Calibrated For Flexibility Lean manufacturer responds to customers' constantly changing demands. ByJohn S. McClenahenMKS Instruments Inc., Methuen, Mass.At a glance
Manufacturing cycle time reduced 90% during last five years. Production personnel are functionally cross-trained. All products built to order. Leadtime averages less than 10 days. "Rush" orders in one day. Winner of Novellus Systems Inc.'s 2000 Supplier Quality Award. Jerry Colella likes to say that he lives a saw-toothed existence -- as do the 200 people at MKS Instruments Inc.'s plant in Methuen, Mass., about 30 miles northwest of Boston. Colella understates reality. The teeth on a ripsaw are much more predictable in their ups and downs than is demand for the gas-flow controllers, throttle valves, and electronic controllers and gauges the Methuen plant supplies to semiconductor fabrication equipment makers, such as Applied Materials Inc. and Novellus Systems Inc., or directly to such chip producers as Intel Corp. To put it mildly, the semiconductor business is "notoriously volatile," as the most recent U.S. -- and now global -- economic slowdown continues to remind executives and investors alike. But even in better times, product demand from semiconductor industry customers, who account for 55% to 60% of the plant's business, can differ dramatically from expectations. For example, in 1999 and 2000, a period for which a 30% compound growth rate had been forecast, demand for Methuen's measurement and control products soared a stunning 170%. "We will never load anything beyond 85% of [people and equipment] capacity so that we can maintain flexibility," stresses Colella, who is formally known as Gerald G. Colella, corporate vice president of global business operations and an 18-year MKS veteran. The 15% margin, what MKS calls "flex capacity," allows the plant to respond to "surprise" orders from customers, less-than-normal-leadtime requests, or a surge in business. "MKS has designed and built an extraordinary supply-chain system that handles great swings in demand with relative ease, controlling inventory while preserving world-class levels of customer satisfaction and supplier relationships simultaneously," asserts Gregory F. Fields, president of Bridgewright Management Consultants in Medfield, Mass. "The MKS leadership team has never lost its passion to strive for operational excellence." That's clearly appreciated at Novellus, a San Jose-based maker of semiconductor fabrication equipment. "It's extremely difficult to forecast demand, and their ability to react to our demands is unbelievable," gushes David Celli, Novellus' vice president of operations. Whether destined for the semiconductor industry or the auto, food, and pharmaceutical industries, the products designed and manufactured at Methuen, which together with those made at MKS' neighboring Andover, Mass., plant account for about 40% of the company's $327 million worldwide sales, have a "gee-whiz" quality. Its gas-flow devices, for example, can precisely control the filling of a semiconductor fabrication chamber the size of a basketball in as short a time as one second or as long as a month. Its process monitors, which measure the composition of the gas in the fab chamber, are so sensitive they can detect the equivalent of a teaspoon of sugar in an Olympic-sized swimming pool. Uneven -- often unpredictable -- demand, mass customization, and short leadtimes aren't the only challenges facing Methuen as it works to deliver products on the customer's requested delivery date. "We have a wide and deep product portfolio. We have precipitous swings in demand from customers. And everything is built to order," summarizes Colella. The peculiar dynamics of Methuen's order-fulfillment process figure in as well. "Some of our products use components made by other MKS plants, and most of our products must be consolidated with products from other MKS plants before they can be shipped," relates Colella. Among the major markers along an 18-year timeline of continuous improvement are a strong focus in the mid- and late-1980s on supplier quality and involvement and the attention to materials management beginning in 1994. "Without good suppliers being able to supply materials to you and a good materials system to be able to recognize instantaneously the need [for replenishment], you can push all the desks together you want in the plant, but you're not going to get there [to superior performance]," stresses Colella. Material replenishment is triggered directly by work cells through a sophisticated kanban system. "Without our pull system, we would be dead," states Robert E. Whitney, director of materials and logistics. Also, in a decidedly lower-tech approach to materials management, couriers in trucks make "milk runs" several times a day to certified suppliers in Massachusetts and New Hampshire, shuttling empty and full totes between MKS and its suppliers. Not surprisingly, given the facility's commitment to flexibility, Colella also highlights the strategic capacity initiatives Methuen launched in 1997. "We said we really want to understand the capability -- and control the output -- of this plant," he relates. Today product-specific manufacturing