Overview
of
North American Consumer Electronics
(NACE)
Table of Contents
Page
Background3
NACE’s Dilemma4
The Order Management Process4
Application of Six Sigma to the Manufacturing Component of 6
NACE’s Order Fulfillment Process
Overview of North American Consumer Electronics
Background
North American Consumer Electronics (NACE), a subsidiary of Thomas International, designs, manufactures, and markets a variety of consumer electronics products, such as television (TV) sets, digital satellite systems (DSS), videocassette recorders, camcorders, telephones, and personal audio products. NACE employs more than 20,000 people in Asia, the U.S., Canada, Europe, and Latin America. The company has a reputation for innovativeness both in their product designs and in their manufacturing processes. According to NACE, the major guidelines that have helped inspire it to reach the success it has enjoyed and will hopefully continue to do so in the future are:
- Innovation, driven by the market through strategic alliances, as well as increasing the productivity of R&D, in part, by investing more in this area than the industry average.
- Globalization, thanks to a well-balanced presence in all macroeconomic regions and well-balanced growth rates, together with an integrated presence- R&D, marketing, manufacturing, and sales – in all areas with close links to their customers.
- Productivity and Quality Improvement Through Total Quality Management (TQM), achieving and targeting productivity increases of at least 15% per year, measured in terms of sales per employee. This improvement has and is expected to continue to be made possible by a recently instituted Six Sigma Quality business strategy. This is manifested in the company’s firm belief in employee empowerment, development of each employee’s potential through training, and their commitment and participation in fact-based (data driven) decision-making.
NACE is in a highly competitive and fast clock-speed industry. It continually finds itself under increasing pressure from its customers to lower its costs, shorten its design and manufacturing lead times, and improve its quality and responsiveness to customers. To this end, NACE has departed from a functionally based workgroup, into process and product-oriented cross-functional teams (viz., “Tiger Teams”).
Of particular interest to the company currently is the TV sets and digital satellite systems (DSS) business. Ten subproducts comprise the production of a TV set. NACE’s TV sets are made in its own glass, picture tube, cabinet, component, and assembly facilities at eight locations in the U.S. and Mexico. There are three assembly plants, each located in the U.S., Mexico, and Canada, serving their respective markets. NACE is also a major supplier of color TV picture tubes and printed circuit boards to the TV manufacturing industry.
NACE’s Dilemma
NACE is an international leader in the consumer electronics business. The company has always prided itself on its ability to provide products of high quality at low cost to its customers when they need it. This has served to differentiate the company from its competitors and earn it the worldwide reputation and financial performance it has enjoyed. However, as products have become more complex and varied, customers more sophisticated and demanding, and competition further intensified due to globalization, NACE’s market dominance has begun eroding. Company internal and industry customer satisfaction surveys have shown deterioration in overall customer satisfaction per se and relative to its competition. Quality and on-time deliveries have decreased. Namely, service call rates have increased significantly, while deliveries have often been either too early or too late. Product costs have increased. After-sales service and support have also deteriorated, as well as customer billing accuracy and satisfaction. Thus, NACE is in danger of losing its industry competitive advantage of providing better products and services, faster, and cheaper.
NACE needs to take some action, and quickly. Viewing itself on being a “customer oriented company” it decided to review its order management cycle (OMC). By doing so, it provided the opportunity to look at itself through its customers’ eyes, to see and experience transactions the way customers do. Customers want their orders handled quickly, accurately, and cost-effectively. A map of the order management process should reveal opportunities for change and improvement that would help put NACE back on track.
The Order Management Process
The order management process at NACE, which is typical in most organizations, includes ten activities that sometimes overlap or interact (Figure 1). Primary responsibilities and supporting roles for each function in the order management process is shown in Figure 2. These recur sequentially as follows. The process begins long before there is an order or a customer, and involves order planning. This involves people close to the customer, either in the sales force or in marketing at company headquarters to develop a sales forecast. Simultaneously, a group in the operations or manufacturing function develops a capacity plan that specifies how much money will be spent, how many people will be hired, and how much inventory will be created. The second step is order generation. Sales are generated through a variety of marketing approaches to retailers and consumers directly through the sales force, advertisements that draw customers into distribution centers or retailers, via the Internet, etc. Step 3, cost estimation and pricing involves a variety of functions including engineering doing the estimating, accounting calculating the costs, headquarters overseeing the pricing, and the field sales force actually developing the price. Step 4 is order receipt and entry. This activity is performed by the customer service department who is in daily contact with customers. It is also responsible for Step 5, order selection and prioritization, namely, which orders to accept and which to decline, and prioritizing the accepted orders. The sixth step, which is scheduling, the primary function of operations, determines when the order gets slotted into an actual production or operational sequence. Step 7 is fulfillment, also the primary function of operations. This deals with the actual provision of the product, involving procurement, manufacturing, assembling, testing, shipping, and installation. After the order has been delivered, billing (Step 8) is handled by finance. Step 9 concerns returns and claims, which is the responsibility of the sales function. Step 10, is after-sales service. This plays an increasingly important role in all elements of NACE’s profit equation…customer value, price, and cost. It is handled by the customer service department.
