Supply chain management challenges are unique in very high-mix, low-volume and volatile demand manufacturing environments compared to very high-volume and low-mix environments. More and more, manufacturers are confronted with this problem today.
Traditionally, lean manufacturing practices are believed to be more suited for high volume, low mix manufacturing. This is a myth. This article shows that Lean manufacturing practices have many benefits to offer in all manufacturing environments, regardless of the product mix and volume.
The lack of proper education and training in an organization has been shown to be the biggest barrier to a successful Lean manufacturing implementation. Lead time in different areas of the supply chain is a main cause of inefficiencies. Through proper training, encouragement and participation at all levels, excellent results in supply chain optimization in high-mix, low-volume manufacturing environments can be attained. Value stream mapping has proved to be a very simple but extremely effective tool for identifying issues affecting the key metrics of a supply chain.
This article compares the supply chain challenges using two cases of manufacturing environments. It describes how the supply chain was optimized in terms of performance metrics with special emphasis on excess and obsolete (E/O) inventory and lead time (LT) reduction in the optical industry. The improvements in each of the metrics are shown to have a direct effect on the organization's ship-to-commit (STC) performance.
The article also describes the special tools developed to optimize different parts of the supply chain process and how some Lean manufacturing components — particularly Six Sigma and Kaizen — were deployed to optimize the supply chain metrics for a high-mix, low-volume manufacturing environment. The results of each practice are included.
High-volume/Low-mix vs. Low-volume/High-mix: The Supply Chain Challenge
All companies share the same end goals of on-demand order fulfillment and lower costs of goods sold. But the ability to realize gains from supply chain optimization is not the same among companies with different product mix and volume ratios.
A high-volume/low-mix manufacturer producing consumer electronics for a broad global market has different leverage points within the supply chain than does a low-volume/high-mix manufacturer that builds specialized technology products for a narrower market. When comparing supply chain metrics between these two types of manufacturing companies, a huge contrast becomes readily evident, as shown in Figure 1. Each metric is defined and measured on a scale of 1 to 5 in a metrics scorecard, where a rating of 5 is the optimal score relative to the industry. The criterion for the ratings is listed below in Table 1.
A high-volume/low-mix manufacturer producing standard PC motherboards, for example, can be expected to have relatively stable and predictable end-product demand. It will have a smaller supply base providing many standard ship-to-stock components and materials. High volumes can be leveraged to reduce the ordering frequency and subsequently run a more efficient supply chain operation with high inventory turns and little exposure to excess and obsolete inventory.
In contrast to the generally robust supply chain performance in the well established high-volume/low-mix businesses, the same is not true for the fiber optic components and subsystems manufacturers. They operate in a very low-volume/very high-mix environment, facing constant demand volatility as product forecasts oscillate. This type of manufacturer relies on a large supplier base, each providing unique components for specialized products, making the supply base and internal operations management unwieldy and exposure to excess and obsolete inventory a big challenge.
For the low-volume/high-mix manufacturer, supply chain optimization requires innovative approaches to match the performance demonstrated in high-volume/low-mix environments.
Table 1. Supply Chain Metrics Scorecard
Fabrinet: Reasons for the Changes
Fabrinet serves an industry characterized by very high-mix, low-volume production. It is a global engineering and manufacturing services provider of complex optical and electro-mechanical components, modules and bulk optics. The company serves data communications, telecommunications, networking, medical and automotive markets worldwide. It has over 20 different end customers, and each has unique requirements affecting the supply chain and manufacturing model. Each customer has its own factory within a factory at Fabrinet to safeguard its intellectual property.
Supply chain management is among the greatest challenges Fabrinet faces. Close to 90 percent of the product cost is made up of material used to manufacture the products. The company's growing product portfolio encompasses more than 23,000 top levels and subassemblies using over 36,000 components (Figure 2) purchased from over a thousand suppliers located in different parts of the world (Figure 3). Many of the suppliers in the burgeoning optics industry are small, with limitations in quality systems, reliability and overall maturity.
Technology in the optics industry evolves at a rapid rate. As OEMs develop new product designs, component and subsystem manufacturers compete to be the first in getting them to market. A supplier that wins the business must stay at pace with a program's demand shifts throughout its lifecycle or risk losing the business to competitors that are ready to deliver at the first opportunity. In this race to deliver, short-term production schedules swing up and down dramatically (Figure 4). Referred to as "demand churn," this schedule volatility stresses the supply chain to its extents. Drop-in demand — short-term upside spikes when customers have immediate new needs with "fill-or-kill" orders — need to be responded to with commitments instantly. Demand is also regularly "pulled-out," or removed from the short-term delivery window, leaving materials potentially exposed in the pipeline. In both cases, an immediate realization of the changes, response and appropriate actions are very critical.
A key metric for measuring success at Fabrinet is ship-to-commit (STC). Despite the long lead times of many materials and components used in optical technologies, customers continually demand that their orders be filled in ever shorter lead times. To accomplish this, Fabrinet requires a highly flexible supply chain management system. It must be able to deal with demand changes on the fly and ensure an uninterrupted, scalable supply of materials with continuous cost reduction. It is necessary to close the lead time gap between customer demand and supplier delivery without exposing the company or the customer to high levels of excess and obsolete (E/O) inventory.
The answer to these challenges lies in applying the principles of Lean manufacturing to the supply chain. Combined with new IT tools for intelligence and productivity, Lean manufacturing concepts are transforming Fabrinet's supply chain from the bottom up. By value stream mapping the supply chain processes, we identify opportunities where Kaizen and Six Sigma projects, processes and tools will enable staff to address the base objectives. These Lean practices add value by driving a second tier of objectives, which in turn lead to improved performance for the customer and an ultimate increase in business wins for Fabrinet (Figure 5).
Lean Manufacturing: Getting Started
One of the biggest challenges in implementing Lean manufacturing (LM) is convincing both management and staff at all levels of the power of Lean manufacturing tools. Many staff at Fabrinet envisioned Lean concepts as very complicated mathematical modeling of the process using complex math equations to find the optimal conditions and solutions for lowest cost, best quality and best STC. Others viewed Lean manufacturing to be more applicable for optimizing manufacturing shop processes. The problems in supply chain were seen to be insurmountable and beyond the scope of Lean manufacturing practices.
We had to get past the initial cynicism and notion that lean concepts were very complicated and only suitable for high-volume products, required special skill sets and were outside the scope of rank and file.
A series of classes including staff from all levels of the supply chain staff were held. Class material was designed without involving any mathematics to demonstrate that the overall concepts are simple and easy to understand. Different components of Lean manufacturing were reviewed and each component was explained in the simplest terms to ensure everybody understood the basics. The training and education initiative also was intended to show that not all of the LM tools are always applicable in all cases and that many are not always necessary.
