Semiconductor Outsource Management Blog by John E. Fury Jr.

Complacency in Manufacturing

2012-01-25T13:15:00.001+07:00

There is no room for complacency in manufacturing. If you’re happy with what you’re doing relative to your subcon manufacturing, you’re happy! However, I would pose the question of what you’ve done in the form of an FMEA for your manufacturing model? If the answer is “been there, done that”, this post will do little but serve as a gentle reminder to keep up the good work.

On the other hand if you haven’t given it much thought because it seems to be working just fine, that’s what I pay the subcon for, or adopted the “aint’t broke, don’t fix it” mentality, etc., you might be guilty of complacency. Complacency kills: It kills growth, it kills innovation and it can kill companies just when everything seems at its best. If this is you, you might consider reading further.

Ask yourself the question “Why do the most successful companies have a presence in their subcons? Coming from that background I can give you a leg up with some of the important answers:

·         Ensure their company has a voice in the factory
·         Work directly with the factory floor mgmt face to face to improve Delivery, CT, Quality, Cost, etc.
·         Quickly address engineering/production issues on the floor, face to face
·         Give and receive real time feedback/immediate responses
·         Develop highly responsive relationships to support manufacturing goals; sprint capacity, cost down, heightened attention to manufacturing issues/ indices
·         Improve manufacturing to a level it becomes a competitive tool in growing market share
·         And they know “When management focuses on the problems, the problems go away”

I’m here to tell you bad things can and do happen when we’re not focused on manufacturing, maybe not today but if we’re not managing it well we will surely be bitten down the road at some time.

The big guys have come to understand how to get the most out of their manufacturing. That's partly how they became big.

Missing Deliveries

2012-01-08T22:54:00.000+07:00

It’s never a good day at the office when you hear planned shipments are not coming out of your subcontractor. It could be:

· die did not get launched into assembly when scheduled

· your parts were pushed aside to run another customer’s product

· or worse yet, a catastrophic issue that resulted in scrapping an entire run

The reasons don’t matter; your parts are not where you expected and needed them to be. One or two such events can wipe out a big part of your annual profit.

The harsh reality - most companies wait for a catastrophic event to hit their subcontractors’ operations instead of proactively managing the situation. Can you afford the negative impact that subcon problems can cause you and your customers? Most companies cannot and you do have recourse to protect you interest.

Large companies manage their outsourced manufacturing by having key people stationed strategically in Asia to manage their interests. Ideally, they should develop real-time working relationships with the subcontractors, and attend to daily hiccups and problems within the same day at the Subcon. Good approach, but a huge cash drain with all the extras thrown into the equation, costing $100’s of thousands of dollars per person each year.

Another approach for companies looking for outsourced management that can be less costly when compared to sending in their own people offshore is utilizing in-country local talent. Some companies have had a modicum of success with this approach but usually it is not very successful. Primarily due to the difficulty locating individuals possessing the potential to grasp the company’s core values and culture, not to mention the capacity to understand Fab, Assembly and Test thoroughly. I am not saying it is impossible, but I know companies that have worked this approach for years without finding the right individual.

Small companies cannot afford the large expense of foreign assignments or the time required finding local talent. In the mean time, they end up using in-house key resources that are pulled from critical projects to attend to the emergency problems and every day business. These people have to fly over to Asia to meet with the Subcons to solve problems, expedite your parts or negotiate with them face-to-face. This can take several weeks out of the year and can be very expensive. While this approach may solve one or two problems at a time, it is more of a fire-fighting approach. You are always working from behind, instead of proactively managing and improving your business.

Semiconductor Management Services (SMS) companies like ours have an inside track on managing semicon manufacturing interests in Asia affordable to most any company doing business in Asia.

Why monitoring your subcontractor‘s performance makes smart business sense

2011-06-19T07:45:00.000+07:00

When done correctly, it is an irrefutable fact that manufacturing your product in Asia is more profitable than having it manufactured anywhere else in the world. However, because of language, and cultural barriers and the great distance between the client and Asia, the number one problem companies experience with Asian subcontractors is inadequate governance which accounts for the vast majority of problems encountered between the customer and supplier. We have to manage our subcontractors as we would our own factories.

