Celestica - Memory Business Unit

Celestica Memory Business Unit
Prof. M G Korgaonker
Electronics Contract Industry In 1994, contract manufacturing market approx US $ 18 billion Contractors located in NA, Europe, East Asia, Japan. Over 1000 contract manufacturers 29 with annual revenues over US $ 100 milln each, account for 2/ 3 rds of the total
Electronics Contract Industry Seven market segments Computers Communications Automotive Consumer Industrial Instrumentation Military & avionics
Electronics Contract Industry Consumer segment relatively small for contractors Computer and communications largest and fastest growing segments Account for 3 / 4 ths of all the work
Electronics Contract Industry These segments important for large manufacturers, account for over 80 % of revenues Memory products prices rapidly decreased Rapid growth in units sold, capacity 9 ( megabytes ) and revenues
Electronics Contract Industry In 1999, compounded annual growth rate at 18 % for large players and 7.7 % for small and medium Large contract manufacturers becoming manufacturing arm of OEMs Tech advances lead to increased miniaturization, density, efficiency, throughput, decreased cost in high volume applications
Electronics Contract Industry Reduced product life cycles made contractors flexible and innovative
Contractors becoming increasingly full service providers advanced design, development, testing, repair, box build and delivery
Rationale For Contract Manufacturing Decision Allow OEM focus on own core competencies in designing and marketing new products Achieve higher level of quality and reduce variability Get a product faster
Rationale For Contract Manufacturing Decision Reduce costs 10 20 %, through scale economies Benefit from shared innovation Communication of manufacturing expectation on design, quality, cost and delivery
Some Problems Of Contract Manufacturing Poor responsiveness due to high capacity use and many customers Long lead times, lack of schedule flexibility and delays Remote management and reliance on single contractor

Memory Modules Memory Business Unit ( MBU ) focused on memory modules customized and own branded products Most modules DRAMs 11 families with different physical dimensions, memory capacity and data path width Weighed about 30 gms Memory capacity from 1 to 128 MB 32 72 MB data path width
Memory Modules DRAMs mounted on PCBs in various configurations such as Single In Line Memory Modules ( SIMMs ) Double In Line Memory Modules ( DIMMs )
Celestica Formed by IBM. Manufactured , assembled and tested computer electronics such as Custom memory products, power supplies, PC cards, system boards Communication products and Integrated contract manufacturing services
Celestica In 1995, revenues of US $ 2.85 billion One of the largest in North America Selling to OEMs worldwide in computer, communications and related industries
Celestica Expertise in Design, miniaturization, development, prototyping Testing, failure analysis, QA, procurement Supplier management, mfg, warehousing and after sales service
Celestica Organized into 6 customer focused Bus 13 functional units ( Exb 1 ) Earned many prestigious awards
Memory Business Unit ( MBU ) Employed 300 people Operated 24 hrs / day, 7 days / week, produced 200,000 units / week 80 % revenues from higher margin contract services for OEMs and other tech customers
Memory Business Unit ( MBU ) Annual revenues US $1.6 billion in 1995 One of the industry leaders 20 % revenues from forecastable, made in batches to stock, branded line, lower margins products
Memory Business Unit ( MBU ) In the latter, company invested in design and engineering Manufactured in small to large batches to order Longer lead times Capability in Surface Mount Technology ( SMT )
Memory Business Unit ( MBU ) Memory upgrade market a potential opportunity for Celestica ( Exb 2 ) OEMs and after markets strongly inter related Drop in DRAM prices weakens OEM demand and explodes after market demand and vice versa

Memory Business Unit ( MBU ) In periods of excess demand, focus on flexibility and DRAM buffer inventories During excess supply Reduce turnaround time, increase throughput and efficiency Reduce WIP, increase inventory turns, minimize DRAM inventories, increase PCB inventories Increase frequency of forecasts
Memory Business Unit ( MBU ) Leading competitors exceed industry average growth rates by Focusing on selected markets Strengthen relationships with these markets Erect competitive barriers

Production In 1990 manufacturing process oriented, equipment arranged by type and mfg organization and space structured into sectors : Surface mount Pin through hole Wave Inspection Test