To ensure everyone was on board, several small working groups were set up during working hours to encourage interactive discussion, ask questions and debate the pros and cons of the LM practices. The primary goal was to create teamwork, improve the confidence level of each individual and demonstrate that everyone can contribute to continuous process improvements.
As soon as employees realized Lean stands for waste reduction and not for eliminating people and jobs, Fabrinet accomplished a major milestone toward accepting and adopting Lean manufacturing practices throughout the supply chain organization. With practice, Fabrinet employees realized that Lean manufacturing was about cost and cycle time reduction and was a means toward providing the best value proposition to customers.
Supply Chain Optimization through Lean Manufacturing Practices
The Value Stream Process Map: Identifying the Problems
At Fabrinet, the supply chain (SC) optimization was divided into two separate efforts. First we had to address the common features of SC for all customers and then optimize the supply chain for specific customers as shown in the case study in the latter sections of this article.
To define the overall SC project and identify the problems, the team constructed a complete supply chain process map from the point of communication of demand from the customers through delivery of product. From a high level perspective, the supply chain process was divided into three discrete areas: demand management, strategic supply chain and logistics (Figure 6). The problems and their magnitude in each SC process area were identified together with a specific team of staff responsible for the improvements. Lead time was identified as the fundamental parameter for baseline measurement and improvement across the board. Low-hanging fruit was targeted for immediate improvement, while higher goals were slated for broader scope projects.
Figure 6: Value stream map of the existing process together with the problems identified in each area.
The x-bar and sigma values for each processes section were computed. In demand management and logistics, the actual lead time of the processes were measured over a 26-week period. The data for the strategic supply chain were based on the total fixed lead times of all purchased components.
The average lead time for the total SC process was identified to be 71.7 days, with a standard deviation of 34.5 days, making both the commitments and deliveries to customers very unpredictable. The following sections describe how the average and standard deviation were reduced to improve the overall STC.
Opportunities for improvements in each of the three main areas were divided into a series of Kaizen and Six Sigma projects. Six Sigma projects were identified as "high-hanging fruit" due to their complexity and duration. These projects required innovation, development and validation before they could be implemented. They could take anywhere from four weeks to six months for full implementation. Kaizen projects, on the other hand, were designated as "low-hanging fruit" and quick wins. These projects were considered much simpler and quicker to complete, taking anywhere from one week to four weeks for full implementation.
Demand Management: Problems and Opportunities for Improvement
To tackle the problems in demand management, the focus team looked at the detailed process and tools used in handling, analyzing and responding to customer demand. They found that demand churn in the two-week planning horizon was out of control and invisible. This was driving shortages, excesses and missed commitments. There was no way to quickly and accurately measure the effect of demand spikes. Recognizing that we needed to be flexible to support churn demand, it was decided to standardize the demand management process and develop analytical tools that would help them recognize, analyze and respond to demand churn before it was processed through MRP.
Table 2. List of projects identified to improve the demand management cycle.
Churn Analysis
The Churn Analysis project was a key step in improving the demand management process. The team realized that while some churn is inevitable (and even welcome in the case of doable upsides), other churn was unnecessary and could be controlled in the master production plan to avoid inventory problems or the creation of unnecessary, non-value-added work downstream in the planning process. The goal was to identify the unnecessary churn. The churn analysis turned out to be a far more powerful tool than first anticipated. Senior management of customers started using it for monitoring their own product lifecycle management and marketing forecasts. Previously, senior management focused more on the overall revenue numbers but not the churn mix, which was the major cause of E/O inventory.
"WHATIF MRP"
The WHATIF MRP was an easy-win process development. Before this process was available, planners in various production business units had to wait for a single, weekly MRP run to see the total picture of their customers' new demand and materials position. While waiting, many would attempt to manually calculate materials availability in order to commit to the customer, resulting in inaccurate commitments and materials shortages. After implementation, a planner could run a full MRP on demand as a simulated production scenario, then identify availability and constraints, and provide feedback to the customer with accurate commitments. It allowed the planners to load the weekly scheduled MRP with a realistic demand plan, avoiding lots of errors and cancellations.
Max Kits Analysis
The Max Kits tool was a software application with multiple analytical uses. Primarily designed as a real-time available-to-promise (ATP) engine, it also functions as a means to identify finished assemblies that can be built with available E/O inventory. Prior to this tool, all assessment was based on time-consuming, manual data crunching and estimations. Now planners have an automated tool that provides an exact assessment for the total number of full kits and additional material required to build out the required demand or to eliminate total exposure to E/O.
12-Week Shortage Analysis
The 12-Week Rolling Shortage Analysis was a key early warning tool that addressed frequent material shortages. Prior to this tool, planners had no way to accurately predict when material shortages would affect production schedules. Designed for ease of use, planners could run the 12-Week Shortage Analysis tool and quickly identify problematic components. With these data available, business unit planners formed escalation teams with members of the Strategic Supply Chain group. Material shortage issues that could not be solved within the purchasing groups were escalated to management and then executive staff. Material shortages were reduced from frequent to rare.
Overall Results in Demand Management
With these automated, accurate tools for analyzing and responding to customer demand, the baseline lead time metric for demand processing improved from an average of 5.75 days and a d (delta) of 0.707 days to average of 2.75 days and d of 0.276 days. This resulted in direct STC improvements, upside opportunities in revenue and reduced E/O inventory. Additional benefits were gained downstream in the supply chain processes. Among them, buyers had more accurate and reliable schedules to manage, and stores had steadier throughput. Overall improvements in the SC metrics resulting from this work can be seen in the case study section.
Strategic Supply Chain: Problems and Opportunities for Improvement
Two teams were formed to identify and implement a series of actions (Table 3) to reduce the lead time for all material components to less than four weeks. Before this effort, lead times ranged anywhere from a few days to 28 weeks.
At Fabrinet, each customer has its own factory with a dedicated support infrastructure. The Strategic Supply Chain group, however, is centralized and provides services to all customers, while each customer business unit has its own dedicated planning and procurement group providing tactical support.
The Strategic Supply Chain team saw the supplier lead times to be the biggest opportunity for overall lead time reduction. They divided all purchased components into discrete commodities and the associated suppliers within each commodity. Meanwhile, a team of tactical planning and purchasing staff worked on tools to increase efficiency in order processing.
Table 3. List of projects and problems identified for improvements in the Strategic Supply Chain.
Current Lead Time Mapping
The lead times for each component are stored in the ERP system database. This was the lead time baseline used for this exercise.
In the first step of the mapping process, all the parts that had lead times of less than four weeks were segregated into one bucket. Most of these parts were already part of our existing vendor management inventory (VMI) hubs and fixed supply programs.
After filtering out the items that are managed through VMI and fixed days supply, we were left with 35 percent of the total components that had a lead time of six to 28 weeks. A number of possible solutions were explored for each item after understanding each customer's requirements and flexibility for change.