Outsource Management Pain Level Mitigation

2011-05-19T11:00:00.000+07:00

How do you mitigate the pain level managing your subcontract manufacturing? I know what I do and I’d like to hear what you do.

Where’s my lot? What happened to the yield? What do you mean you built my parts without using the specs? Why isn’t the supplier responding to my emails? Why are we paying such high cost and what are our options?

Short story is, we have options-------While these problems can appear to be rather benign on the surface to the most casual observer, there can be catastrophic consequences if left unchecked. One of the most overlooked assets to any company’s outsourcing success is in their ability to react to and resolve issues quickly with their suppliers. Supplier relationships with suppliers play a big part in getting Quality product to market On Time with Competitive Prices.

In addition, companies who internalize the importance of developing and maintaining solid relationships with their suppliers have a much better success rate getting support when needed.

So what’s the best way of improving and maintaining solid supplier relationships? If you’ve ever tried to have a long distance relationship you can understand how distance can have ill effects maintaining solid relationships. It can be done, but by far it’s a minority success rate. Companies who can afford to stage folks near their suppliers typically have a greater success rate in their relationships than those who don’t or cannot afford the luxury. If you are in the latter category of companies, OMS (Outsource Management Services) companies can help. A word of caution outsourcing your subcontractor management; make sure you select folks who have done it before, preferably on the ground near your suppliers and continue to do it today mitigating the pain level.

SOMC is an OMS (Outsource Management Services) company providing operations management for outsourced manufacturing in Asia. Our firm specializes in performance capability improvements, source selection, manufacturing project management, total subcontractor management, and maximizing manufacturing efficiencies improving customer costs. We are intentionally located in the heart of S.E. Asia principally to maximize benefit to our client by being where the action is. In addition, locating ourselves in the same time zone also gives us the unique ability to quickly recognize and begin resolving issues more quickly by not having the common barriers that exist being 8,000 miles away from your manufacturing.

Inexpensive Outsource Management

2010-08-02T08:40:00.001+07:00

Management of your outsource manufacturing does not have to be an expensive proposition and companies can gain the competitve edge and avoid being out-manufactured without breaking the bank.

Large companies manage their outsourced manufacturing by having key people stationed strategically in Asia to manage their interests. Ideally, they should develop real-time working relationships with the subcontractors, and attend to daily hiccups and problems within the same day at the Subcontractors. Good approach, but a huge cash drain with all the extras thrown into the equation, costing $100’s of thousands of dollars per person each year.

Small companies cannot afford the large expense of foreign assignments or the time required finding local talent. In the mean time, they end up using in-house key resources that are pulled from critical projects to attend to the emergency problems and every day business. These people have to fly over to Asia to meet with the Subcons to solve problems, expedite your parts or negotiate with them face-to-face. This can take several weeks out of the year and can be very expensive. While this approach may solve one or two problems at a time, it is more of a fire-fighting approach. You are always working from behind, instead of proactively managing and improving your business.

SOMC is an inexpensive proposition for companies. Our business model was developed to keep manufacturing costs lean. This is why you came to Asia in the first place. How do we do this? Our overhead was designed to be an extremely low cost profile from inception and is primarily due to our efforts, not to carry the cost baggage normally associated with foreign assignments. This model gives our clients best cost possible based on local economies, but with seasoned senior executive level expertise and an acute understanding of the urgency of reacting to your requirements and business culture. Our business model truly sets SOMC apart and makes us unique, as you cannot find this high-level expertise, capable of adapting quickly, at a cost that does not put a drain on the bottom line.

Manufacturing is a Competitive Advantage – Why Should you Care?

2010-06-22T08:42:00.001+07:00

Margins are ok, the factory and subcontractor are making deliveries to customers, and quality is acceptable, what is the big deal? There is no big deal until margins begin dwindling, deliveries start to miss, and quality starts lagging and affects re-orders and reputation.

If your company has a large percentage of new product delivery with high margins or your company has higher percentage of legacy products with nominal margins, you need to pay attention to your manufacturing operations and cost to be able to extend the life of your high margins and/or become more competitive in the legacy products.

