Technology Forecasters, Inc.
Strategic Environmental and Manufacturing Consulting
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.
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One reason distributors lag is the obvious. Lean thinking has been presented using mostly manufacturing examples, so it’s harder to relate to. That’s beginning to change.
A second reason is that distributors measure performance by percent fill and delivery on time, so they may not see the waste tolerated to accomplish these goals.
Some of these wastes come from pursuing economy of scale. The bigger, preumably the more efficient. A good exercise for them is to think hard about how to distribute in small quantities as cheaply as with large.
Interesting comment on metrics reminding me that “we manage what we measure”. Order Fulfillment is an external metric and very visible to customers. A similar focus on waste oriented metrics such as lead time, inventory on hand, batch size, consisent with Lean principles is a worthwhile exercise for the entire supply chain. Real progress will require us to also consider how actions upstream and downstream impact this waste.
There are several good reasons and evolving LEAN tools that promote uniting supply partners and customers in “Above Shop Floor” events. First is the need to develop supply chain win-win partnerships. Several recent postings on this site speak to that emerging trend. Second is the greater need for the partners to learn more about each others’ process, responsiveness and areas for common improvement in performance. Third is a growing recognition that local ecomomic growth is fostered by improving and mentoring using these techniques. Some states, like Massachusetts and Arizona are developing economic stimulus grants in the form of LEAN training to help bolster firms and prepare them for the future competitive arena. Traditional LEAN tools emerged from manufacturing needs, but these techniques are morphing somewhat to “above shop floor” to address the knowledge worker society of supply chains. Companies with early adopter attitudes will gain competitive edge.