Reducing Conversion Costs

Let’s look in on Patty …

Patty was just finishing a report on work that she and Pete had performed with a team of her ACME colleagues  on reducing the head-in-pillow (HIP) defect at a plant in Minnesota. HIP can be caused by printed circuit board or BGA warping during reflow, and, occasionally, poor wetting BGA solder balls. Fortunately, this case of HIP was due to just a little warping, so replacing the solder paste with one of the new formulations that was designed to minimize HIP had done the trick. Ten thousand boards were produced with no detectable HIP defects.

As Patty wrote the last sentence in the report, she gazed out the window at the dusting of snow that had fallen. She liked living in southern New Hampshire and was thrilled with the house that she and Rob had purchased six months ago in Exeter.  She had to admit that Phillips Exeter Academy was also a draw. She hoped her 18-month-old sons, Michael and Peter, would attend high school there, when the time came.

Patty was jarred from these thoughts by the ringing of her phone. She looked at the caller ID and saw that it was Mike Madigan, the CEO of all of ACME. Her stomach tied up in a knot. Sam, her boss, had alluded to the fact that senior management wanted to make her a VP. He asked if she had any requirements to accept such an offer. She said that she wanted to stay located where she was and she wanted Pete to be on her staff. Still, she was a bit nervous about such a big change.

“Patty Coleman, how may I help you?” Patty answered.

“Coleman, this is Mike Madigan. Congratulations, you are our new VP of Technology and Productivity. You will report to me, but, since you are staying in New Hampshire, I want you to report dotted line to Sam for day-to-day things. Coleman, don’t let me down. You are the youngest VP in the history of ACME by 5 years,” Madigan said.

Patty was a little put off by his gruff manner, but had been told to expect it.

“Thank you Mr. Madigan, I’ll do my best,” Patty responded.

“I already have an assignment for you,” Madigan continued. “You have done great things by improving line uptime at many of our sites, and profitability is up everywhere, but I sense we are still missing something. Do you know why?” he asked.

“Because the correlation between profitability and uptime is not as strong as one would like?” Patty asked.

“Coleman, I’m already glad I promoted you! That is exactly my concern. Explore the situation, fix it and give me a better metric. I want all sites to use this new metric so I will know which locations to focus on. I want a status report in three weeks,” Madigan finished.

“I’ll get right on it, Mr. Madigan, and will have an update in three weeks or sooner,” Patty answered, exhilarated, but a little shaky.

“Good! Oh, and Patty, call me Mike. It’s not the 1960s, you know,” he chuckled as he hung up.

Patty hung the phone up feeling happy and stressed. She was glad to get the promotion, but knew she had to deliver.

Patty had thought about this productivity metric concern in the past. She knew where to start, she would call The Professor. She was surprised when he picked up on the first ring.

“Patty, it’s great to hear from you. How are Rob and the boys? We expect to see your sons here at Ivy University as students in 16 years,” The Professor chuckled.

After exchanging a few more pleasantries and sharing the news about her promotion, Patty got right to the point.

“Professor, I need a metric that measures total productivity in electronics assembly. Uptime is a great metric, but it doesn’t correlate one-to-one to profitability,” Patty explained.

Patty expressed her surprise that no metric for total productivity was in wide use. They discussed the issue for a few more moments and then The Professor had a recommendation. “Read the NEMI (National Electronics Manufacturing Initiative) 1998 and the iNEMI 2011  Technology Roadmaps. Focus on board assembly and I think you will find your answer,” The Professor suggested.

After a few more pleasantries, The Professor had a request.

“Patty, I am getting a little award in Washington, DC. I have room for two guests at the award presentation. I was hoping you and Rob would come,” The Professor requested.

Patty said she would check their schedules, but was sure it would work out. She was honored that he thought so much of her and Rob.

As she hung up the phone, she went to ACME’s Tech Library in search of the iNEMI roadmaps. She quickly found the 1998 NEMI Technology Roadmap, but unfortunately only a summary of the 2011 iNEMI Roadmap was available. She thought she would read the 2011 Roadmap summary first. It was overwhelmingly impressive in its coverage of technology, at the wafer, chip, component, and board levels. The thoughtful inputs of over 575 participants, from over 310 organizations, were clearly evident. All of the current and emerging technologies were presented in detail.

“What a treasure of information,” Patty thought.

But she didn’t see an answer to her question.

So she went to the “Board Assembly” section of the 1998 Roadmap and in a few minutes she saw the answer: Board Assembly Conversion Cost in cents/I/O.

“What a simple concept,” she thought.

As she studied the document it became clear that about 30% of it focused on reducing conversion costs. Conversion costs were defined as all of the cost of assembly minus materials cost. To give this metric meaning, to enable comparisons between different manufacturing sites, the total amount of conversion cost for a manufacturing site was divided by the total number of input/output (I/O) terminals (i.e,. component leads) assembled.

“This makes sense,” she thought. “You add up all of the non-material costs of assembly and divide by all of the leads you assemble. This metric shows how efficiently you assemble each lead.”

It then dawned on her that she had seen a metric like this before. She saw the notebook from The Professor’s workshop on Cost Estimating in her bookcase.  She grabbed it and flipped through it. There it was: non-material assembly cost per I/O (NMACIO).

The great mystery to her was why the folks at NEMI didn’t emphasize these types of cost performance metrics in newer roadmaps.

Best Wishes,

Dr. Ron