You cannot survive the competition without a manufacturing advantage. Do you want to compete or dominate your market?

Making manufacturing a competitive advantage cannot be accomplished by visiting your virtual factory once a month, a quarter, or twice a year. This is not managing manufacturing; this is a visit to Asia. It can only be accomplished by managing your manufacturing operations on a daily basis. This is how successful companies get successful and stay successful. They develop outstanding working relationships with subcontractors, they get the best cost, delivery, and quality available, and they work closely with the subcontractors on yields, cycle time, and process improvements, etc., to continuously reduce cost. This is what SOMC does for its’ clients. We have done it before and we continue to do it today

Someone will always jump on a good product and discover ways of making it better and cheaper. Why leave your new technology to those not quick enough to develop it first, but are more competitive and certainly smart enough to know how to improve on it from a manufacturing cost, quality, and delivery standpoint? This is why smart companies understand how important manufacturing is to the company as a competitive advantage and SOMC can help you avoid being “out-manufactured”.

Henry Ford said, “Competition is the keen cutting edge of business, always shaving away at costs”. This is true; keep your margins high by continuous improvement in your manufacturing operations. Your customers will want good quality at cheaper prices. As your ASP’s erode, you will need to be ready with the absolute best manufacturing practices available to you. This is manufacturing as a Competitive Weapon.

“A business absolutely devoted to service will have only one worry about profits. They will be embarrassingly large”, Henry Ford again. This literally translates to best cost, best delivery, and best quality. The best thing your company can do to get on top and stay on top is provide your customers with world-class service before they know they are not getting it from you.

SOMC can help you develop your competitive advantage and deliver performance to your customers.

Click on the SOMC logo to the right for more information;

Tools of the Trade

2010-06-06T09:14:00.003+07:00

It never ceases to amaze me, how companies approach solving their manufacturing problems without using the right tools. Critical to developing and maintaining your manufacturing to perform at world-class standards is, how we look at the problem itself and the approach we take to solving problems.

When I sit in a meeting to solve a manufacturing problem and listen to what is being done to address it, I expect to see an overall graph depicting the indices having the problem. Then, I would want to see a breakdown of the issues associated with the bad indices in a Pareto chart of the defects. Lastly, I would look for action plans based on the Pareto chart to address the specific corrective actions. In the actions, I expect to see not only who is going to do what and when, but also what impact will the action have on the Pareto chart and the overall indices. I am never surprised to see that not only do managers not use Pareto charts to further breakdown the problem, but also they fail to ask when the actions will be complete, not to mention what the impact will be. Without understanding what affects the action will have, there is no way to understand how to prioritize the actions or if they will even have an impact.

Using this simple process of a 3 panel slide we can show 1) the problem, 2) what is the makeup of the problem in a Pareto chart and, 3) actions to be done by who and when, and what the impact to the problem will be.

Once we understand the problem, we can then apply the projected impacts to the chart in the form of our improvement forecast on the overall indices graph and track our progresst. This is an excellent way to keep your group on track with real fixes that have a positive impact on your problem and to communicate within your group and management describing how and when you plan to fix a problem and the expected results.

If you wish more details on the subject, please don't hesitate to contact me.

Jerking Manufacturing Around

2010-05-25T12:43:00.000+07:00

“Jerking manufacturing around is cost effective” are you kidding? Believe it or not the director of planning, of what has turned out to be a successful midsized company, made this comment more than once. Albeit, this statement was made a few years ago and you guessed it, he is no longer with the company.

When I heard this statement coming from the mouth of a senior director in the company I was, needless to say, floored. There may still be people out there that think this way coming from whatever logic they have conjured up in their minds, but thankfully the business educated prevail.

Jerking your manufacturing around is like saying cost is no object in manufacturing. It would have been interesting to see this guy talk about the jerking manufacturing around and the inconsequential cost of manufacturing to Henry Ford while he was developing his high volume automation in the day.

If you have folks in your organization that subscribe to this thinking I want you to know it’s wrong and you have options to the ” jerk around manufacturing theory” with our company www.semiconoutsourcemgmtco.com .

What is the number 1 reason for businesses to outsource anything today?