Production
Each sector had own staff and operated independently Products made in batches Required much material handling

Production Process Layout resulted in High WIP Slow inefficient and costly material handling Difficult routing and scheduling Slow detection of defects High supervision, attention for product / customer costs Throughput time of 5 weeks Protection from equipment breakdown / absenteeism

Production In 1990s, BUs made responsible for specific product families. Plant reorganized into multiple, focused factory within factories ( FWF ) based on customer type
MBU - one such FWF, resulting in dramatic improvements in efficiency and effectiveness
In SIMM products, throughput times dropped from 3 weeks to 2 days and WIP reduced accordingly
Production Creation of Celestica as separate entity in 1994 led to significant growth in revenues As sectors became bottlenecks, additional capital equipment added next to existing equipment and so on Bottlenecks shifted and the plant became de facto functional layout within each focused BU

Production By 1996, MBUs facilities occupied 1500 sq metres on third floor out of 5880 sq metres. Celesticas total plant area was 84000 sq metres MBU shared some areas like wash rooms, lunch rooms, store rooms, offices, parts kitting, holding and remarket, with other units ( exb 3 ) MBU used additional space on another floor to make workstation memory controller cards
Memory Board Production Six basic stages of production Mounting memory chips onto panels Labeling Separating into individual memory units or modules Inspecting visually and mechanically Electrical testing Packaging

Memory Board Production Flow between machines jumbled, controlled by scheduler using priorities to schedule flow and expedite parts Typical batch manufacturing, large batches to achieve scale economies An order occupied complete resources of each sector as it progressed through the process, remaining in WIP between sectors

Memory Board Production Batches frequently bumped with shifting priorities. Hand carts used to shift batches between sectors In pin through hole technology, memory chips inserted into holes drilled through boards, held in place by solder penetrating through holes In SMT, electronic devices applied to one or both surfaces of board and held in place by solder applied to the surface ( Exb 4 )

Memory Board Production Surface devices connected to inner layers by circuits connected to board surface To prepare for mounting memory chips, solder paste applied to purchased PCB panels using screening machine with screening template / stencil Prepared panels moved by conveyor to the SMT machine for applying the required chips
Memory Board Production Panels baked in oven at 2100 celcius, 250 higher than the melting point of solder Panels moved from insertion area to labeling to apply identifying labels manually to individual memory units / modules Panels moved to depanelization to separate into units. A panel contained 7 20 units
Memory Board Production Individual units proceed to visual and mechanical inspection Simple errors corrected by hand More complex errors such involving many solder joints corrected by automated repair machine
Memory Board Production Next step is electrical testing of the product. Time required varies by a factor of 15 Scheduling this bottleneck operation is key to efficient utilization of resources Inspected product sent to packing for wrapping, boxing and casing for delivery to customer

Memory Board Production Some problems : Somewhat cramped, specially in packing, leading to problems in improper labeling, boxing and packaging Leave bad impression on customer and image Two year pay back on investment may not be achieved
Memory Board Production Some problems : Significant growth expected in DRAM capacity, but decrease in the number of units produced will be tight if demand goes up very much Need to reduce the throughput time from 2 -3 days to 1 day to cut WIP and give better service to customer

The Opportunity To Move In 1995, Celestica factory reorganized and free space offered to MBU Although includes some common staff areas, like wash rooms and lunch rooms, still big, over 4100 sq metres, desired due to test equipment Will worsen with synchronous DRAM memory, requiring not only new test equipment but also special cooling on a raised floor

The Opportunity To Move Cost approx US $ 3 million / unit, 3 times the value of current test equipment. Needs specially trained people to operate The new space on ground floor with own receiving and shipping docks, surrounded by outside walls, more secure. Help marketing efforts, receive customers However ceiling 20 30 cms lower and will require development of some new cooling technique

The Opportunity To Move The total cost of refurbishing the new space likely to be US $ 4.5 million, another US $ 0.5 million to move and additional US $ 250,000 / year in extra operating costs
Other options could include

