Technology Forecasters, Inc.
Strategic Environmental and Manufacturing Consulting
Everyone in the electronics industry should pay attention to the homeland security bill wending its way through Congress. It is likely to have an impact on industry attempts to tighten supply chain delivery schedules.
Earlier this year, the House, on a bipartisan vote, passed Bill HR1, “Implementing the 9/11 Commission Recommendations Act of 2007.” The bill awaits Senate action.
Among its provisions, the bill would require that all ocean cargo containers headed to the United States be scanned for nuclear bomb components. At present, a small portion of cargo containers entering U.S. ports are inspected.
If the legislation is passed in its strongest form, with required dates for implementation and penalties for non-compliant trading partners, we could be faced with massive disruptions in global trade.
The good news: The bill gives the Department of Homeland Security up to six years to find, perfect and implement the technology.
There are two screening technologies, neither perfected yet, to be implemented. The first is a radiation scan that detects potentially dangerous cargoes. The second is imaging of the containers’ contents, showing the density (and likely the details) of the load inside.
Chris Koch, CEO of the World Shipping Council, an industry group, tells me his biggest concern is that the current language in the bill is too vague and does not contain enough practical content to guide the ultimate implementation of the required technologies.
WSC is advocating continued development of standards and procedures before any hard and fast decisions are made on implementation deadlines.
We should make our ports more secure, including 100 percent inspection, if it can be done without causing cargo gridlock. But Congress must be careful not to mandate solutions that don’t yet exist.
TFI members need to take an active interest in this issue, because it could significantly slow down our global supply chains. We urge you to keep a close eye on it and talk with your company’s government relations department about these concerns.
We thank TFI member Henri Duhot of DHL for bringing this issue to our attention during our Quarterly Forum in March.
And we’d also like to know what you think about the bill. Please post a comment below.
Technology Forecasters’ recent survey of Lean practices in the electronics industry found that OEMs and EMS companies are the leading adopters. Distributors lag most and component manufacturers fall in between.
Some of us were a bit surprised because we know a few distributors have taken Lean to heart. Arrow Electronics and Avnet, for example, work with their large customers to install in-plant stores and implement just in time (JIT) inventory practices.
Among component makers, many semiconductor companies collaborate with customers, competitors and foundries to speed technological innovation, especially in manufacturing processes, eliminating wasteful duplication of effort. Few chip companies could afford to continue to meet Moore’s Law at each smaller process node if they didn’t collaborate. We might not typically think of these efforts as Lean, but they certainly are in spirit.
Some chip companies are making efforts to improve inventory lead times, which are typically 12 weeks or longer. Last year, Qualcomm, the largest fabless semiconductor company, launched a new approach to inventory management to cut lead times to four weeks or less. It established a die bank, where partially completed wafers from its foundries sit until pulled by Qualcomm’s contract assemblers, who finish the wafers into multi-chip packages with feature sets determined relatively late in the design cycle by cell phone OEMs. This might be the closest chip manufacturing will get to JIT.
The good news: Three-fourths of the 250 respondents from all segments of the industry say their companies are already involved in some kind of Lean practice. Distributors and component makers may lag, but these examples suggest they’re capable of going Lean.
There are likely other Lean examples we should all know about in distribution and component manufacturing. Please comment below and tell us about them.
In Technology Forecasters’ recent survey of Lean practices, three-fourths of the 250 respondents, from all electronics industry segments, said their companies are engaged in some kind of Lean effort. That’s good news, but the industry has a long way to go to achieve the exponential value of extending Lean throughout the supply chain.
The research found that OEMs and EMS companies are the leading adopters and that distributors lag considerably. Component manufacturers fall somewhere in between. Other than several OEM-EMS relationships and a few OEM-distributor relationships, there is not yet much collaboration to spread Lean across the supply chain.
OEMs could drive this effort, but if they want to see Lean adopted throughout the supply chain, they need to rethink how they conduct their relationships with all suppliers.
The TFI research suggests the core issues: Forty-one percent of respondents reported their customers demand continuing cost reductions; 60 percent said customers expect them to make these improvements independently. While 50 percent reported customers are involved in some capacity with the supplier’s Lean initiatives, only 12 percent said customers invest time and money to improve and learn the supplier’s processes, and just 14 percent said customers participate in Lean training programs for the supplier’s staff.
In contrast, the most successful Lean supply chains are those in which the OEM not only demands Lean improvements, but is deeply involved through communication, education, and collaboration to help suppliers make improvements.
Lean is a broad array attitudes, tools, and techniques for streamlining processes, which traces its origins to manufacturing in the automotive sector, in particular Toyota. The electronics industry could learn how to create Lean supply chains from the way Toyota and rival Honda brought Lean to North America.