2010-04-27T09:16:00.001+07:00

In the “old days”, 10-15 years ago, cost was the number one motivator for outsourcing a variety of business operations. Cost may very well be on the top 10 list of reasons to outsource today but more and more companies have discovered other benefits for outsourcing their manufacturing and other business operations. Here are a few of the other benefits:

1. Access to other technologies

2. Reduced in-house capital equipment expenditures

3. Allowing corporate to focus on developing/marketing new products rather than fixing manufacturing issues

just to name a few.

Cost is not the only reason we outsource today, for sure. Companies have found the benefits to increased profitability not only lies in the immediate returns that were initially gained in outsourcing but using outsourcing allowed them to focus and develop aggressively to hit their markets harder with new products while essentially relying on other companies to do their part of the process which supports the bigger strategic picture.

Typical functions outsourced have been IT, HR, design engineering, recruiting and so on. It’s time for companies who outsource their manufacturing to realized more benefits can be had by outsourcing their subcontractor governance functions as well. To do this successfully you need to find people that can quickly align and understand your corporate culture, someone on the ground where your manufacturing is and people who have a demonstrated record of accomplishment in operational improvements.

Why would any COMPANY consider outsourcing their subcontractor management?

2010-03-23T10:03:00.003+07:00

If you are a Startup semiconductor company, Fabless semiconductor company, or a small to midsized IDM and answer yes to any of the following:

1. if you are a part time subcontractor manager
2. you want to improve your manufacturing performance to approach/exceed world class bench marks
3. you need to get new and older products to market without delay and on time
4. you don’t have the time to look at alternative sources for better unit pricing or new packages
5. you don’t have subcontract manufacturing expertise currently on your staff
6. you want to augment your existing subcontractor management staff expertise with additional resources
7. you want more time to focus on important projects/functions in corporate
8. you want to know hour by hour accounts of special projects in the factory
9. you don’t want to hassle with relationships that need to be built on in order to get what you need from subcontractors in crunch times
10. you are paying more than $100k a year managing your subcontractors for visits, travel expense, salaries, etc.

you should consider alternatives to how you manage your subcontractors, research http://www.semiconoutsourcemgmtco.com/ and evaluate whether you can give your stakeholders more value for their money.

What is the secret to semiconductor back end assembly cycle time?

2010-02-01T15:41:00.001+07:00

All we care about is that our cycle time (CT) is predictable for 100% of our lots so we can accurately quote delivery times to our customers. If we are concerned about how long our lots will take to complete, we want to look at leading edge indicators to avoid delays.

Assuming we understand what our Theoretical CT is and we know that we are not within 1.5 or 2x that number; here is a tip for you.

We want to look at 2 data points for our CT, Static (SCT) and Dynamic (DCT).

SCT gives us the absolute time it takes to process a lot through any assembly line and can be looked at in individual process steps. We know manufacturing has issues on a daily basis that affects our CT such as; machine stops/breakages, non-conforming material (MRB's), lost lots, etc. All these stoppages are included in the total SCT.

DCT tells us how fast lots can move through an assembly line when all things are normal. Dynamic CT is a calculation considering line WIP and machine throughput. This is in essence line speed. The calculation is a leading indicator of what your CT will be as opposed to Static, which is a trailing data point.

DCT is my first line of defense to avoid being late on customer deliveries. Monitoring my DCT, I can see the problems coming down the line and probably do something quickly to avoid having late lots. Looking at SCT alone will merely tell me history and offers no way to change the outcome.

Depending on how fast we fix relative issues on the line we would expect that DCT and SCT would intersect at some point in time, once issues on the floor are resolved and the line normalizes.

To me, it is as simple as breaking the problems down into smaller issues that can be accurately categorized and fixed during the processing, not after the lot is processed. This is real time correction to problems in the line and I use to DCT to alert me. If I see the DCT increasing on a daily monitor it is a good point to ask why and help put the problem to bed before it affects customer delivery.

I have read numerous articles talking about a myriad of ways to look at reducing assembly cycle times in semiconductor manufacturing. Using SCT and DCT have allowed me to achieve world class cycle times in past lives.