Not moving at all Divide production, by getting some more space
Opportunity To Reorganize Phase 1 task force 8 people from manufacturing and engineering and a student intern Task force focus on layout of the new facility and the logistics of moving The proposed layout still very much process layout ( exb 6 )

Opportunity To Reorganize A task force sub group proposed a radical realignment of the production flow into cells A cell involves all necessary equipment and staff to be responsible for the complete production of a product batch from start to finish In the current layout, staff responsible only for the processes in their sector, handing off responsibility once a batch is transferred to another sector

Opportunity To Reorganize The advantages of the cellular layout ( exb 7 ) as follows : Focus on orders for customers and increase on time deliveries Encourage teamwork, reduce WIP, improve part control. Allow optimization of the order as a whole rather than only workstation Easier scheduling around customers and avoid continual shifting of the orders

Opportunity To Reorganize The advantages of the cellular layout ( exb 7 ) as follows : Improve quality, produce less scrap and reduce problems in packing 78 % of quality errors are information driven With hundreds of product codes and part numbers, 4 different packing requirements, shipping good products requires minimal human error

Opportunity To Reorganize The advantages of the cellular layout ( exb 7 ) as follows : Shorter expected throughput times, more proximity of people and accurate, fast transfer of information Simulation based on 100 product codes, grouped according to test times required. Down time 16 % for lunches, breaks and shift overlap 98 % products assumed to pass electrical test
Some Assumptions In The Model Problems such as parts shortages, equipment failures, absenteeism, stop build orders ignored in simulation
Main goal of simulation to compare various scenarios, not study absolute numbers

Key Questions In The Simulation Model Is the model realistic ? Better to retain process oriented layout but use generic instead of product specific testers ? Better to retain process oriented layout but increase SMT and testing capacity ?
Better to use cells, possibly with some sharing of testing capacity among cells ?

Cellular Layout Exb 8 gives the model results. Significant advantages with the cell layout. Even with cells laid out in straight lines, 80 % advantages retained
But cells require people to cross train and be flexible to do all jobs. Might face some resistance particularly when high status job people are asked to do low status tasks Multi skilling everyone could cost US $ 100,000. Will enrich jobs. Better described as multi tasking
Cellular Layout Multi tasking needs some extra equipment since each cell is a customer focused factory Currently 4 sets of SMT equipment, 3 separation lines, 8 visual and mechanical checking stations, 8 electrical testing stations, 6 packing stations
With cells, extra equipment of some types needed
Cellular Layout Cells imply autonomy staff in the cell take responsibility for quality and productivity Some Implications to supervisors and managers. For ex, once a cell takes an order, it is up to the cell to get it filled No room for shutting down or slowing down

Sr No 1 2 3 4 5 6 7 8 Description Incremental Investment, $ milln Reduction in WIP, $ milln Throughput Time Reduction, days Increase in Annual capacity, $ milln Saving in Inventory Cost / yr, $ milln Additional Contribution / yr, $ milln Total Benefit/ yr, $ milln Payback period, months Run4 vs Run 3 0.3 6.6 1.2 2.9 0.66 0.87 1.53 2.35 Run 4 vs Run 2 3.8 -1.3 1 12.7 -0.13 3.81 3.68 12.39 Run 4 vs Run1 3.8 -0.9 1 13.2 -0.09 3.96 3.87 11.78
Calculation Of Relative Payback Period

Sr No Description Run 1 Run 2 Run 3 Run 4
1
2 3 4 5 6 7
Investment, $ milln
WIP, $ milln Throughput Time, days Annual capacity, $ milln Inventory Cost / yr, $ milln Contribution / yr, $ milln Total Benefit/ yr, $ milln
6.4
12.6 2.2 15.6 1.26 4.68 3.42
6.4
12.2 2.2 16.1 1.22 4.83 3.61
9.9
20.1 2.4 25.9 2.01 7.77 5.76
10.2
13.5 1.2 28.8 1.35 8.64 7.29
Payback period, months
22.46
21.27
20.63
16.79
Calculation Of Absolute Payback Periods
Thank You

Celestica - Memory Business Unit

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Celestica Memory Business Unit