Solutions for the remaining components fell into six different categories:
1. Standardize procurement process
2. Vertical Integration
3. Localization
4. VMI (Vendor Managed Inventory)
5. Long Term Contracts
6. Vendor consolidation
Standardized procurement process
The mapping process revealed that the procurement rules were inconsistent amongst the different groups. Some business units scheduled "C" class parts weekly versus others that scheduled in 60-day increments. The result was a domino effect throughout the system: buyers had heavier workloads, shortages occurred and IQA had too many receiving lots to process. When clear and concise procurement rules were applied across all business units, the problems subsided.
Vertical Integration
In all, 381 components with lead times greater than six weeks were identified. It was determined that these could be built in-house by Fabrinet. In addition to reducing the lead time, vertically integrating these items provided the customer with lower costs by removing packaging and transportation costs. Additionally, total control over potential E/O material was realized by building these components to final product demand.
Localization
The geographical location of several suppliers was making communications and logistics difficult to manage. This was the root cause of long lead times in some components. Those components that could be moved to qualified local sources without any design changes or major requalification of the final product were transitioned. A total of 1,507 components were moved to local suppliers, resulting in substantial cost savings, lead time reductions and improvements in logistics.
VMI
The original VMI program was established for the common, off-the-shelf electronic components. While the program worked well with these parts, it did not address the unique or the semi-custom components. Analysis showed that some of these components should be incorporated into this program. Subsequently, 1,760 parts were added to the existing list of VMI parts, thereby reducing their lead times to zero, reducing inventory levels and increasing availability for response to upside demand.
Long Term Contracts
Many of our suppliers were inherited from customers and no formal business agreements existed between them and Fabrinet. Some of these suppliers were reluctant to make investments or take other steps to improve lead times. Negotiating contractual agreements to engage in long-term business relationships was in some cases all that was required to make dramatic improvements. Lead times for items supported by the 36 suppliers who participated in the program were improved to less than four weeks using this strategy.
Vendor Consolidation
The largest opportunity for vendor consolidation was in the common hardware and electronic parts. Since these items are largely interchangeable, Fabrinet narrowed down the supply base to two suppliers for hardware and eight for common electronics. This allowed consolidation of demand volumes and gave the key suppliers a greater sense of strategic partnership with Fabrinet. All these suppliers provided significant price reduction and participated in our VMI program.
Buyer Productivity Tools
Looking at the purchasing administration process, planning and purchasing staff found that much time was lost in managing a large number of purchase orders. They needed tools that helped them identify exceptional situations, process large amounts of data and identify opportunities for savings. Working with the ERP support team, they developed a suite of tools to augment their standard ERP functionalities. Some of those tools are:
Overall Results in Strategic Supply Chain
After implementation of the improvement programs, we reduced the average lead times to 3.60 weeks and standard deviation to 5.19 days compared to initial average lead time of 58 days and standard deviation of 34 days. We were very successful in reducing the standard deviation and thereby provided much better predictability. The final average component lead times did fall short of the set goals. The primary reason for this was due to parts that were single sourced with very little leverage or flexibility for change. This accounted for 4.3 percent of the total components, requiring a modest investment in buffer stocks to bridge the gap to achieve the goals. This is discussed in more details in the case study section.
In addition to the lead time reductions, all the supply chain metrics showed significant improvements, as shown in latter sections.
Logistics (Warehouse and Incoming Quality Assurance): Problems and Opportunities for Improvement
The second largest opportunity for lead-time reduction identified through the process mapping was in the activities associated with the logistics process. A detailed study of the receiving, IQA, storage and kitting processes revealed several non-value-added and inefficient activities. To understand the cycle times and potential for improvements, staff from different areas of the logistics team was enlisted to bring forward ideas for improvements. These would include both simple and more complex projects to drive significant optimizations in throughput, storage space and overall costs.
Table 4. List of projects and problems identified for improvements in the Logistics area of Supply Chain.
Smart Bins for Hardware
Studies demonstrated that the time to kit small quantities of hardware (nuts, bolts and washers) was unnecessarily lengthening the kitting cycle time. A local supplier was engaged to setup a "smart bin" system within the manufacturing areas. This supplier maintains inventory in the smart bins based on a min/max quantity of each hardware item. This allowed the operators to have easier access to the hardware items on the line with a guaranteed supply; 74 percent of all hardware items have been migrated to this program.
Consignment Process
In the past, consuming materials from consigned or VMI inventories required buyers to issue a new purchase order each time production required the materials to be moved from consignment or VMI for kitting. This caused delays to the kitting process and disrupted the overall purchasing organization's daily workload. A new workflow was developed in Fabrinet's ERP system that allowed for material to be pulled from consignment or VMI inventories while the quantity was automatically captured and accumulated by the system. This accumulated quantity of goods consumed from consigned or VMI inventories was automatically released against a predefined blanket agreement and communicated to the supplier weekly for invoicing. The new process eliminated significant non-value-added activity for the purchasing group and made the consigned/VMI inventory management process fast and transparent to inventory control and production staff.
Freight Consolidation
The frequent demand fluctuations in the MRP system were driving a large number of shipments from the suppliers that incurred excessive clearance charges at customs. A focus team was put together to optimize the complete freight process. The team determined that specific freight consolidation points should be established in strategically selected geographic zones. These consolidation points would be the "ship to" points for the suppliers, and shipments would be dispatched from the consolidation points three times per week to Fabrinet. Having greater control of the number of shipments and timing of shipments allowed for greater optimization of the receiving and IQA departments while also reducing the freight charges and associated clearance costs.
Barcode Label
Our warehouse process involved many manual data entries throughout the material handling process. A warehouse focus team was created and charged with identifying solutions to eliminate the manual data entries. The solution proposed was to migrate to a barcode label system with real-time transaction processing via handheld mobile devices. Suppliers were required to affix a barcode label embedded with specific data points to each shipment. Upon arrival at Fabrinet, receiving staff scans the label with a handheld device and processes the transaction in the ERP system in real time. During the kitting process, the label would again be scanned and quantities entered in the handheld, and the system would update the location of the material automatically. Significant efficiencies were realized with the implementation of this process, along with greater data accuracy.
Skip Lots
Fabrinet's Incoming Quality Inspection department was required to inspect each component lot at IQA before delivery to the warehouse. A team reviewed eight quarters of IQA data by commodity to determine which suppliers were shipping consistently good quality. The Supplier Quality Engineering (SQE) organization worked closely with the suppliers to implement the skip lot inspection programs, avoiding the unnecessary inspection at the IQA. Optical and electronic RLC components were the first commodities to be transitioned to skip lot, followed by mechanical and active electronics. This transition increased IQA capacity by more than 150 percent, allowing IQA/SQE teams to place greater focus on problematic suppliers and first article qualifications.