The number one reason companies struggle with their subcontractors is inadequate governance.

2010-01-06T08:17:00.005+07:00

Assuming you look at your subcontractor sites as an extension of your own factory, can you image visiting your factory manufacturing floor once a quarter or year? This is how most companies conduct business at their subcontractors and outsourced groups.

To get the best results from your subcontractors you need to approach them as your virtual factory. We say “I pay them for a service and I expect them to deliver”. Of course you pay them for a service as you would pay an employee in the factory, but the best results produced by managers comes from the old management term, “manage by walking around”. If your visits to your in-house factory floor were as infrequent as your visits to your subcontractors, the results of your manufacturing would be catastrophic to capturing the very essence of good management. The product of good management is producing quality products as fast as you can with the most competitive cost available.

There's no difference to me in my own employees or a subcontractor. I need to provide leadership to get them going in the right direction and I need to provide them with the right information and tools to get the job done correctly, I need to listen to their feedback and I need to keep them motivated.

Frequent visits to your subcontractor will improve the relationship and performance at the subcontractor as it would with your own factory employees on your own factory floor performance.

“The top 10 mistakes companies make when outsourcing their semiconductor manufacturing to Asia.”

2009-12-17T11:28:00.012+07:00

I. Ineffective Strategy and Plans
a. outsourcing before you’re really ready, i.e. fully developed strategic plans, corporate lacking an outsourcing strategy, i.e. what gets outsourced, where it gets outsourced, time line to execute, key drivers, associated cost, benefits to be realized, ROI

b. lacking knowledge involved in manufacturing product with a subcontractor, i.e. registering IP rights, tax considerations

c. holding unrealistic expectations, i.e. cost savings, subcontractor performance, delivery times, quality

d. having insufficient disaster-recovery plans and backup, i.e. if production shipments stop

II. Corporate Support Insufficient Relative to Staffing, Budget and Time Lines
a. not allocating sufficient time and resources to transition, i.e. accurate documentation, BOM’s, AVL’s, planning cycles, engineering support

b. insufficient/inadequate corporate staffing and skills to support the outsourcing project plan

III. Subcontractor Selection/Relationship Misfit
a. lacking knowledge to select the optimum subcontractor to support the manufacturing requirements, i.e. capabilities, unit cost and capacity of the subcontractor

b. not having a clear understanding of the nuances of the countries you plan to conduct business in, i.e. stability of government, weather, earthquakes, poor infrastructure, brown outs, unions

c. not making the appropriate choice between outsource and captive line, i.e. not knowing if your products would be better served in the subcontractor’s mainstream or is there benefit from a total captive line.

d. choosing a vendor for the wrong reason, i.e. narrow focus on cost only

e. not achieving a level of partnership with a subcontractor, i.e. a strategic and tactical

working relationship

f. lack of openness and flexibility, i.e. no hidden agendas

IV. Due Diligence for Prospective Subcontractor Not Performed Well
a. poor due diligence due to inexperience, i.e. accepting what is said and not looking at the details of what’s being done

b. how ready is the subcontractor for your business, i.e. top tier, bottom tier, competency, organization, ability to effect change

c. does the subcontractor have the ability to grow to meet your business needs, i.e. capacity, staffing, floor space, committed to spending for capital

d. is the quality sufficient to support your expectations

V. Contract/Administration – Lack of Attention To
a. accurately defining the scope of work the client will do and what the subcontractor will do

b. poor mutual understanding of the contract

VI. Inexperienced Staffing to Manage the Outsourcing Project
a. ineffective deployment of key contributors i.e. wrong person for the job, lacks manufacturing skills, lacks negotiation skills, lacks people skills, packaging skills

b. try to manage subcontractors on a part time basis

c. trying to manage too many subcontractors

VII. Transition Product/Software/Hardware – Poor Preparedness
a. not clearly defining the necessary steps and processes to effectively and efficiently transition product to Asia for manufacturing

b. loss of key talent creating poor knowledge transfer to the subcontractor

VIII. Management of the Subcontractor - Inadequate
a. inadequate governance, control, monitoring by management; if not managed properly, a company can lose visibility of performance and control of their manufacturing operations

