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The Rush to Russia

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Timing is everything, isn’t it?

On the same day IPC named an official representative for Russia, calling it “a market with enormous growth potential,” a leading research firm basically threw in the towel on Putinland.

“Russia now is facing a cessation of new investment, along with shutdowns in existing facilities and delays in new ones,” iSuppli said in a press release today. The firm pointed to aborted attempts by Foxconn, Flextronics and others in trying to get operations there up and running, and noted that while Elcoteq has been building in the country for years, its investment there has been so unprofitable, the telecom EMS tried in vain to find someone to dump it on and finally decided to shut it down.

In its announcement of Yury Kovalevsky as its official representative to Russia and Russian-speaking countries, IPC said the appointment is part of a “long-term plan to expand services and standards globally.” Kovalevsky, IPC said, will make IPC services “widely available to companies in Russia, a market with enormous growth potential for both electronics manufacturing services and printed board production.”

That comes as news to iSuppli.

I’m not saying one side is right and the other is wrong. By outsourcing translations and distribution of its standards, IPC can position itself to make money even if the market doesn’t materialize any time soon.

But it’s hard to escape iSuppli prinicipal analyst Adam Pick’s damning statement: “With the ongoing recession and financial crisis, however, it appears that most of the interest in penetrating the Russian market has disappeared. Furthermore, the historical record for electronics manufacturers operating in Russia has been plagued by multiple problems.”

Pick ticks off a series of reasons: the Russian economy; social and political issues; tariffs and value-added taxes; shifting policies and laws; slow material supply chains and a lack of electronics supply chain infrastructure; inefficient distribution; Russian mobs; counterfeiting rates so high it would make the Chinese blush.

On the other hand, in market terms, IPC is probably buying low. Like I said, timing is everything, right?

The Obvious and Not So Obvious About Yields

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It was Charles Talbert’s first major assignment after graduating from Tech top in his Industrial Engineering class. He was excited and didn’t want to blow it, but how hard could it be? All he had to do was select the contract manufacturer with the best yields. His company, Excalibur, has rapidly become a leader in designing premier laptops and mobile phones. Excalibur’s exciting and highly functional designs have made it the envy of the industry and a great place to work. So Charles wanted to add value by helping Excalibur find the best EMS firm. To make his job even easier, senior management performed preliminary screening, limiting the candidates to two: ACME and AJAX. Charles visited both and found they both had excellent quality systems in place including an effective continuous improvement program founded on statistical process control. It looks like it would come down to the yield numbers.

ACME argued that it was clearly the best choice as it had superior yield in both laptop and mobile phone manufacturing. AJAX argued that, while that was true, AJAX’s overall yield beat ACME’s 96.6 to 95.4% (table). How is this possible? And which vendor would you choose?

Laptops
No. Built Yield (%)
ACME 90,000 95
AJAX 10,000 93

Mobile Phones

No. Built Yield (%)
ACME 10,000 99
AJAX 90,000 97

Overall Yield (%)
ACME 95.4
AJAX96.6

Relisted

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Research firm iSuppli’s Top 10 Global EMS firms list, which came out today, differs in several respects from Circuits Assembly’s findings.

Why? It may be that the iSuppli data for Foxconn take into account non-EMS related sales (the company also produces bare boards and connectors, among other things). Even so, Foxconn itself last week reported 2008 revenues of $42.3 billion.

iSuppli also excludes Cal-Comp Electronics/Kinpo Electronics from its list, despite that company’s contract manufacturing revenues of $3.2 billion last year, which would place it seventh overall.

Finally, iSuppli includes Universal Scientific in its ranking, although the Taiwanese company reports EMS sales of just $490 million in 2008.

When Six Is Really 4.5

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Folks,

In teaching Six Sigma workshops at Dartmouth, we ensure that everyone understands that “Six Sigma,” as presented in the industry, is in fact mathematically 4.5 sigma. So when folks say Six Sigma is 3.4 defects per million (dpm), they are in fact not referring to plus-and-minus six standard deviations from the mean (even though they may not know it), as 3.4 dpm is only 4.5 sigma.

The true six sigma defect rate is 2 defects per billion. The figure shows this error.