Overall Results in Logistics
Optimizations in the Logistics processes yielded improvements in lead time, capacity, head count and other costs:
With all the optimizations in buyer efficiencies, reductions in freight costs, controls in scheduling of incoming material and greater warehouse throughput, Fabrinet was able to reduce the logistics process time by 80 percent.
Customer Specific SC Optimization: Case Study
To demonstrate and validate the effectiveness of applying Lean manufacturing concepts at Fabrinet, we selected a single customer's business unit and applied the Lean tools to their specific case. This customer is referred to as "Customer C" throughout this case study. Fabrinet had very low ship-to-commit performance with Customer C. Pursuing improvements in the three target areas (demand, strategic SC and logistics operations) created the net effect of greatly improving STC.
Historically, Customer C had exceptionally high demand churn rates. It was discovered that a lot of demand was loaded only to drive material expediting activities. By applying the Lean analytical tools to this case, planners were able to scrutinize the demand intelligently and adjust it appropriately before loading it to the master demand schedule. The trend in the demand churn before and after can be seen in Figure 7 where a dramatic improvement is clearly evident.
The Strategic Supply Chain team analyzed this customer's 2,300 active material components. After netting out the "C" class items that were already on the VMI program, the value stream mapping activity revealed 370 items that required lead time optimization through the Lean projects.
The team prepared the initial list of target items and shared it with the customer to facilitate discussions on the current status and the potential solutions for each item. After detailed negotiations at the item level with respect to timelines, requirements for qualification and long term reliability testing, the final solution roadmap was agreed, and 354 of the target items' lead times were effectively reduced to less than four weeks.
There were 16 items for which Fabrinet and the customer agreed the best industry lead time had been achieved. However, these 16 items did not meet the four-week lead time requirements. Based on due diligence done through the value stream mapping activities, the customer agreed that the remaining 16 items would be part of a safety stock program to achieve the final goal and conclude the activity.
As the project moved through the various phases of implementation, the optimizations that would be gained through the reduced lead time began to take effect:
Upon completion of all the activities associated with this project, the final max lead time for the items was reduced from 8.78 weeks to 3.78 weeks, meeting the set goals of max lead time of four weeks for any individual component.
With new products being introduced on a regular basis, the principles and achievement of the Lean projects is continued on a weekly basis. The weekly activity ensures that any new items introduced into the planning and procurement cycle are validated and optimized to be at four weeks or less lead time before being released to an "active" status.
The focus on reducing material lead time was the primary factor in achieving major improvements in Fabrinet's ship-to-commit scores for Customer C (Figure 8 below).
Overall Gains from Lean Implementation at Fabrinet
As Lean projects were carried out across the supply chain, overall performance metrics improved across the board. Fabrinet's high-mix/low-volume supply chain was transformed. After Lean implementation, the supply chain performance — previously typical for a high-mix/low-volume industry — changed. Metrics scores more closely resembled those of low-mix/high-volume industries (Figure 9 below):
Conclusion
Realizing benefits of Lean manufacturing practices is not as complex or as involved as many may believe. It does not require extensive training programs or in-depth understanding of statistics. Staff at all levels can contribute with very little training, as many of the LM concepts are based on common sense. The key to successful implementation is to get started with a positive attitude.
Value stream mapping is an excellent tool for identifying waste and opportunity for optimization. It is very simple yet extremely effective if applied without any bias. Staff at all levels can understand this tool and its application very quickly. Using value stream mapping, we were able to quickly identify broad issues, then drill down to smaller ones, enabling us to optimize the complete supply chain with excellent results in all metrics.
Six Sigma and Kaizen projects are easily identified during value stream mapping. Once the projects are identified, having the right teams with the required skill sets is critical to the success of the project and the overall optimization.
Lean thinking and value stream mapping must remain as an integral parts of the continuous improvement process in order to keep the supply chain process optimized.
About the Authors
Dr. Harpal Gill, Executive Vice President, Operations
Dr. Gill has served as executive vice president, operations of Fabrinet USA, Inc. and Fabrinet Co., Ltd. since May 2005. Prior to joining Fabrinet, from July 2003 to January 2005, Dr. Gill served as the senior vice president of engineering for Maxtor Corporation, a disk drive manufacturer. From January 1999 to July 2003, Dr. Gill served as the vice president of engineering for Read Rite Corporation, a supplier of magnetic recording heads for data storage devices, in Bangkok, Thailand. From June 1996 to October 1998, Dr. Gill served as the managing director of JTS Corp., a disk drive manufacturer, in Chennai (Madras), India. Dr. Gill has also held senior management positions in reliability, QA and process development with Seagate Technology. Dr. Gill earned a Bachelor of Science degree in mechanical engineering from Brunel University in the United Kingdom and a doctor of philosophy degree in manufacturing processes optimization using forward forecasting techniques from the University of Bradford in the United Kingdom.
Kevin Camelon, Senior Director of Supply Chain
Camelon joined Fabrinet in February 2004 as manager, electrical supply chain. Over the past three years his responsibilities have increased. His current position is senior director with overall responsibility for supply chain, logistics and supplier quality. He has worked in Thailand since 2001. Prior to moving to Thailand he was employed for 17 years by Future Electronics, a world leader in electronic component distribution. Within Future Electronics he held various management positions in Canada, Europe and Singapore and was a key contributor to Future Electronics' global expansion from 1988-1999.
Mark Lopus, Director of Business Systems
Lopus joined Fabrinet in 2006 as the director of business systems. He is responsible for business process and ERP system development. He has worked in Thailand since 1997 in various materials management and supply chain positions with companies including Cypress Semiconductor and Innovex, Inc. Before joining Fabrinet, Lopus, who is also a certified ERP consultant, worked on multiple ERP and business process implementation projects in Thailand and other Asian countries.
Traditionally, lean manufacturing practices are believed to be more suited for high volume, low mix manufacturing. This is a myth. This article shows that Lean manufacturing practices have many benefits to offer in all manufacturing environments, regardless of the product mix and volume.
The lack of proper education and training in an organization has been shown to be the biggest barrier to a successful Lean manufacturing implementation. Lead time in different areas of the supply chain is a main cause of inefficiencies. Through proper training, encouragement and participation at all levels, excellent results in supply chain optimization in high-mix, low-volume manufacturing environments can be attained. Value stream mapping has proved to be a very simple but extremely effective tool for identifying issues affecting the key metrics of a supply chain.
This article compares the supply chain challenges using two cases of manufacturing environments. It describes how the supply chain was optimized in terms of performance metrics with special emphasis on excess and obsolete (E/O) inventory and lead time (LT) reduction in the optical industry. The improvements in each of the metrics are shown to have a direct effect on the organization's ship-to-commit (STC) performance.