b. subcontractor provides unsatisfactory performance results, i.e. cost, quality, CT

c. the gap between change making and implementation, i.e. clearly define, monitor and executed properly, subcontractor internalized

d. blaming outsourcing or the client for all the problems

e. providing unclear specifications is a sin

f. introducing too many scope changes is a recipe for disaster

g. poor operational and logistics planning, i.e. raw materials supplies and die availability

h. not creating sufficient visibility/reports of operational indices

IX. Poor Communication Between Corporate and the Subcontractor
a. difference in time zones adds difficulty

b. not having real-time communication when required

c. incomplete or inconsistent written report formats

d. language differences can create barriers or incomplete understanding between customer and subcontractor

X. Cultural Differences Not Recognized
a. lack of knowledge in dealing with different cultures and language barriers required to effectively manage the subcontractor for optimum results, i.e. different communication styles, attitudes towards conflict, approaches to completing tasks, decision-making styles, attitudes towards disclosure

b. thinking that the potential for a culture clash is not an issue breaks down the ability to accomplish objectives

Can Outsourcing the Management of Your Asian Manufacturing Operations Really Work?

2009-12-16T10:56:00.037+07:00

Is it feasible? Let’s first start by looking at the options available for managing a Semiconductor subcontractor. Companies outsourcing the assembly, test, and finish processes in Asia can choose (1) to employ an ex-patriot at the supplier’s site, (2) build and manage their own factory in Asia, (3) rely on the subcontractor to provide the management service or, (4) choose an outsource management company.

The function of management, in and of itself, is to provide the Company a means to effectively and efficiently build, test and delivery product to their end customer. The specific roles of this management position are to insure their product is given the appropriate attention at the subcontractor’s site in getting it loaded in a timely fashion, insure die and raw materials are available, and insuring manufacturing executes to given specifications. When these tasks encounter problems, management steps in to resolve the issues. Additional responsibilities might also include the negotiation for lower pricing, overseeing new processes, monitoring the performance of product and package qualifications, the introduction of new subcontractors to handle capacity and or package mix, to name a few.

From above, the first option is to employ an ex-patriot at the supplier’s site, and many Companies follow this strategy. This benefits the Company by having their own employee on-site in Asia and has worked well for a lot of Companies over the years. However, there are downsides to this approach. Perhaps the most apparent is the associated costs in keeping an ex-patriot in Asia. Along with the employee’s basic salary and benefits package there are additional costs in travel, work permits, car and driver, housing, international schooling for youngsters, moving expenses, etc.

The second scenario entails the Company building and managing their own facility in Asia. This approach has been the standard for larger Semiconductor manufacturers since the 1960’s and to date, newer Companies have followed suit. It should be noted; most recent surveys conducted in the Semiconductor industry show a decline in this direction. The driving force for this swing in thinking is based on unutilized capacity when there is a downturn in the economy. Thus, today, most companies favor using subcontract manufacturers.

Third, there is the option of working directly with the subcontractor without the Company’s on-site management support. This puts the onus of burden on the subcontractor. If this situation suits the Company, and performance levels are being achieved by the subcontractor, there is no reason to change.

This brings us to outsourcing the management of the Company’s subcontractor to a third party. An experienced and cost effective outsource management company is capable of managing the Company’s subcontractor as well as the Company’s ex-pat employee and will be able to do so at much less the cost, and in many cases more efficiently than the ex-pat. The most predominate reasons for making this statement are familiarity with the assembly and test processes, the experience of living in Asia and in understanding the various cultures and language barriers, and in the knowledge and relationships with the subcontractors operating in Asia.

If due diligence is applied in the selection process of an outsource management company the results can be outstanding. That is to say, take the same steps as you would in hiring a company employee. Will the outsource management company meet the Company’s needs, do they have experience in dealing in Asia, dealing with subcontractors, can they effectively represent the Company, are they reputable, are they a lower cost solution? If the outsource management company is carefully screened in advance, this can become an extremely valuable asset to a Company – it is certainly a feasible cost effective solution.

For additional information on outsourcing manufacturing in Asia, visit our website at www.semiconoutsourcemgmtco.com.