Where does this confusion come from? When Six Sigma was developed, it was defined as a Cp of 2 and a Cpk of 1.5. These process capability indices are where the confusion lies. A Cpk of 1.5 permits a shifting of the process mean of 1.5 sigma, hence the true statistical measure of Cpk = 1.5 is 4.5 sigma (or 3.4 ppm). True statistical six sigma (Cpk = 2) is elusive indeed at 2 dpb!

Cheers,
Dr. Ron

Just Say No, IBM!

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Over the years, OEM after OEM has fallen prey to Foxconn, lured by the temptation of higher margins by outsourcing product to the Taiwanese ODM. H-P, Motorola, Dell, Sony and Apple are among the many, many companies that outsource billions of dollars worth of product build each year.

Sadly, IBM, one of the few remaining major holdouts, appears on the brink of ending its streak. Big Blue is set to announce a deal to to codevelop something called “environment-friendly” products.

Pending release of financial terms, it’s unclear what IBM stands to gain from the program.

IBM has ventured down the environmentally friendly path before. In 2007, it committed $1 billion to fund Project Big Green, an effort toward environment-friendly, energy-efficient products and services. This is its first known deal with Foxconn, however.

It shouldn’t happen.

As The Economist pointed out earlier this month, China’s reputation for workmanship remains a negative in consumers’ eyes. “The poor external reputation of China’s products hurts not only Chinese companies but also Western firms known to be selling Chinese-made goods.” Citing last year’s scandals over various Chinese-produced toys, the US and India have passed new laws governing imports from the World’s Workshop.

And myriad stories have cited Foxconn’s dismal and imperialist working conditions.

IBM is America’s crown jewel, the greatest electronics company the world has ever known. Getting in bed with scofflaws like Hon Hai cheapens its luster and diminishes its reputation. IBM should walk away.

UPDATE: Whew! That wasn’t so bad. The Wall Street Journal is reporting Foxconn is licensing IBM’s GreenCert technology for estimating the amount of greenhouse gas emissions pumped from factories. It could have been much worse.

Just 3 Minutes

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Three minutes is not much time. It’s about the amount of time to get a coffee from the vending machine or maybe not quite enough time to visit the restroom. Three minutes doesn’t seem important.

You have probably spent multiples of three minutes looking for a stencil that was misplaced. The job couldn’t get started until that stencil was found. Three minutes, 10 minutes; what’s the big deal?
Let’s say your company has a two-shift, five-days per week operation, and on each shift three minutes is lost each day. Assuming 250 days per year, this is 1500 minutes or 25 hours of lost production time in a year.

How much is this costing your company? Using ProfitPro cost-estimating software that I developed and information in annual reports, I analyzed the typical subcontract assembler’s profitability. It nets out that each hour lost on a typical assembly line is worth about $3500 of production. So 25 hours per year is almost $90,000 of lost production – all because of just three minutes.

And I’ll bet some of us are losing 30 minutes a day.

Standards, How They Should Be Done

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This week at the annual GSMA Mobile World Congress, 17 of the top mobile operators and manufacturers agreed to adopt Micro-USB as the universal charger interface for new mobile phones.

The initiative, says GSMA, centers on having a universal charger interface by 2012. The group further agreed that the majority of chargers shipped at that time will meet the high efficiency targets set out by the OMTP (Open Mobile Terminal Platform). The move could reduce the number of chargers built each year by as much as 50% — a whopping half a billion units.

“The mobile industry has a pivotal role to play in tackling environmental issues and this program is an important step that could lead to huge savings in resources, not to mention convenience for consumers,” said Rob Conway, CEO of the GSMA. “There is enormous potential in mobile to help people live and work in an ecofriendly way and with the backing of some or the biggest names in the industry, this initiative will lead the way.”

This is great news for consumers, who will no longer have to ditch their working chargers every time they upgrade phones.

The initial group of companies that have signed on include AT&T, LG, Motorola, Nokia, Qualcomm, Samsung, Sony Ericsson, T-Mobile and Vodafone, among others. There are a couple big exceptions: Apple and RIM, so far, are not playing ball.
Here’s hoping they eventually enter the fold.

But what’s really nice to see is the number of competitors working together in a way that should lower the end-product and usage costs for the consumer while also enhancing the convenience, all while ensuring millions of old chargers won’t be headed to the world’s landfills. That’s what good standards development should do.