Upon reflecting on its order management process the following became apparent:
- NACE did not view the OMC as an integrated system as it should have. Rather, it was viewed and executed as a set of independent functional activities, where no one really understood the entire process.
- Each step in the OMC consists of an intricate mix of overlapping functional responsibilities, where no step was the sole responsibility of any function or department.
- Top management was insulated from the details of the OMC, and the people with the most crucial information…customer service…could not communicate with the top.
- The customer was as remote from the OMC as top management. During the process, customers’ primary activities involved negotiating price, placing an order, waiting, accepting delivery, complaining, and payment. In the middle of the OMC, they were out of the picture completely.
Customers increasingly were complaining about order cycle time, product quality, and after sales service. Top managers were ready to respond by, for example, increasing work-in-process inventories and adding manufacturing capacity. It was then suggested that before any resource allocations be made, that this be a project for a Six Sigma team as part of the overall Six Sigma strategy recently adopted by the company. To begin, the team needed to (a) decide what facet of the OMC process to initially address, and (b) gain a better understanding of, among other things, what Six Sigma is and what contribution it could make to the organization and successful accomplishment of their project.
Application of Six Sigma to the Manufacturing Component of NACE’s Order Fulfillment Process
The Six Sigma Tiger Team organized to investigate the order management process at NACE consisted of the following five people: Pradeep Singh, the manufacturing engineer and team leader; Jack Mitchell, the in-resident design engineer; Sarah Miller, the equipment and facilities engineer; Mark Kim, the quality specialist; and Peter Park, a factory technician who had considerable familiarity and experience with all manufacturing operations. Examination of the order management process by the tiger team opened up many potential opportunities for improvement in each of the steps in the order management process. It was decided to address Step 7, order fulfillment, with a focus on the manufacturing process. This was done for several reasons: (1) product quality was a major source of customer dissatisfaction, (2) it was perceived that performance metrics would be clear and easy to measure, (3) manufacturing performance data would be easy to collect, and (4) the dollar savings would be significant.
The objective was to analyze and improve the three main processes involved in manufacturing and assembling a new, advanced large screen TV model, which was having significant quality, late delivery, and after sales service problems. The assembly line associated with this model is designated as Chassis Line T3.
In producing the TV model, Chassis Line T3 consists mainly of the following three processes (Figure 3):
- Automatic Component Insertion (ACI)…here about 500 chips and components are automatically inserted on a printed circuit board (PCB) using the following three machine operations: axial, radial, and SMD (surface mounted device).
- Manual Assembly (MA)…MA occurs after ACI and involves manual insertion of about 185 components, wiring, etc. on the PCB by operators, over 24 stations.
- Solder (S)…The final process, solder connects the circuitry on the PCB and is performed by a sophisticated machine, whose input parameters must be tightly monitored and controlled. There are about 4,400 solder joints per PCB.
There is a quality inspection station at the end of each of the above three processes. The time to inspect is virtually negligible. NACE’s accounting system treats inspection costs as part of the processing cost.
Functional testing is then performed prior to and after cabinet assembly before packaging and shipment to the customer. Gluing operations and baking/drying also occur after ACI and MA. These are considered part of the respective processes. Rework, as required, is performed after each of the above processes. PCBs are scrapped if unrepairable or repair work is considered too excessive, and can occur after each of the above three operations.
The team vaguely understood that the application of a Six Sigma strategy to Chassis Line T3 would involve the following steps, called DMAIC.
- Define… Identify (a) the customer or customers; i.e., individuals or entities that would be impacted by the product in any way; (b) define the problem.
- Measure…Assess performance of this transactional process, for example, in terms of unit costs, yields, and cycle time. Determine “hidden factory” (non value-added, waste) costs, which would indicate potential for improvement in terms of fewer units (services) produced to satisfy customer demand, reduced cost per unit, and decreased cycle time.
- Analyze…Determine the relationship between system input and output variables. Develop a strategy and prioritization for process improvement…what system elements and performance metrics should one improve, and what is the impact on the system in terms of creating new bottlenecks, etc.
- Improve…Apply Six Sigma tools to improve the process, implement improvements, and assess their impact on process performance and customer satisfaction.
- Control…Position and monitor statistical process control (SPC) charts in real time to (a) assess impact of process improvements on cost, yield, and cycle time; (b) detect special causes or disturbances (anomalies, malfunctions) that can disrupt and adversely affect system performance.
Prior to begin applying the DMAIC strategy, the team needed to acquire a deeper understanding of Six Sigma as a business (improvement) strategy.
Figure 1: The Order Management Cycle: Inside the Black Box
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Figure 2: Why Orders Fall Through the Cracks
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Figure 3: Chassis Line T3 Assembly Line Processes
ACI
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