The article also describes the special tools developed to optimize different parts of the supply chain process and how some Lean manufacturing components — particularly Six Sigma and Kaizen — were deployed to optimize the supply chain metrics for a high-mix, low-volume manufacturing environment. The results of each practice are included.
High-volume/Low-mix vs. Low-volume/High-mix: The Supply Chain Challenge
All companies share the same end goals of on-demand order fulfillment and lower costs of goods sold. But the ability to realize gains from supply chain optimization is not the same among companies with different product mix and volume ratios.
A high-volume/low-mix manufacturer producing consumer electronics for a broad global market has different leverage points within the supply chain than does a low-volume/high-mix manufacturer that builds specialized technology products for a narrower market. When comparing supply chain metrics between these two types of manufacturing companies, a huge contrast becomes readily evident, as shown in Figure 1. Each metric is defined and measured on a scale of 1 to 5 in a metrics scorecard, where a rating of 5 is the optimal score relative to the industry. The criterion for the ratings is listed below in Table 1.
A high-volume/low-mix manufacturer producing standard PC motherboards, for example, can be expected to have relatively stable and predictable end-product demand. It will have a smaller supply base providing many standard ship-to-stock components and materials. High volumes can be leveraged to reduce the ordering frequency and subsequently run a more efficient supply chain operation with high inventory turns and little exposure to excess and obsolete inventory.
In contrast to the generally robust supply chain performance in the well established high-volume/low-mix businesses, the same is not true for the fiber optic components and subsystems manufacturers. They operate in a very low-volume/very high-mix environment, facing constant demand volatility as product forecasts oscillate. This type of manufacturer relies on a large supplier base, each providing unique components for specialized products, making the supply base and internal operations management unwieldy and exposure to excess and obsolete inventory a big challenge.
For the low-volume/high-mix manufacturer, supply chain optimization requires innovative approaches to match the performance demonstrated in high-volume/low-mix environments.
Table 1. Supply Chain Metrics Scorecard
Fabrinet: Reasons for the Changes
Fabrinet serves an industry characterized by very high-mix, low-volume production. It is a global engineering and manufacturing services provider of complex optical and electro-mechanical components, modules and bulk optics. The company serves data communications, telecommunications, networking, medical and automotive markets worldwide. It has over 20 different end customers, and each has unique requirements affecting the supply chain and manufacturing model. Each customer has its own factory within a factory at Fabrinet to safeguard its intellectual property.
Supply chain management is among the greatest challenges Fabrinet faces. Close to 90 percent of the product cost is made up of material used to manufacture the products. The company's growing product portfolio encompasses more than 23,000 top levels and subassemblies using over 36,000 components (Figure 2) purchased from over a thousand suppliers located in different parts of the world (Figure 3). Many of the suppliers in the burgeoning optics industry are small, with limitations in quality systems, reliability and overall maturity.
Technology in the optics industry evolves at a rapid rate. As OEMs develop new product designs, component and subsystem manufacturers compete to be the first in getting them to market. A supplier that wins the business must stay at pace with a program's demand shifts throughout its lifecycle or risk losing the business to competitors that are ready to deliver at the first opportunity. In this race to deliver, short-term production schedules swing up and down dramatically (Figure 4). Referred to as "demand churn," this schedule volatility stresses the supply chain to its extents. Drop-in demand — short-term upside spikes when customers have immediate new needs with "fill-or-kill" orders — need to be responded to with commitments instantly. Demand is also regularly "pulled-out," or removed from the short-term delivery window, leaving materials potentially exposed in the pipeline. In both cases, an immediate realization of the changes, response and appropriate actions are very critical.
A key metric for measuring success at Fabrinet is ship-to-commit (STC). Despite the long lead times of many materials and components used in optical technologies, customers continually demand that their orders be filled in ever shorter lead times. To accomplish this, Fabrinet requires a highly flexible supply chain management system. It must be able to deal with demand changes on the fly and ensure an uninterrupted, scalable supply of materials with continuous cost reduction. It is necessary to close the lead time gap between customer demand and supplier delivery without exposing the company or the customer to high levels of excess and obsolete (E/O) inventory.
The answer to these challenges lies in applying the principles of Lean manufacturing to the supply chain. Combined with new IT tools for intelligence and productivity, Lean manufacturing concepts are transforming Fabrinet's supply chain from the bottom up. By value stream mapping the supply chain processes, we identify opportunities where Kaizen and Six Sigma projects, processes and tools will enable staff to address the base objectives. These Lean practices add value by driving a second tier of objectives, which in turn lead to improved performance for the customer and an ultimate increase in business wins for Fabrinet (Figure 5).
Lean Manufacturing: Getting Started
One of the biggest challenges in implementing Lean manufacturing (LM) is convincing both management and staff at all levels of the power of Lean manufacturing tools. Many staff at Fabrinet envisioned Lean concepts as very complicated mathematical modeling of the process using complex math equations to find the optimal conditions and solutions for lowest cost, best quality and best STC. Others viewed Lean manufacturing to be more applicable for optimizing manufacturing shop processes. The problems in supply chain were seen to be insurmountable and beyond the scope of Lean manufacturing practices.
We had to get past the initial cynicism and notion that lean concepts were very complicated and only suitable for high-volume products, required special skill sets and were outside the scope of rank and file.
A series of classes including staff from all levels of the supply chain staff were held. Class material was designed without involving any mathematics to demonstrate that the overall concepts are simple and easy to understand. Different components of Lean manufacturing were reviewed and each component was explained in the simplest terms to ensure everybody understood the basics. The training and education initiative also was intended to show that not all of the LM tools are always applicable in all cases and that many are not always necessary.
To ensure everyone was on board, several small working groups were set up during working hours to encourage interactive discussion, ask questions and debate the pros and cons of the LM practices. The primary goal was to create teamwork, improve the confidence level of each individual and demonstrate that everyone can contribute to continuous process improvements.
As soon as employees realized Lean stands for waste reduction and not for eliminating people and jobs, Fabrinet accomplished a major milestone toward accepting and adopting Lean manufacturing practices throughout the supply chain organization. With practice, Fabrinet employees realized that Lean manufacturing was about cost and cycle time reduction and was a means toward providing the best value proposition to customers.
Supply Chain Optimization through Lean Manufacturing Practices
The Value Stream Process Map: Identifying the Problems
At Fabrinet, the supply chain (SC) optimization was divided into two separate efforts. First we had to address the common features of SC for all customers and then optimize the supply chain for specific customers as shown in the case study in the latter sections of this article.
To define the overall SC project and identify the problems, the team constructed a complete supply chain process map from the point of communication of demand from the customers through delivery of product. From a high level perspective, the supply chain process was divided into three discrete areas: demand management, strategic supply chain and logistics (Figure 6). The problems and their magnitude in each SC process area were identified together with a specific team of staff responsible for the improvements. Lead time was identified as the fundamental parameter for baseline measurement and improvement across the board. Low-hanging fruit was targeted for immediate improvement, while higher goals were slated for broader scope projects.
