A burly, mustachioed worker with years of expertise on the machine gruffly dismissed the assertion as the opinion of an ignorant outsider.

Unflinching, the visitor proposed a wager: If changeover time was not significantly reduced by Friday, he would leave and never return. If it was under 10 minutes, the machine operator would shave off his prized handlebar, recounted Marc Onetto, executive vice president of worldwide operations at Solectron (Milpitas, Calif.).

"The guy took the bet. By Thursday he had no mustache," Onetto said. "We're now changing that machine in three minutes and 40 seconds."

Without replacing the machine or the operator, the EMS provider gained more than two hours of productivity per job. How? By eliminating steps in the work flow that didn't add value to the end product — what followers of Lean manufacturing would call waste.

Simplicity is the core concept of Lean, a business philosophy that's about eliminating inefficiency. And, as the machinist learned, its impact can be dramatic.

During the last year, Solectron's 29 manufacturing sites around the world have begun a painstaking transformation using principles of Lean, hand in hand with Six Sigma, a manufacturing quality discipline. The objective: shorter cycle times, improved quality and reduced supply chain costs.

The Lean campaign accelerated in 2003, when Solectron began a top-down companywide reorganization starting with the appointment of Michael Cannon as president and chief executive. Cannon brought in Onetto — a veteran of the Jack Welch years at General Electric Corp. — to whip Solectron's global hodgepodge of factories into an efficient and profitable manufacturing enterprise.

"I do believe from my experience at GE Medical that what you can do with Lean manufacturing can considerably transform the electronics industry," said Onetto, a self-described Lean lunatic. "And Lean was at the heart of what the new Solectron wanted to be."

The concept of Lean manufacturing originated at Toyota Motor Corp. nearly 60 years ago with the development of the Toyota Production System, which centered on continuous work flow in a small-lot environment. Of course, perfecting the process doesn't happen overnight, so the system also embraced the notion of continuous measurable improvements, or kaizen.

The Lean revolution
Lean is traditionally employed to streamline manufacturing operations and cut costs. But with ever-fewer products designed, developed and built under the same roof, the new thinking is that Lean practices must extend to suppliers and customers in order to produce lasting benefits.

Toyota was one of the first automakers to use the Internet to expose inventory at every dealer and warehouse to all other dealers and warehouses in North America, said Chris James, a vice president at supply chain consultants Best Practices LLC (Chapel Hill, N.C.).

"Why build something to order that already exists and you can get it in two days?" James asked.

For all its forward thinking, the electronics industry has been slow to take up this notion. "I don't think high tech has quite embraced that yet, because they're so busy inventing stuff that they haven't thought about 'how do I share stuff,' " said James.

Earlier this year, Solectron began tapping into its supply base to make materials procurement more efficient. A Lean partnership with passives parts supplier Kemet Corp. (Simpsonville, S.C.) is expected to shorten the purchase order cycle, for example, from 10 days to two.

Solectron has made Lean the underpinning of a strategy to restore profits and shrink operating costs in a business environment marked by razor-thin margins. In the process, executives hope to salvage Solectron's reputation as a top-notch EMS, a goal from which Onetto said the company had strayed.

"Some of the things we were doing nearly cost us the company. We wrote off several hundred million dollars in inventory," Onetto said. "When people have seen the cliff of failure, they have a tendency to be open to new ways."

A holistic approach
Lean disciples like Onetto don't kid themselves that it's a panacea for the industry's cyclical ups and downs. They do believe, however, that if practiced faithfully, Lean can permanently cleanse inefficiencies like long lead times, lack of visibility and overproduction, which led to the collapse of the electronics supply chain in 2001.

Overproduction, considered by many to be the ultimate form of waste, results when manufacturers build to forecasts instead of to actual demand, Lean followers say.

A basic tenet of Lean manufacturing is the use of "pull" systems, essentially building only what the customer wants when he wants it, and replenishing stock based on consumption. Electronics firms have employed elements of pull from time to time, such as Kanbans — which are usually electronic signals to replenish stock — consignment inventory and build-to-order. These measures taken alone, however, are not enough to cure the industry's ills.

"People say, 'I did quality circles or I did standard work or I did Kanbans, so I must be Lean,' " said Stephen Delaney, chief executive of EMS provider Celestica Inc. (Toronto). "Well, that's not true."

Delaney, a Six Sigma "black belt" and fervent Lean activist, stressed that Lean is a system of interdependent parts such as elimination of defects passing to the next stage, achieving predictable output by minimizing variation in the process and eliminating process delay. Other steps in the Lean process include arranging work cells in a way that minimizes steps and maximizes flexibility of workers as well as holding only as much inventory as is needed for the day's production.

"Any one or two of those things and you haven't done it," Delaney said. (For more on Celestica's Lean transformation, see page 64.)

