oven per day for existing assemblies, along with the associated production downtime, are now a thing of the past. Mike Siemens estimates that with 7 lines their factory now saves a total of 5 hours and 15 minutes downtime per day, which represents a daily saving of $1,000. The calculations are based on the following representative numbers for Siemens:
• Automatic profiling is saving at least 15 minutes per changeover.
• $190 per hour cost of downtime ($90 labor, $100 machine time)
• Average 3 changeovers per day on 7 lines.
• 10x3x7= 315 minutes per day
• 315/60*$190= $997.50 per day savings
Another benefit is that during the production run, every PCB is profiled automatically, and adherence to the relevant process window is verified. John Siemens stated that there are opportunities for the oven to drift out of spec during a given production run. One example may be an upstream stoppage that leads to a temporary empty oven followed by a wave of tightly spaced PCBs. Such thermal loading may lead to changes in the PCB profile. Other opportunities for profile variations during production may include facility exhaust system changes, human error and more. With KIC, the reflow quality becomes consistent and free of operator influence.
This is an example of a win-win situation where the client is ensured a high-quality product (from the thermal process perspective) and full thermal process traceability, while the new reflow technology reduces cost in scrap, rework, production downtime and even electricity use. (Case studies indicate a 15% electricity use reduction opportunity for each reflow oven with the use of oven setup software.)
The same investment in lean manufacturing and smart oven technology also supports Siemens Manufacturing Co.’s other core strategy characterized by an intense focus on customer support. Clients appreciate flexibility, quick response time and fast time to market. The reflow oven prediction software enables a faster NPI and the automatic system offers process documentation, traceability and peace of mind. Siemens Manufacturing Co. is even setting up a factory in Mexico, not motivated by reducing production cost, but by being able to better serve its many clients that now are located in Mexico.
Running a lean and flexible factory offers an opportunity to accept projects that few other contract manufacturers can handle. According to Sales Manager Lisa Boland, the flexibility allows the company to react faster and to take on different sized projects, all the way down to small client. As a result, Siemens Manufacturing Co. has won several contracts over the years with little to no competition due to the difficulty in accommodating clients’ requirements while staying profitable.
The intensely competitive EMS industry makes the old adage unacceptable: “There is never enough time to do it right, but there is always enough time to do it twice.” Defects are simply too expensive and “doing it right the first time” is the new strategy. Investing in the right technology and strategy can lead to the best of both worlds: happy customers and higher profits.
For more information about KIC, contact Bjorn Dahle, president, at KIC, 16120 Bernardo Center Dr., San Diego, CA 92127; 858-673-6050.