Figure 6: Value stream map of the existing process together with the problems identified in each area.
The x-bar and sigma values for each processes section were computed. In demand management and logistics, the actual lead time of the processes were measured over a 26-week period. The data for the strategic supply chain were based on the total fixed lead times of all purchased components.
The average lead time for the total SC process was identified to be 71.7 days, with a standard deviation of 34.5 days, making both the commitments and deliveries to customers very unpredictable. The following sections describe how the average and standard deviation were reduced to improve the overall STC.
Opportunities for improvements in each of the three main areas were divided into a series of Kaizen and Six Sigma projects. Six Sigma projects were identified as "high-hanging fruit" due to their complexity and duration. These projects required innovation, development and validation before they could be implemented. They could take anywhere from four weeks to six months for full implementation. Kaizen projects, on the other hand, were designated as "low-hanging fruit" and quick wins. These projects were considered much simpler and quicker to complete, taking anywhere from one week to four weeks for full implementation.
Demand Management: Problems and Opportunities for Improvement
To tackle the problems in demand management, the focus team looked at the detailed process and tools used in handling, analyzing and responding to customer demand. They found that demand churn in the two-week planning horizon was out of control and invisible. This was driving shortages, excesses and missed commitments. There was no way to quickly and accurately measure the effect of demand spikes. Recognizing that we needed to be flexible to support churn demand, it was decided to standardize the demand management process and develop analytical tools that would help them recognize, analyze and respond to demand churn before it was processed through MRP.
Table 2. List of projects identified to improve the demand management cycle.
Churn Analysis
The Churn Analysis project was a key step in improving the demand management process. The team realized that while some churn is inevitable (and even welcome in the case of doable upsides), other churn was unnecessary and could be controlled in the master production plan to avoid inventory problems or the creation of unnecessary, non-value-added work downstream in the planning process. The goal was to identify the unnecessary churn. The churn analysis turned out to be a far more powerful tool than first anticipated. Senior management of customers started using it for monitoring their own product lifecycle management and marketing forecasts. Previously, senior management focused more on the overall revenue numbers but not the churn mix, which was the major cause of E/O inventory.
"WHATIF MRP"
The WHATIF MRP was an easy-win process development. Before this process was available, planners in various production business units had to wait for a single, weekly MRP run to see the total picture of their customers' new demand and materials position. While waiting, many would attempt to manually calculate materials availability in order to commit to the customer, resulting in inaccurate commitments and materials shortages. After implementation, a planner could run a full MRP on demand as a simulated production scenario, then identify availability and constraints, and provide feedback to the customer with accurate commitments. It allowed the planners to load the weekly scheduled MRP with a realistic demand plan, avoiding lots of errors and cancellations.
Max Kits Analysis
The Max Kits tool was a software application with multiple analytical uses. Primarily designed as a real-time available-to-promise (ATP) engine, it also functions as a means to identify finished assemblies that can be built with available E/O inventory. Prior to this tool, all assessment was based on time-consuming, manual data crunching and estimations. Now planners have an automated tool that provides an exact assessment for the total number of full kits and additional material required to build out the required demand or to eliminate total exposure to E/O.
12-Week Shortage Analysis
The 12-Week Rolling Shortage Analysis was a key early warning tool that addressed frequent material shortages. Prior to this tool, planners had no way to accurately predict when material shortages would affect production schedules. Designed for ease of use, planners could run the 12-Week Shortage Analysis tool and quickly identify problematic components. With these data available, business unit planners formed escalation teams with members of the Strategic Supply Chain group. Material shortage issues that could not be solved within the purchasing groups were escalated to management and then executive staff. Material shortages were reduced from frequent to rare.
Overall Results in Demand Management
With these automated, accurate tools for analyzing and responding to customer demand, the baseline lead time metric for demand processing improved from an average of 5.75 days and a d (delta) of 0.707 days to average of 2.75 days and d of 0.276 days. This resulted in direct STC improvements, upside opportunities in revenue and reduced E/O inventory. Additional benefits were gained downstream in the supply chain processes. Among them, buyers had more accurate and reliable schedules to manage, and stores had steadier throughput. Overall improvements in the SC metrics resulting from this work can be seen in the case study section.
Strategic Supply Chain: Problems and Opportunities for Improvement
Two teams were formed to identify and implement a series of actions (Table 3) to reduce the lead time for all material components to less than four weeks. Before this effort, lead times ranged anywhere from a few days to 28 weeks.
At Fabrinet, each customer has its own factory with a dedicated support infrastructure. The Strategic Supply Chain group, however, is centralized and provides services to all customers, while each customer business unit has its own dedicated planning and procurement group providing tactical support.
The Strategic Supply Chain team saw the supplier lead times to be the biggest opportunity for overall lead time reduction. They divided all purchased components into discrete commodities and the associated suppliers within each commodity. Meanwhile, a team of tactical planning and purchasing staff worked on tools to increase efficiency in order processing.
Table 3. List of projects and problems identified for improvements in the Strategic Supply Chain.
Current Lead Time Mapping
The lead times for each component are stored in the ERP system database. This was the lead time baseline used for this exercise.
In the first step of the mapping process, all the parts that had lead times of less than four weeks were segregated into one bucket. Most of these parts were already part of our existing vendor management inventory (VMI) hubs and fixed supply programs.
- VMI: Vendor managed inventories are onsite hubs where vendors have established four- to six-weeks inventory at Fabrinet. Fabrinet pulls inventory from these hubs based on the kitting requirements for production. The vendors replenish the inventory based on the consumption and the 26-week forward rolling forecast provided by Fabrinet on a weekly basis.
- Fixed Supply: The fixed days supply program was designed to manage the "C" class items that represent 80 percent of the purchase parts and 5 percent of the purchase dollars for a predefined period (usually one quarter). Each "C" class item is purchased using a dynamic 60-day supply rule. This allows the ERP system to manage the demand, and the buyers only have to place purchase orders twice per quarter.
After filtering out the items that are managed through VMI and fixed days supply, we were left with 35 percent of the total components that had a lead time of six to 28 weeks. A number of possible solutions were explored for each item after understanding each customer's requirements and flexibility for change.
Solutions for the remaining components fell into six different categories:
1. Standardize procurement process
2. Vertical Integration
3. Localization
4. VMI (Vendor Managed Inventory)
5. Long Term Contracts
6. Vendor consolidation
Standardized procurement process
The mapping process revealed that the procurement rules were inconsistent amongst the different groups. Some business units scheduled "C" class parts weekly versus others that scheduled in 60-day increments. The result was a domino effect throughout the system: buyers had heavier workloads, shortages occurred and IQA had too many receiving lots to process. When clear and concise procurement rules were applied across all business units, the problems subsided.
