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.

Posted by Bill Roberts, May 2nd, 2007

Filed to Supply chain management

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