cells are driven by real-time product orders. Products are put together in a "balanced progressive build." With its sophisticated kanban system, materials are drawn from the plant's internal and external suppliers by "work-orderless" commands and delivered hourly to point of use. Lean manufacturing clearly has made a measurable difference at Methuen. Manufacturing cycle time for a typical finished product, the Mass-Flo gas-flow controller, is four hours, compared with an industry average of three days, and represents a 90% reduction during the last five years. Current first-pass yield for the controller is 99.5%, an improvement of 68.6% during the last five years. First-pass yield for a flow sensor assembly, a component that is the heart of the controller, likewise is an impressive 99.5%. The standard order-to-shipment leadtime for a controller is seven days, compared with an industry average of 30 days. And a week represents a 65% reduction in order-to-shipment leadtime during the last five years. The shortest leadtime for rush orders is one day. "We can produce it [the controller] in four hours, but we consider the leadtime to customer [to be] one day," says Colella. Nineteen days of finished-goods inventory might call Methuen's mastery of lean into question were it not for the fact that the plant doesn't have a choice. It is part of their contracts. "The majority of the inventory is in finished goods and is at customer consignment sites," explains Colella. Indeed, Methuen has turned this necessity into a virtue -- and uses it to illustrate its commitment to customer service. "This contractual obligation for safety stock is there to protect our customers against poor forecasts, and to protect them against intense pressure to shorten leadtimes to their customers," explains Colella. Applied Materials, which has its own plants in Santa Clara, Calif., and Austin, is an example. "What they have said to us is, 'Your manufacturing plants are in Massachusetts. We want consignment stock in Santa Clara and Austin, and we want four weeks' demand on hand at all time.'" Adds Colella, "Although most of our products are priced less than US$10,000 each, most of our customers' products are priced at more than $1 million each, meriting a little inventory to buffer the unexpected." Web-Exclusive Best Practices ByJohn S. McClenahen Benchmarking contact: Jerry Colella, vice president for global business operations, [email protected], 978/975-2350. Supporting Legacy Products Maintaining buffer stocks at consignment sites near their manufacturing facilities is only one of more than a dozen ways MKS Methuen focuses on its customers. In addition, the plant conducts conferences, business reviews, and supplier meetings with its customers. And it offers ample support for legacy products. "We want to make sure that the customers are not put into a position where they have to redesign their product or to obsolete their product because they cannot get the equipment from us," says Gerald G. Colella, MKS Instruments Inc.'s vice president for global business operations. Supporting a legacy product, continues Colella, is "a small price to pay, given the fact it provides a sense of security for our customers. They [know] they will be able to get the product and we will not leave them out to dry." Knowing Key Customers It begins at the beginning. Familiarization with key customers is an integral part of new-employee orientation at MKS' Methuen, Mass., plant. "We want our employees to have a sense of what drives the company, what makes us successful. And if we put the customer first -- and the first thing they hear about is the customer -- then employees will keep that ever-present and recognize that customers are what drive MKS," states Colella. Indeed, knowing key customers pays off in the periodic "huddles" that take place in Methuen's various work cells. "During the cell huddles, we talk about the orders for various customers and customer down situations or leadtime requests [and the employees] can associate that name with something more specific, more tangible -- like knowing what industry that customer is in, what market they serve, what products they sell, and what position they are in the ranking with MKS," relates Colella. Mastering Production At first pass, the situation seems at least incongruous: MKS' Methuen plant builds to order -- yet it deliberately maintains a master production schedule that is run nightly to catch changes in demand. The basic reason: "You still have to size the business for proper execution," stresses Colella. "So it's exceedingly important that you make some forward-looking projections of your business so that when the orders come you will have the equipment in place, you will have the people in place, and you will have the kanban system primed with appropriate levels of materials." In a sentence, Methuen is adapting enterprise resource planning (ERP), a form of sales and operations planning, to a lean manufacturing environment. And while Methuen doesn't build to the forecasts for people, equipment, and materials that are a product of ERP, the forecasts result in the plant having the "appropriate resources" available when a customer order comes in.