“Building Deep Supplier Relationships,” in the December 2004 issue of Harvard Business Review, demolishes the myth that Lean is culture bound, and concludes the Japanese automakers “have had stunning success building relationships with North American suppliers – often the same companies that have had contentious dealings with Detroit’s Big Three.” It reports suppliers found the Japanese to be better communicators, more trustworthy and more concerned with the supplier’s profitability than the Big Three.
Toyota and Honda understand the supplier needs a fair profit. They tell the supplier what they’re willing to pay for a part andand deduce from that what the cost of making the part must be for the supplier to make a fair margin. Then they help the supplier root out the waste, inefficiency quality problems that keep it from achieving that cost.
In marked contrast to the TFI findings above, Toyota and Honda help suppliers go Lean. They put their own Lean expert – essentially a free consultant — on the supplier’s site to make suggestions, but only after watching and learning for a time. They conduct Lean training for suppliers.
The article identifies six principles to follow: Understand how suppliers work; find ways to turn supplier rivalries into opportunities for all; closely supervise suppliers; develop suppliers’ technical capabilities; share information intensively but selectively, and conduct joint improvement activities with suppliers. Space does not permit a fuller examination; the article is required reading for those dedicated to Lean.
There are important differences between the auto industry and electronics. Electronics OEMs outsource much manufacturing, heightening the role of the EMS. Not surprisingly, the OEM-EMS relationship is where most Lean collaboration takes place in electronics.
And OEMs are not the only or even dominant center of innovation. Semiconductor companies have clout and are something of a wild card to the supply chain.
For these and other reasons, electronics OEMs would likely have to work harder than automotive OEMs to know what the right hand, the left hand and all the other hands are doing. Nonetheless, the successful Lean supply chains built by Toyota and Honda offer examples of what electronics OEMs and EMS companies could aspire to achieve, what the entire electronics industry can set as a goal.
Any company that adopts Lean practices internally is bound to benefit. But the best results happen when entire supply chains adopt Lean.
TFI’s research also found that the payoff from Lean can take three to five years to materialize. So the sooner everyone starts on the entire supply chain, the better.
While most EMS companies are busy gazing downstream for new sources of revenue with higher margins in design, fulfillment, maintenance, service and the like, a potential high-margin center has materialized, not in front of their noses, but behind them.
We’re talking about SiP, PiP and PoP. For those who haven’t mastered the alphabet soup: system in package; package in package and package on package, or collectively 3D packaging. At TFI, our initial research suggests it has the potential to become a sweet spot for EMS providers bold enough to look upstream. Here’s why:
In the age of nano-miniaturization, converged 3D chip packaging is a value-added activity to which both the EMS and Semiconductor Assembly and Test Service (SATS) nodes along the supply chain contribute. But which of them will ultimately capture this exploding market is still unclear.
Like many other aspects of electronics manufacturing, the cell phone is driving this, especially PoP, where multiple functions can be best accomplished in minimal space, creating more efficient connections and lower power usage. A couple of the larger EMS providers tell us they’re doing PoP work for cell phone OEMs and that demand is strong.
The cell phone may be first, but it will not be the last to benefit from 3D packaging. Laptops, PDAs, digital cameras and other consumer devices will drive new growth. So will myriad other segments, from medical to military, as engineers adopt the PoP for performance benefits of these products. PoP is expected to grow from 100 million units in 2005 to nearly 700 million in 2010.
Most EMS companies already have at least some of the capital equipment they need for this work, especially PoP, which does not require the clean room necessary for SiP and PiP. From our initial research we estimate that an EMS provider could launch PoP stacking capability for $200,000 to $400,000 investment, plus the cost of technology expertise.
For more about this opportunity, be sure to read the presentation based on my research, “New Chip Packaging Solutions: An EMS Opportunity, Competitive Threat or Both?”
Savvy companies will snatch this opportunity. EMS companies could — if they turn around and look upstream.
The electronics industry has made important strides in adopting Lean Thinking, but we still have a ways to go to realize its full benefits. I have no doubt that leading adopters are already reaping rewards, but the benefits would increase by orders of magnitude if partners along the entire supply chain adopted Lean.
If you attended our Quarterly Forum last week in Monterrey, Mexico, you saw my presentation on TFI’s research on Lean: “The State of Lean Adoption in the Electronics Industry: Who’s Leading and Lagging the Supply Chain?” Based on our survey of 250 industry executives, the answer is: EMS providers and OEMs lead, while distributors and components manufacturers, including semiconductor companies, lag.
What is less clear, because it was not the subject of the research, is why. Why are larger EMS companies and OEMs the leading adopters? Why do distributors and component makers lag? A collective understanding could be an important step towards progress. I have a few theories, but we’d also like your input.
TFI is deeply committed to Lean and wants to be an advocate for this comprehensive set of philosophies, rules, guidelines, tools and techniques to increase value and eliminate waste in our industry. Our intent is to stimulate interest and discussion, and to help the electronics industry find solutions for pushing Lean to the farthest reaches of the supply chain.
