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Applying Lean Philosophies to Supply Chain Management in EMS
Applying Lean Philosophies to Supply Chain Management in EMS
A mid-tier EMS company's look at their use of technology, philosophy and partnerships to optimize its systems and facilitate growth.
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Authored By:
Wally Johnson
Firstronic, LLC
Grand Rapids, MI, USA

Summary
As the EMS playing field continues to change, one thing is certain: mid-tier EMS companies must adapt to survive. This presentation looks at one mid-tier EMS company's use of technology, Lean philosophy and supply chain partnerships to optimize its systems while facilitating rapid growth. Results include annualized inventory turns of over 12 and an efficient cash conversion cycle. The presentation will include the steps taken to achieve these world class results and highlight lessons learned.

Conclusions
In the EMS industry, particularly in the sub-$50 million annualized revenue range, resources and borrowing power are limited. Materials typically represents over 70 percent of unit cost. Excess inventory, unnecessary transactions and a lengthy supply chain pipeline can limit a company's ability to invest in the technology or increased capacity needed to grow the business.

Conversely, taking a Lean approach to supply chain management reduces inventory and enables fewer people to support a growing enterprise. Less floor space is required. Financial resources can be focused on investments which attract additional business. Highly visible kanbans ensure that the impact of demand variations on available raw material are quickly addressed.

An additional benefit of this Lean approach is the development of true supplier partners. The level of organization present in an enterprise that is holistically Lean makes a strong business case for extending those practices within the supply chain. Suppliers aren't asked to make changes that are bad for business. Instead they are asked to support a system that is inherently more efficient. As the EMS provider they support grows, so does their business.

In this EMS provider's case, the journey began with customer rationalization. A motto in this industry is, "you can't do good business with a bad customer." It speaks to the point that customers that don't fit the business model often drive consumption of non-value added time and resources. The lesson to be learned from both a customer and EMS provider perspective is that EMS providers have a difficult time being all things to all customers. The broader the business focus, the more difficult it can be to implement Lean systems.

While a more focused approach may seem exclusionary, the reality is that it frees "bad fit" customers to find a contractor whose model is a good fit and it provides "good fit" customers with the responsiveness and quality that come with an efficient business model. Embracing a holistic approach to Lean saves money, reduces overhead personnel, frees floor space, enhances throughput and improves financial metrics. The example illustrated above demonstrates how that savings can be refocused into growth momentum.

Initially Published in the SMTA Proceedings

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