Lean is best when extended beyond the manufacturer to the supplier, delivery, and selling processes, according to the Lean Enterprise Institute (Boston). Admittedly, it's an arduous process, and it can take years to reach every node, depending on the complexity of the supply chain and the commitment of partners.

It's not known how many high-tech companies today employ Lean. Of tier-one EMS companies, Celestica and Solectron stand out as the two that are "pounding the table about Lean," said Adam Pick, an analyst at iSuppli Corp. (El Segundo, Calif.).

With good reason. Three years into the electronics industry's economic recovery, many EMS companies are still deep in the red. Celestica recorded a net loss of $25.5 million in the quarter ended June 30, while Solectron posted a net loss of $65 million in its fiscal third quarter, ended May 31. "These guys are grasping at any straw they can to turn the company around," Pick said.

Changing places
Like any cultural shift, Onetto's Lean crusade was initially suspect among Solectron's factory workers, who feared drastic changes would upset their comfort zone. But like the now clean-shaven machinist at the enclosure plant — and with assurances that no additional layoffs would result from implementing Lean — the company's 60,000 employees ultimately embraced the new concepts.

At a Solectron plant in Milpitas, a team is working on reducing the time it takes to replace component reels on surface-mount machines in between jobs. In August 2003, changeover time was clocked at 41 minutes. The goal is 99 seconds. As of July, "we're at nine and a half minutes," said Ashok Tiwari, SMT engineering manager and site Six Sigma-Lean leader.

The facility's Six Sigma-Lean program has reduced PCB assembly lead time to 1.7 days from 8.2 days, while quality improved from 91 percent to 96 percent, according to Solectron.

Additionally, rearranging certain manufacturing lines has freed up hundreds of square feet of factory space, meaning Solectron can consolidate some facilities and sell or sublet unused buildings. By Sept. 30, the company planned to close a 100,000-square-foot warehouse in Milpitas, and arrange inventory next to the shop floor in a supermarket format where parts are clearly marked and easily accessible. The supermarket system replaces the traditional "Costco" style of racks stacked so high with boxes that no one knew what was in them or how long they'd been there.

"Retrieval should be less than 30 seconds when you come from the floor to get a part," said Zahid Hussain, a Solectron senior production manager at the Milpitas plant.

Replacing traditional warehouses with a supermarket system reduced Solectron's Milpitas inventory by $882,000, and reduced days of supply from 20 to six.

These results alone are impressive, but what excites Onetto is what can yet be accomplished by applying Lean to the way Solectron does business with suppliers, such as Kemet.

"Waste, whether it's with Solectron or ourselves, drives [up] cost, and somebody's got to pay for that," said Kemet's chief executive, Jeff Graves.

Lean collaboration
Amid a rationalization process of its own, Kemet hired Graves to turn the company around. Graves — another veteran of Welch-era GE — set Kemet on a path to Six Sigma Lean last year.

When Onetto approached Graves about collaborating on a Lean supply chain, they quickly agreed that sensitive matters like pricing, inventory ownership and sharing data must not be allowed to get in the way of implementing Lean.

"Marc and I agreed at the outset we're going to pick a couple of part types and draw a box around them and say, 'Within this box there are no commercial issues, so let's be completely open and honest with how our systems work, and work together to improve the way we do it,' " Graves said.

Solectron and Kemet each assigned about 20 people to the effort. The team first met nine months ago and selected two part types — one ceramic and one tantalum — as case studies for the project, which would involve two of Solectron's and two of Kemet's North American sites. Over the next several months, the team mapped out on paper how those parts get from raw materials into the end customer's product — down to details of how demand is created, how the transaction is processed, how the parts are made, shipped and assembled into systems.

From the time an order was placed with Kemet to when it was delivered to Solectron took 10 days, Graves said. "Of that time, only about two days were actually spent adding value to the part."

Eliminating every nonessential step will take time, Graves admits, as it requires moving equipment and consolidating plants. Some changes can be quickly implemented, such as how an order is taken and communicated to the plant. That process was changed in July.

Within a year, Graves estimates, 50 percent of the waste will have been removed from the purchase order cycle time. "When you consider we provide Solectron with hundreds of millions of parts per year, and if you replicate that [across all part numbers Kemet supplies to Solectron], that's a tremendous amount of waste out of the system."

By the end of 2004, the company expects to cut more than $20 million in cost through internal Lean efforts. Some of that will likely get passed on to customers as price reductions, but that's one of those commercial issues to be dealt with later.

"Most people will say, 'I want to know exactly what that's going to do for me,' '' Graves said "I can't tell you that. But I can tell you inherently it will deliver much more than I'm spending on it."

It may take two or three years to expand the effort across all the parts Solectron buys from Kemet and all the factories that use them, but both companies look at Lean as a journey.

"The Lean philosophy [says] 'we'll be better today than we were yesterday, and tomorrow we'll be better than today,' " Onetto said. "Toyota has been at this for 56 years, and they're still improving." n

Crista Souza can be reached at csouza@cmp.com.