In that spirit, here are three possible theories why distributors and component manufacturers are lagging.
– With the thinnest profit margins, EMS companies are highly motivated for Lean. With some of the highest margins, many component makers have little motivation.
– Lean is typically applied initially to processes on the factory floor. Distribution does not have experience in manufacturing – possibly explaining delayed adoption.
– Perhaps the farther away supply chain partners are from the original demand signal the less likely they are to adopt Lean processes.
In the future, we’ll explore ways to bridge the gap between leaders and laggards. For now, we’re interested in your thoughts on why the leaders lead, and the laggards lag.
It’s time to get specific with the uses of lean in the electronics industry
During the past several years, the term Lean has been overused and overgeneralized. Yet the principles of lean remain ever important, as it reduces not only an organization’s own costs and time-to-market, but also overall business costs and global environmental impact.
To generate actionable ideas and renewed inspiration, it’s time to get specific with nitty-gritty cases of lean and the resulting savings in quantifiable measure. But first, some background.
In a January 2007 TFI Report, hundreds of electronics-industry managers answered 40 questions about the use of lean in their companies. In particular, responses to the question, “What is your understanding of the term lean?” include several true-to-form definitions—as well as some cynical views—as quoted here:
Technology Forecasters has previously identified the cost and availability of electronic parts as one downside to manufacturing in India. But recently, we’ve seen reasons to offer a bit of hope that the component supply chain in India might be improving.
In research conducted by our senior consultant, Matt Chanoff, last year for our Fourth Quarterly Forum, “The EMS Industry in India: Opportunities and Challenges,” the cost and availability of parts stuck out like a sore thumb as a problem for manufacturers in India, especially in the in-depth interviews TFI conducted with manufacturing executives for that report.
We are heartened, however, that the Indian government recently announced its Special Incentive Package Scheme, an initiative focused on attracting investments for setting up semiconductor plants and other technology manufacturing industries. Full details are to be announced in about two weeks, but in general there will be significant financial inducements, including tax breaks, for chip companies that set up manufacturing in India. We believe where the semiconductor industry goes the supply chain will follow.
In a recent email exchange with an industry executive who is plugged in to the design and distribution business in India, and who read about our research, told me that his company has noticed an increase in the number of sample requests coming from the growing design engineering services sector in India. This executive took this as evidence that component makers might follow. He will share some trend data with me next week that I’ll add to this blog.
Google “collaboration” and “supply chain,” and see what you get. I just did – 10.1 million hits. On that basis alone, one can conclude that collaboration and supply chain go together like a ‘horse and carriage’.
I see a lot of evidence that companies are following quickly along the path of collaboration, attempting to build better business processes between themselves and their supply chain partners.
But maybe too quickly, because in many cases, these companies haven’t spent enough time aligning themselves internally before they try to collaborate with their partners.
That’s like putting the ‘carriage before the horse’.
Inside many companies, the various executives don’t speak the same language, and have not clearly translated business strategy into supply chain strategy. Functional objectives still remain in conflict. Here’s one example.
The CFO sees collaboration with supplier partners as a way to lower inventories and better manage the risk – perhaps through various lean initiatives and Vendor Managed Inventory programs with key suppliers. However, at the same time as pursuing this supplier collaboration path, the company is also rolling out a new product line with high market share expectations but due to its new innovations also - a high demand uncertainty. Therefore, the vice president of sales and marketing suggests an initially high level of product availability to compensate for an uncertain, but expected high level of excitement and wants to capture that crucial lead market share position!
What’s the supplier supposed to do? When the supplier looks at the MRP output and recent historical demand the suggested inventory is much less than what the buyer has indicated after his recent and heated discussion with the VP Sales who has suggested the demand in MPS is “conservative” ? The supplier has received two mixed messages - both stemming from high level executives at this important customer! It’s an impossible choice that has only one result- making one executive happy at the expense of another.
With gaps like that in internal alignment, the external collaboration will be more difficult, more costly and more at risk of confusing both customers and suppliers.
Companies need to place as much emphasis on aligning internally as they do on collaborating externally. And – in that order!
Let us know what your experience has been.
Investing in supply chain maturity by performing audits and exercising discipline in process control has some unexpected benefits. These activities communicate to your supply base your commitment, and your operational awareness and expertise. If you are not conducting audits, when supply becomes constrained, you may get knocked to the end of the allocation if your supplier thinks that you are not supply-chain savvy. A supply chain diagnostic is the first step.
In our environmental consulting practice, we are finding that there is no clear role for the management of product environmental compliance — it is oftentimes blended with facilities EHS, which usually causes confusion. Our latest benchmarking report highlights this fact.
Doesn’t it make more sense to take a more holistic, strategic approach by bringing them together?
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