Lean and Agile in the LVHM contract manufacturing arena

EP&T Magazine

By: Kenneth Roots, manager business development, new markets, OCM Manufacturing

It’s been 60 years since Toyota first introduced its Lean Manufacturing principles, called the Toyota Production System (TPS), in which any aspect of the manufacturing process that does not produce direct value for the end customer is eliminated as waste. With its 5S, JIT, kanban and kaizen philosophies, the car maker showed the world that it could produce cars and trucks more efficiently and cost-effectively than traditional western manufacturers.

The electronics industry has been particularly affected by this paradigm shift. Many OEMs that once performed manufacturing in-house – known as a vertical integration model – have adopted Lean in an effort to reduce costs while improving customer service and market share.

Large global contract manufacturers (CMs) were first to take up the banner and implemented Lean to satisfy Tier 1 clients. It followed that original equipment manufacturers (OEMs) who had eliminated or reduced process waste in their own operations would want to see the same initiatives occur in their supply chain. As vertical integration has given way to outsourcing – another paradigm shift designed to increase efficiencies and reduce costs – OEMs have come to expect Lean from their electronics manufacturing service (EMS) providers and CMs.

More recently, these expectations have trickled down to low-volume/high-mix (LVHM) manufacturing. Many OEMs in this sector believe that the Lean processes enjoyed in the Tier 1 and Tier 2 space should be cloned for their low-volume requirements. Because Lean has produced efficiencies of scale for their high-volume counterparts and contributed to lower costs of manufacture, it is assumed the same ought to be applicable to any type of electronic goods, regardless of the production volumes.

Staying agile

The biggest challenge for EMS providers catering to the LVHM market and wishing to adopt Lean principles is their need to remain flexible. This business is characterized by a large number of customers and varied product types that require frequent process set-up changes and diverse materials inventories. And, ever-increasing fluctuations in demand and global uncertainty in production requirements also add wrinkles.

Agility has always been one of the most valuable assets for CMs delivering LVHM manufacturing services. Because we are accustomed to a wider variety of work orders while tearing down/setting up on the fly, agility has historically been the greatest competitive strength that LVHM CMs offer.

However, agility runs somewhat counter to the strict adherence of any process control standard, including the Toyota way of doing things. Many companies have already discovered that TPS is not a “one size fits all” methodology; rather, it must be tailored to fit a particular industry or company with respect to the type of work performed. In a true “pull” system, it is just as difficult to adapt to rapidly-changing customer demands and hundreds of different product types as it is using traditional “push” methods. If an order is cancelled or bumped out, it creates a vacuum in the workflow.

Yet there are ways to allocate the work and resources to accommodate such a situation. Another order may be ready to fill the gap at the affected workstations. Or, the affected resources can be reassigned to assist with process bottlenecks (called cross training). With the right implementation of Lean and customization to fit an organization’s specific business model, agility can be maintained or even improved.

Remaining customer focused

Another challenge that CMs frequently encounter is the fact that many of their OEM clients do not have a history of manufacturing and so have not had a demand chain to force them to eliminate wasteful operations and inefficiencies. So, EMS providers in the LVHM space are challenged to make their factories Lean while also being able to adapt to inefficiencies that are common among customers, with minimal allowances for additional cost or time expenditures.

It remains to be seen whether Lean efficiencies of scale are transferrable to the LVHM arena without compromising flexibility. OCM Manufacturing attempts to achieve both and its recently taken up the challenge to implement Lean in the Ottawa facility. OCM is confident that it can marry the strict principles of Lean with its capabilities and business model to improve shop-floor efficiency, shorten throughput times and reduce internal costs, all while maintaining the agility that customers have come to depend upon.

OCM is at the beginning of this initiative and it has completed its first Kaizen event with success. Management and staff are working on the next event with confidence and solidarity. Coupled with the expansion of manufacturing operations, the firm expects to improve capabilities and capacity, along with its service level and cost structure.

Contact Information:

Shaun Markey