Vertical Integration
In all, 381 components with lead times greater than six weeks were identified. It was determined that these could be built in-house by Fabrinet. In addition to reducing the lead time, vertically integrating these items provided the customer with lower costs by removing packaging and transportation costs. Additionally, total control over potential E/O material was realized by building these components to final product demand.
Localization
The geographical location of several suppliers was making communications and logistics difficult to manage. This was the root cause of long lead times in some components. Those components that could be moved to qualified local sources without any design changes or major requalification of the final product were transitioned. A total of 1,507 components were moved to local suppliers, resulting in substantial cost savings, lead time reductions and improvements in logistics.
VMI
The original VMI program was established for the common, off-the-shelf electronic components. While the program worked well with these parts, it did not address the unique or the semi-custom components. Analysis showed that some of these components should be incorporated into this program. Subsequently, 1,760 parts were added to the existing list of VMI parts, thereby reducing their lead times to zero, reducing inventory levels and increasing availability for response to upside demand.
Long Term Contracts
Many of our suppliers were inherited from customers and no formal business agreements existed between them and Fabrinet. Some of these suppliers were reluctant to make investments or take other steps to improve lead times. Negotiating contractual agreements to engage in long-term business relationships was in some cases all that was required to make dramatic improvements. Lead times for items supported by the 36 suppliers who participated in the program were improved to less than four weeks using this strategy.
Vendor Consolidation
The largest opportunity for vendor consolidation was in the common hardware and electronic parts. Since these items are largely interchangeable, Fabrinet narrowed down the supply base to two suppliers for hardware and eight for common electronics. This allowed consolidation of demand volumes and gave the key suppliers a greater sense of strategic partnership with Fabrinet. All these suppliers provided significant price reduction and participated in our VMI program.
Buyer Productivity Tools
Looking at the purchasing administration process, planning and purchasing staff found that much time was lost in managing a large number of purchase orders. They needed tools that helped them identify exceptional situations, process large amounts of data and identify opportunities for savings. Working with the ERP support team, they developed a suite of tools to augment their standard ERP functionalities. Some of those tools are:
- The Auto Reschedule Interface allowed buyers to upload supplier commitments from a spreadsheet-based template to the ERP system en masse and saved significant time and manpower in maintaining the orders.
- The Alternate Action Report employed custom logic to provide different order rescheduling and cancellation suggestions than the standard ERP system provides. This helps buyers more effectively manage their orders.
- Custom Warnings and Notifications are customizations to the ERP system that help buyers identify exceptions like non-cancellable, non-returnable parts or alternate parts that are available as substitutes for the part they are buying. These warnings help the buyer identify exceptional situations where they should focus their time.
- The Excess On Order Analysis is a custom intelligence tool that dynamically shows buyers where an open order might result in excess inventory.
Overall Results in Strategic Supply Chain
After implementation of the improvement programs, we reduced the average lead times to 3.60 weeks and standard deviation to 5.19 days compared to initial average lead time of 58 days and standard deviation of 34 days. We were very successful in reducing the standard deviation and thereby provided much better predictability. The final average component lead times did fall short of the set goals. The primary reason for this was due to parts that were single sourced with very little leverage or flexibility for change. This accounted for 4.3 percent of the total components, requiring a modest investment in buffer stocks to bridge the gap to achieve the goals. This is discussed in more details in the case study section.
In addition to the lead time reductions, all the supply chain metrics showed significant improvements, as shown in latter sections.
Logistics (Warehouse and Incoming Quality Assurance): Problems and Opportunities for Improvement
The second largest opportunity for lead-time reduction identified through the process mapping was in the activities associated with the logistics process. A detailed study of the receiving, IQA, storage and kitting processes revealed several non-value-added and inefficient activities. To understand the cycle times and potential for improvements, staff from different areas of the logistics team was enlisted to bring forward ideas for improvements. These would include both simple and more complex projects to drive significant optimizations in throughput, storage space and overall costs.
Table 4. List of projects and problems identified for improvements in the Logistics area of Supply Chain.
Smart Bins for Hardware
Studies demonstrated that the time to kit small quantities of hardware (nuts, bolts and washers) was unnecessarily lengthening the kitting cycle time. A local supplier was engaged to setup a "smart bin" system within the manufacturing areas. This supplier maintains inventory in the smart bins based on a min/max quantity of each hardware item. This allowed the operators to have easier access to the hardware items on the line with a guaranteed supply; 74 percent of all hardware items have been migrated to this program.
Consignment Process
In the past, consuming materials from consigned or VMI inventories required buyers to issue a new purchase order each time production required the materials to be moved from consignment or VMI for kitting. This caused delays to the kitting process and disrupted the overall purchasing organization's daily workload. A new workflow was developed in Fabrinet's ERP system that allowed for material to be pulled from consignment or VMI inventories while the quantity was automatically captured and accumulated by the system. This accumulated quantity of goods consumed from consigned or VMI inventories was automatically released against a predefined blanket agreement and communicated to the supplier weekly for invoicing. The new process eliminated significant non-value-added activity for the purchasing group and made the consigned/VMI inventory management process fast and transparent to inventory control and production staff.
Freight Consolidation
The frequent demand fluctuations in the MRP system were driving a large number of shipments from the suppliers that incurred excessive clearance charges at customs. A focus team was put together to optimize the complete freight process. The team determined that specific freight consolidation points should be established in strategically selected geographic zones. These consolidation points would be the "ship to" points for the suppliers, and shipments would be dispatched from the consolidation points three times per week to Fabrinet. Having greater control of the number of shipments and timing of shipments allowed for greater optimization of the receiving and IQA departments while also reducing the freight charges and associated clearance costs.
Barcode Label
Our warehouse process involved many manual data entries throughout the material handling process. A warehouse focus team was created and charged with identifying solutions to eliminate the manual data entries. The solution proposed was to migrate to a barcode label system with real-time transaction processing via handheld mobile devices. Suppliers were required to affix a barcode label embedded with specific data points to each shipment. Upon arrival at Fabrinet, receiving staff scans the label with a handheld device and processes the transaction in the ERP system in real time. During the kitting process, the label would again be scanned and quantities entered in the handheld, and the system would update the location of the material automatically. Significant efficiencies were realized with the implementation of this process, along with greater data accuracy.
Skip Lots
Fabrinet's Incoming Quality Inspection department was required to inspect each component lot at IQA before delivery to the warehouse. A team reviewed eight quarters of IQA data by commodity to determine which suppliers were shipping consistently good quality. The Supplier Quality Engineering (SQE) organization worked closely with the suppliers to implement the skip lot inspection programs, avoiding the unnecessary inspection at the IQA. Optical and electronic RLC components were the first commodities to be transitioned to skip lot, followed by mechanical and active electronics. This transition increased IQA capacity by more than 150 percent, allowing IQA/SQE teams to place greater focus on problematic suppliers and first article qualifications.
