For Trimming Costs, Look to Product and Process Design

When it comes to cost management, the focus has been on the shop floor. There's no question that tweaking quality controls at the manufacturing level boosts yield, the number of units produced correctly the first time around. But in the last few years, managers and academics alike have started to look elsewhere for output gains.
What's missing from an exclusive focus on the
factory floor is the much larger potential to build
quality, cost reduction, and faster assembly time into the front-end product and process design, says the Business School's George Foster. Working with Leif Sjoblom of the International Institute for Management Development in Switzerland, Foster recently examined quality yields at Solectron, a Silicon Valley printed circuit board assembly manufacturer. "Most existing productivity and quality programs overemphasize the shop floor and dramatically underemphasize process and product design," says Foster, who is the Paul L. and Phyllis Wattis Foundation Professor of Management.
Foster and Sjoblom combined three techniques in their research. First, they looked at actual yield and run-time data at Solectron to determine if longer production runs had better yields than short runs. Traditional learning-by-doing theory suggests that yields should be better in long production runs because glitches are worked out early, with time left for high-yield production. But the data collected from Solectron showed that even its short-run production lines achieved high-quality yields.
Second, the researchers conducted interviews with managers at Solectron to find out why the shorter runs achieved equally high yields. They found that the company had paid a great deal of attention to planning, production design, and assembly configurations before manufacturing ever got under way. Solectron has also increasingly advised its customers, who bring custom circuit board designs to Solectron for manufacturing, about which blueprint features produce the best first-time-through yield rates. "This kind of infrastructure development in the early stages promotes lower cost and better quality," says Foster. "It combines training and greater investment in design for ease of assembly, ease of testing, and improved functional aspects of the product."
Third, to determine if their conclusions might be relevant to other corporations, the researchers distributed questionnaires to 232 managers in other electronics companies. "The message that came through in the plant interview and the survey is that product and process design offer large amounts of leverage in improving quality yield rates," says Foster.
Foster and Sjoblom conclude that design, production, and marketing need to be tightly integrated
for cost management gains. Team-based salary incentives, in which compensation is tied to improved yields and marketing of the product, encourage product designers, process engineers, manufacturing managers, and marketing personnel to all work together for cost efficiencies. --BB

"Quality Improvement Drivers in the Electronics Industry," George Foster and Leif Sjoblom, Journal of Management Accounting Research, Vol. 8, 1996