Celestica - Memory Business Unit

8/3/2019 Celestica - Memory Business Unit

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Celestica Memory Business Unit

Prof. M G Korgaonker


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Electronics Contract Industry

In 1994, contract manufacturing market approx US $ 18 billion

Contractors located in NA, Europe, East Asia, Japan. Over 1000contract manufacturers

29 with annual revenues over US $ 100 milln each, account for 2/ 3 rds

of the total


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Seven market segments

Computers

Communications

Automotive

Consumer

Industrial

Instrumentation

Military & avionics


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Consumer segment relatively small for contractors

Computer and communications largest and fastest growing segments

Account for 3 / 4 ths of all the work


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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


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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


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Reduced product life cycles made contractors flexible and innovative

Contractors becoming increasingly full service providers advanceddesign, development, testing, repair, box build and delivery


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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


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Rationale For Contract Manufacturing Decision

Reduce costs 10 20 %, through scale economies

Benefit from shared innovation

Communication of manufacturing expectation on design, quality, costand delivery


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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


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Memory Modules

Memory Business Unit ( MBU ) focused on memory modulescustomized and own branded products

Most modules DRAMs

11 families with different physical dimensions, memory capacityand data path width

Weighed about 30 gms Memory capacity from 1 to 128 MB

32 72 MB data path width


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Memory Modules

DRAMs mounted on PCBs in various configurations such as

Single In Line Memory Modules ( SIMMs )

Double In Line Memory Modules ( DIMMs )


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Celestica

Formed by IBM. Manufactured , assembled and tested computer

electronics such as

Custom memory products, power supplies, PC cards, systemboards

Communication products and Integrated contract manufacturingservices


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Celestica

In 1995, revenues of US $ 2.85 billion

One of the largest in North America

Selling to OEMs worldwide in computer, communications and relatedindustries


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Celestica

Expertise in

Design, miniaturization, development, prototyping

Testing, failure analysis, QA, procurement

Supplier management, mfg, warehousing and after sales service


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Celestica

Organized into

6 customer focused Bus

13 functional units ( Exb 1 )

Earned many prestigious awards


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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 andother tech customers


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Annual revenues US $1.6 billion in 1995

One of the industry leaders

20 % revenues from forecastable, made in batches to stock, brandedline, lower margins products


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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 )


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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 marketdemand and vice versa


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In periods of excess demand, focus on flexibility and DRAM bufferinventories

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


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Leading competitors exceed industry average growth rates by

Focusing on selected markets

Strengthen relationships with these markets

Erect competitive barriers


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Production

In 1990 manufacturing process oriented, equipment arranged by typeand mfg organization and space structured into sectors :

Surface mount

Pin through hole

Wave

Inspection

Test


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Production

Each sector had own staff and operated independently

Products made in batches

Required much material handling


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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


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Production

In 1990s, BUs made responsible for specific product families. Plantreorganized into multiple, focused factory within factories ( FWF )based on customer type

MBU - one such FWF, resulting in dramatic improvements in efficiencyand effectiveness

In SIMM products, throughput times dropped from 3 weeks to 2 daysand WIP reduced accordingly


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Production

Creation of Celestica as separate entity in 1994 led to significantgrowth in revenues

As sectors became bottlenecks, additional capital equipment addednext to existing equipment and so on

Bottlenecks shifted and the plant became de facto functional layoutwithin each focused BU


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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


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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


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Flow between machines jumbled, controlled by scheduler usingpriorities to schedule flow and expedite parts

Typical batch manufacturing, large batches to achieve scaleeconomies

An order occupied complete resources of each sector as it progressed

through the process, remaining in WIP between sectors


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Batches frequently bumped with shifting priorities. Hand carts used toshift batches between sectors

In pin through hole technology, memory chips inserted into holesdrilled through boards, held in place by solder penetrating throughholes

In SMT, electronic devices applied to one or both surfaces of boardand held in place by solder applied to the surface ( Exb 4 )


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Surface devices connected to inner layers by circuits connected toboard surface

To prepare for mounting memory chips, solder paste applied topurchased PCB panels using screening machine with screeningtemplate / stencil

Prepared panels moved by conveyor to the SMT machine for applyingthe required chips


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Panels baked in oven at 2100 celcius, 250 higher than the melting pointof solder

Panels moved from insertion area to labeling to apply identifying labelsmanually to individual memory units / modules

Panels moved to depanelization to separate into units. A panelcontained 7 20 units


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Individual units proceed to visual and mechanical inspection

Simple errors corrected by hand

More complex errors such involving many solder joints corrected byautomated repair machine


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Next step is electrical testing of the product. Time required varies by afactor of 15