Overall Results in Logistics
Optimizations in the Logistics processes yielded improvements in lead time, capacity, head count and other costs:
- The measured process lead time of five to nine days was optimized to a one- to two-day process.
- Storage capacity in the warehouse increased by 40 percent within the existing facility.
- Kitting lead time was cut to single digit hours.
- Headcount costs dropped by 22 percent in the warehouse and IQA.
- Over-time costs dropped by 40 percent in IQA and the warehouse.
With all the optimizations in buyer efficiencies, reductions in freight costs, controls in scheduling of incoming material and greater warehouse throughput, Fabrinet was able to reduce the logistics process time by 80 percent.
Customer Specific SC Optimization: Case Study
To demonstrate and validate the effectiveness of applying Lean manufacturing concepts at Fabrinet, we selected a single customer's business unit and applied the Lean tools to their specific case. This customer is referred to as "Customer C" throughout this case study. Fabrinet had very low ship-to-commit performance with Customer C. Pursuing improvements in the three target areas (demand, strategic SC and logistics operations) created the net effect of greatly improving STC.
Historically, Customer C had exceptionally high demand churn rates. It was discovered that a lot of demand was loaded only to drive material expediting activities. By applying the Lean analytical tools to this case, planners were able to scrutinize the demand intelligently and adjust it appropriately before loading it to the master demand schedule. The trend in the demand churn before and after can be seen in Figure 7 where a dramatic improvement is clearly evident.
The Strategic Supply Chain team analyzed this customer's 2,300 active material components. After netting out the "C" class items that were already on the VMI program, the value stream mapping activity revealed 370 items that required lead time optimization through the Lean projects.
The team prepared the initial list of target items and shared it with the customer to facilitate discussions on the current status and the potential solutions for each item. After detailed negotiations at the item level with respect to timelines, requirements for qualification and long term reliability testing, the final solution roadmap was agreed, and 354 of the target items' lead times were effectively reduced to less than four weeks.
There were 16 items for which Fabrinet and the customer agreed the best industry lead time had been achieved. However, these 16 items did not meet the four-week lead time requirements. Based on due diligence done through the value stream mapping activities, the customer agreed that the remaining 16 items would be part of a safety stock program to achieve the final goal and conclude the activity.
As the project moved through the various phases of implementation, the optimizations that would be gained through the reduced lead time began to take effect:
- Component demand was steadier requiring less order maintenance. This resulted in a 40 percent reduction in the day-to-day communication and administrative activities for the tactical purchasing team.
- Fabrinet's tactical purchasing team was able to focus their activities managing the high-level "A" category items, NPI products and upside demand opportunities.
Upon completion of all the activities associated with this project, the final max lead time for the items was reduced from 8.78 weeks to 3.78 weeks, meeting the set goals of max lead time of four weeks for any individual component.
With new products being introduced on a regular basis, the principles and achievement of the Lean projects is continued on a weekly basis. The weekly activity ensures that any new items introduced into the planning and procurement cycle are validated and optimized to be at four weeks or less lead time before being released to an "active" status.
The focus on reducing material lead time was the primary factor in achieving major improvements in Fabrinet's ship-to-commit scores for Customer C (Figure 8 below).
Overall Gains from Lean Implementation at Fabrinet
As Lean projects were carried out across the supply chain, overall performance metrics improved across the board. Fabrinet's high-mix/low-volume supply chain was transformed. After Lean implementation, the supply chain performance — previously typical for a high-mix/low-volume industry — changed. Metrics scores more closely resembled those of low-mix/high-volume industries (Figure 9 below):
- Demand churn, order cancellations and reschedules were brought into full visibility, allowing appropriate decisions.
- As material lead times were reduced, they became more predictable.
- The number of suppliers and purchase orders issued each week went down and buyers became more efficient.
- IQA and warehouse throughputs improved.
- Overall inventory turns went up.
- Excess and obsolete inventory decreased while ship-to-commit performance improved to target levels.
Conclusion
Realizing benefits of Lean manufacturing practices is not as complex or as involved as many may believe. It does not require extensive training programs or in-depth understanding of statistics. Staff at all levels can contribute with very little training, as many of the LM concepts are based on common sense. The key to successful implementation is to get started with a positive attitude.
Value stream mapping is an excellent tool for identifying waste and opportunity for optimization. It is very simple yet extremely effective if applied without any bias. Staff at all levels can understand this tool and its application very quickly. Using value stream mapping, we were able to quickly identify broad issues, then drill down to smaller ones, enabling us to optimize the complete supply chain with excellent results in all metrics.
Six Sigma and Kaizen projects are easily identified during value stream mapping. Once the projects are identified, having the right teams with the required skill sets is critical to the success of the project and the overall optimization.
Lean thinking and value stream mapping must remain as an integral parts of the continuous improvement process in order to keep the supply chain process optimized.
About the Authors
Dr. Harpal Gill, Executive Vice President, Operations
Dr. Gill has served as executive vice president, operations of Fabrinet USA, Inc. and Fabrinet Co., Ltd. since May 2005. Prior to joining Fabrinet, from July 2003 to January 2005, Dr. Gill served as the senior vice president of engineering for Maxtor Corporation, a disk drive manufacturer. From January 1999 to July 2003, Dr. Gill served as the vice president of engineering for Read Rite Corporation, a supplier of magnetic recording heads for data storage devices, in Bangkok, Thailand. From June 1996 to October 1998, Dr. Gill served as the managing director of JTS Corp., a disk drive manufacturer, in Chennai (Madras), India. Dr. Gill has also held senior management positions in reliability, QA and process development with Seagate Technology. Dr. Gill earned a Bachelor of Science degree in mechanical engineering from Brunel University in the United Kingdom and a doctor of philosophy degree in manufacturing processes optimization using forward forecasting techniques from the University of Bradford in the United Kingdom.
Kevin Camelon, Senior Director of Supply Chain
Camelon joined Fabrinet in February 2004 as manager, electrical supply chain. Over the past three years his responsibilities have increased. His current position is senior director with overall responsibility for supply chain, logistics and supplier quality. He has worked in Thailand since 2001. Prior to moving to Thailand he was employed for 17 years by Future Electronics, a world leader in electronic component distribution. Within Future Electronics he held various management positions in Canada, Europe and Singapore and was a key contributor to Future Electronics' global expansion from 1988-1999.
Mark Lopus, Director of Business Systems
Lopus joined Fabrinet in 2006 as the director of business systems. He is responsible for business process and ERP system development. He has worked in Thailand since 1997 in various materials management and supply chain positions with companies including Cypress Semiconductor and Innovex, Inc. Before joining Fabrinet, Lopus, who is also a certified ERP consultant, worked on multiple ERP and business process implementation projects in Thailand and other Asian countries.
