Posted By Jeff Moad, October 12, 2017 at 5:10 PM, in Category: ML Council
We at the Manufacturing Leadership Council are of the belief that the journey to a next-generation manufacturing model isn’t just about aggressively adopting emerging digital technologies. Yes, IIoT, advanced analytics, modeling, smart products, and machine learning technologies are emerging as important components of M4.0 transformation, giving manufacturers unprecedented power to optimize operations in response to or even in advance of market and other changes.
But M4.0 transformation isn’t just about digitization and technology. It’s also about making dramatic cultural, workforce, and organizational changes which, in combination with digitization, are helping manufacturers become more efficient and responsive and to grow by innovating new business models.
The need for this multidisciplinary approach to M4.0 transformation was on display recently when members of the ML Council toured the Grand Rapids, MI, plant of electronics manufacturing services (EMS) provider Firstronic and engaged in a lively conversation with members of the Firstronic leadership team.
Under CEO John Sammut, Firstronic has survived a life-threatening downturn and returned to growth mode by fundamentally rethinking its go-to-market strategy and by transforming its organization, key business processes, core technology platform, and its workforce to support the new strategy.
After a major business downturn hit its parent company following the 2008 recession, Firstronic was sold to a private equity fund. Soon thereafter, Sammut was brought in, first as a consultant and later as CEO, and he brought in his own management team.
They decided the company’s best path back to growth was a customer-centric approach that, ultimately, would allow Firstronic to gain a larger share of outsourced business from each of its customers. Firstronic would do this by preserving the agility and responsiveness of a smaller EMS company while also providing a full range of services like larger EMS companies such as Flex and Jabil. So, in addition to providing PC board manufacturing and assembly of sub-assembly and complex systems, Firstronic would provide everything from product design and engineering services to after-sale repair and refurbishment. Firstronic would even design customers supply chain architectures and, where requested, take responsibility for part and finished goods planning and execution.
This high-touch approach meant Firstronic would need to know each of its customers’ business--and the markets in which they operated--intimately. As Steve Fraser, the company’s vice president of operations told ML Council members, “Our goal is to understand our customers better than they know themselves.”
And that, Sammut and his team decided, meant Firstronic would need to concentrate on serving fewer customers better.
Firstronic in 2011 launched what Sammut calls a “customer rationalization” strategy, creating a set of criteria that let his team score existing customers. The simple algorithm included things such product volume, complexity, cycle time, and the customer’s contribution to Firstronic’s revenue. The company also decided to focus on a few markets, including electronics subsystems for automotive, medical, industrial, and specialty/LED suppliers. Firstronic went from 25 customers and from managing over 5,000 part numbers to 10 customers and 1,000 part numbers.
In order to become much more engaged with and valuable to each of those remaining customers, Sammut and his team transformed Firstronic’s organization structure, technology platform, and workforce/culture.
On the organization side, the company shifted to a much flatter and more collaborative structure. Sammut and his team created dedicated cross-functional teams for each customer. The mission of these teams was to understand where the customers’ business was going and to fix problems related to inventory, receivables, and raw materials pipelines fast, anticipating them where possible. The teams hold weekly calls or meeting with customers and reports weekly to Firstronic’s top management.
Sammut and team also moved to eliminate the kind of stovepipe organizational inefficiencies that often result in customer issues falling through cracks. The company created what it calls an accountability matrix which spells out the responsibilities and deliverables of each function and the metrics on which their performance will be measured.
And Firstronic focused on significantly improving business processes that most impact customers. The company, for example, replaced a reactive, end-of-line quality audit process with an interactive process in which auditors roam the plant floor, catching and correcting quality problems before they reach the end of the line. The approach has dramatically reduced defects.
Firstronic also implemented a kanban-based system that optimizes the flow of finished goods to customers. Key to the system is Firstronic’s detailed analysis of each customer’s demand patterns and incorporation of suppliers into the system, with supplier monitoring, reviews, and improvement processes. The system, in many cases, allows Firstronic’s customer service agents to understand customers’ demand patterns better than the customers themselves, making Firstronic an even more valued supplier.
Another important pillar of Firstronic’s transformation was an upgrade of the company’s core technology platform. Firstronic replaced an aging ERP system that was suitable only for rudimentary material management with a cloud-based system that integrated all of the company’s operations and allowed Firstronic to get more accurate, faster visibility into supply chain costs, inventories, scrap, and lead-times. The system, based on the platform from Plex Systems, allowed Firstronic to increase productivity and customer satisfaction while moving to a decision-making process based on data and facts.
Using the Plex platform, Firstronic implemented touch-screen-based paperless work instruction stations across the shop floor. The electronic stations replaced paper work instructions and provide consistent and easy-to-use assembly instructions for each work center. The system also allows Firstronic to make remote, real time document control updates that are instantly viewable on the production floor by the operators.
At the same time, Firstronic’s leaders recognized that, in order to become a more responsive manufacturer, the company’s flatter organization structure and new technology platform would need to be supported by an engaged workforce, with each member committed to Firstronic’s customer-centric DNA.
Firstronic started by defining the employee characteristics, traits, and skills required for each job, then testing all existing and prospective employees’ using Acumax, a tool that tests individuals’ basic personalities and wiring. Firstronic leaders use the results to tailor how they communicate with employees, and the company considers only prospective employees who fit the desired profile, based on the Acumax results.
In conjunction with the hiring overhaul, Firstronic also revamped its new worker onboarding process. The company implemented a new 60-day onboarding system for new employees that provides staff support for new workers from day one and emphasizes providing training at the right pace so that new employees can absorb it. Results have included new hires that fit better into their assigned jobs and lower turnover.
In a roundtable conversation following the Firstronic plant tour, MC Council members said they were impressed with the company’s success at making its customer-centric DNA a palpable reality that is reflected up and down the organization.
“In talking with operators, people seem to have a passion and to be upbeat, whether they’ve been with the company seven years or five days,” said one ML Council member. “That’s an accomplishment and it says you should be bullish about your future.”
Other members were impressed with Firstronic’s courage and discipline in implementing its customer rationalization strategy. Council members said the level of effort and amount of due diligence that the company applies to identifies the customers with which it will do business is impressive. And, in answer to a question from a Council member, Sammut noted that the process isn’t intended just to find potential customers who have already optimized their own internal processes.
“In fact, we can be very attractive to customers who cannot forecast,” said Sammut. “Our key customers are no longer giving us signals. We are just replenishing automatically. Once we get there, no one can touch us.”
Firstronic’s multidisciplinary transformation approach has paid off handsomely. The company is now back into growth mode, with $125 million in global sales, 945 employees, and five manufacturing plants in the U.S., Mexico, China, and Poland. Although the company still has fewer customers today than it did before the customer rationalization process, revenues have grown by ten times since then.
And, in recent years, Firstronic has received several industry awards for its accomplishments, including a Manufacturing Leadership Award in 2017.
This success, however, hasn’t tempted Sammut and other Firstronic leaders to stray from their strategy of applying a high-touch, customer-centric approach to a very select group of hand-picked customers. The company still adds only one or two new customers per year, says Sammut.
Written by Jeff Moad
Jeff Moad is Research Director and Executive Editor with the Manufacturing Leadership Community. He also directs the Manufacturing Leadership Awards Program. Follow our LinkedIn Groups: Manufacturing Leadership Council and Manufacturing Leadership Summit