Scheduling this bottleneck operation is key to efficient utilization ofresources

Inspected product sent to packing for wrapping, boxing and casing fordelivery to customer


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Some problems :

Somewhat cramped, specially in packing, leading to problems inimproper labeling, boxing and packaging

Leave bad impression on customer and image

Two year pay back on investment may not be achieved


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Some problems :

Significant growth expected in DRAM capacity, but decrease in thenumber 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


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The Opportunity To Move

In 1995, Celestica factory reorganized and free space offered to MBU

Although includes some common staff areas, like wash rooms andlunch rooms, still big, over 4100 sq metres, desired due to testequipment

Will worsen with synchronous DRAM memory, requiring not only new

test equipment but also special cooling on a raised floor


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Cost approx US $ 3 million / unit, 3 times the value of current testequipment. Needs specially trained people to operate

The new space on ground floor with own receiving and shippingdocks, surrounded by outside walls, more secure. Help marketingefforts, receive customers

However ceiling 20 30 cms lower and will require development ofsome new cooling technique


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The total cost of refurbishing the new space likely to be US $ 4.5million, 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


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Opportunity To Reorganize

Phase 1 task force 8 people from manufacturing and engineering anda student intern

Task force focus on layout of the new facility and the logistics ofmoving

The proposed layout still very much process layout ( exb 6 )


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A task force sub group proposed a radical realignment of theproduction flow into cells

A cell involves all necessary equipment and staff to be responsible forthe 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 toanother sector


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The advantages of the cellular layout ( exb 7 ) as follows :

Improve quality, produce less scrap and reduce problems inpacking

78 % of quality errors are information driven

With hundreds of product codes and part numbers, 4 differentpacking requirements, shipping good products requires minimalhuman error


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The advantages of the cellular layout ( exb 7 ) as follows :

Shorter expected throughput times, more proximity of people andaccurate, fast transfer of information

Simulation based on 100 product codes, grouped according to testtimes required. Down time 16 % for lunches, breaks and shift

overlap

98 % products assumed to pass electrical test


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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 studyabsolute numbers


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Key Questions In The Simulation Model

Is the model realistic ?

Better to retain process oriented layout but use generic instead ofproduct specific testers ?

Better to retain process oriented layout but increase SMT and testingcapacity ?

Better to use cells, possibly with some sharing of testing capacityamong cells ?


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Cellular Layout

Exb 8 gives the model results. Significant advantages with the celllayout. Even with cells laid out in straight lines, 80 % advantagesretained

But cells require people to cross train and be flexible to do all jobs.Might face some resistance particularly when high status job peopleare asked to do low status tasks

Multi skilling everyone could cost US $ 100,000. Will enrich jobs. Betterdescribed as multi tasking


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Cellular Layout

Multi tasking needs some extra equipment since each cell is acustomer focused factory

Currently 4 sets of SMT equipment, 3 separation lines, 8 visual andmechanical checking stations, 8 electrical testing stations, 6 packingstations

With cells, extra equipment of some types needed


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Cellular Layout

Cells imply autonomy staff in the cell take responsibility for qualityand productivity

Some Implications to supervisors and managers. For ex, once a celltakes an order, it is up to the cell to get it filled

No room for shutting down or slowing down


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Sr No Description Run4 vs

Run 3

Run 4 vs

Run 2

Run 4 vs

Run11 Incremental Investment, $ milln 0.3 3.8 3.8

2 Reduction in WIP, $ milln 6.6 -1.3 -0.9

3 Throughput Time Reduction, days 1.2 1 1

4 Increase in Annual capacity, $ milln 2.9 12.7 13.2

5 Saving in Inventory Cost / yr, $ milln 0.66 -0.13 -0.09

6 Additional Contribution / yr, $ milln 0.87 3.81 3.96

7 Total Benefit/ yr, $ milln 1.53 3.68 3.87

8 Payback period, months 2.35 12.39 11.78

Calculation Of Relative Payback Period

C l i M B i U i


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Sr No Description Run 1 Run 2 Run 3 Run 4

1 Investment, $ milln 6.4 6.4 9.9 10.2

2 WIP, $ milln 12.6 12.2 20.1 13.5

3 Throughput Time, days 2.2 2.2 2.4 1.2

4 Annual capacity, $ milln 15.6 16.1 25.9 28.8

5 Inventory Cost / yr, $ milln 1.26 1.22 2.01 1.35

6 Contribution / yr, $ milln 4.68 4.83 7.77 8.64

7 Total Benefit/ yr, $ milln 3.42 3.61 5.76 7.29

8 Payback period, months 22.46 21.27 20.63 16.79

Calculation Of Absolute Payback Periods

C l i M B i U i


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Thank You

Celestica - Memory Business Unit

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