Interview – Jay Goraija, Mentor Graphics

At SMTA International in Chicago, Illinois, Trevor Galbraith spoke to Jay Goraija, Director of Consulting for Mentor Graphics

Let’s talk about the cost analysis tool you’re promoting, which basically looks at all the line operational costs for customers. Can you explain a little bit more about this product and how it works?

Jay_GoraijaWe found ourselves in a position, where as a company, Mentor has a lot of solutions out there in terms of shop floor capabilities and data collection. We were looking for ways to help not necessarily all the customers, because tier one and tier two companies understand their cost model.

These companies understand that when they need to quote a new job, they have the leverage to affect distributor costs, part costs, etc. So the remaining 30-40% of costs is where everyone else has to compete in this aggressive market we live in. How to best simulate what it would cost to manufacture something is to model the cost itself – truly understand what the allocation of facility cost is to each of the different operations, how much energy is being spent if we are going to build a particular model. What is the labor cost model based on the existing capacity for final QA, at test, at SMT, at kitting, at incoming material.

Each one of these models are different, for example, I have a capacity of 30,000 components placements per hour in the case of SMT, or as in the case of final QA it might be just 200 boards an hour. These translate into labor rates, that translates into capacity capabilities as well as the cost to build something.

Then it will provide a baseline to say this what it will cost, this is my SG and A, this is my material costs, this is now my baseline, what am I going to do? Then becomes a decision; is it customer-retention question, or a customer-acquisition strategy where I decide I’ll undercut my margins a little bit, or with this customer we have a great relationship and this is what we normally do on the margins side.With this information, they can make those decisions.

It sounds like a very interesting product. You have a couple things here, first of all the tier one and tier two guys are making pretty much the same thing in larger quantities, so it’s easier to do. I think the issue with a lot of the tier threes and fours is that they have a very high turn rate or a very high mix of product. There is lot of number crunching that goes into working out all the costs, depending on what your building. How quick is this system? I mean how fast can you turn these costs around and what is involved bringing in all these parameters?

I think there is an initial understanding of reality versus estimates. Many organizations today are doing their production planning based on just a default tack-time – this is what we have done here and this is what we have done there. The idea of actually going in and auditing it and putting it in a model so that they have a real baseline cost, I think this is the key.

It may take a little bit of time upfront to put in the numbers you have today or your estimates for each of these operations, which for many of these companies may be a new thing to begin with. For them it’s factory floor tack-time, this is what it costs, this is our standard labor rates, across the swath of the whole factory. Then, now that I understand this, let’s audit it, and let’s build models so that quote after quote, we are estimating these, comparing them to the reality, then fine-tuning those models until we get to a point where it’s really accurate.

The other aspect of it is with some of other tools we have, you brought up the old issue of high-mix which is the reality Volume may vary from low-volume to mid-volume, but how to tactically handle that is also a challenge. When we get this job, do we have the right material? Do we have the material visibility two weeks out, four weeks out? Do we have it in inventory? Which line are we going to build it on? I have 15 jobs I need to build on these three lines today. What is the best way to bunch these together and put them on the same line with “family set- ups,” and in which order. If a hot job comes in, I drop it into a production planner.

Okay let’s dial back on this a bit. Is this a an out of the box product, or is it something that’s going to involve a element of consultancy to set it up?

I think it’s both. There is consultancy to help build the right model. The models are there already, so you can sit down, plug-in the numbers, and go. Or you could work with us and discuss which operations do you want to cost model, because it’s not fixed. Organizations may have large buckets, they may say SMT is a bucket, test is a bucket. Manual, whether it is component, automated, placement, all that is one bucket, and material is a bucket. Some people may want to break it down to SMT1, SMT2, reflow, AOI – and each one of those individual costs. Although the tool will support ethier way.

Do you have standard modules that you put it into? Or does it work anyway you want to do it?

And that’s the difference between a tool, because a tool will support a lot of flexibility. It is designed to fit the largest swath of customer base. And I think that is where the consulting comes in. Because for you, the customer, the question is: what is the best formula to get the maximum value extracted from this investment?

So many companies have their own homegrown product that they have invested a  lot of time in. They think in many ways, it’s their own differentiator. Why should they consider doing something like this?

There are multiple reasons. There is why that homegrown system was put in place to begin with. It could be that at that time there was not any thing out there, which is possible, so it was the right thing to do at that time. But now we have so many opportunities. With data aggregation technology, we have the ability to pull together so many different aspects of manufacturing. They can now make decisions to optimize the material flow and the planning of a factory floor, really get efficiency and capacity at limits we have never been able to get to before through automation.

They should really consider looking at all the alternatives, whether it’s Mentor or others. We have a very wide swath of technology, from design all the way through to packing, shipping and out.

This allows us to really tie a lot of knots. If it’s a captive organization, or a contract manufacturer that is working very close a design house – because that’s a competitive advantage, we have the tools and are able to work really close together. We can do things like send you our defect rates on component vendors. When you do your part selection, when you’re about to lay-out your board, you could see all the DPMs for every alternate that you have. You will also get yield information or DPM information, to do your parts selection.

So that level of integration requires both understanding the design and the manufacturing side. I think this as a pivotal time.There is a lot to talk about data aggregation and data analytics. There’s also a lot of speculation about whether or not this whole industrial has a play in our market space. I think there may be, but we just have to figure out how, We need to figure out the right models.

There are a couple different models. You have industry 4.0 coming, then you have the US version as well, there’s a lot going on the space at the moment.

I think all of this added together is the reason why organizations that do have systems that they have built to meet specific needs. They should look now and maybe venture to see what else can be done, what other problems can be solved. If they can leverage their homegrown system or say to themselves it might be time to get some- thing that really gets us to the next level.
Assuming they don’t have the manpower internally.

Mentor Graphics would come in and do an apples to apples comparison?

Of course.

This is a fascinating subject, we could sit here and talk like this all day, because it really is so complex. It is key to where the industry is going. Thank you for giving us a snapshot. If anybody wants to know more about the products they can get that on the Mentors Graphics website.

–Trevor Gabraith


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