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Philippine EMS firm brings 'sophistication' to manual assembly

Posted: 10 Mar 2008 ?? ?Print Version ?Bookmark and Share

Keywords:EMS firm? Philippine industry? manual assembly?

Francis Ferrer: We can add sophistication to manual operation, and that's in the close monitoring of quality and productivity.

Take on China on cost.

This was the challenge that set the wheels in motion for Francis Ferrer when he established EMS Components Assembly Inc. (EMS-CAI) in 2004.

Fondly called the "Father of Philippine Electronics" by colleagues in the industry, Ferrer has logged more than 40 years in the industry. This includes stints as president of the Integrated Microelectronics Inc. (IMI) Group of Companies and the Semiconductor and Electronics Industries in the Philippines Inc (SEIPI). He currently serves as board member of the Philippine Export Zone Authority, Board of Investments, on top of his duties as president of EMS-CAI.

It was after his retirement from IMI, when he was still sitting on its board, when the challenge was presented to Ferrer. He was then lukewarm to the idea of IMI outsourcing some of its business to subcontracting companies in China, believing that it was possible to match China's cost. He then found himself putting out his own money to prove it.

Starting ideal
EMS-CAI was thus established as an electronics manufacturing service (EMS) provider based in Laguna Technopark. The basic concept, as Ferrer said, is that EMS-CAI has to "be better than our customers in terms of productivity and quality to remain competitive and make money." He also said, "In manufacturing, there is always a part that is labor-intensive, low-cost and bothersome for bigger companies. So these are the things we are targeting."

In addition, EMS-CAI had to "create a business model that is cost-competitive and flexible to changes in volume and products." It is also very important that "turn-around time is measured not in days, but in hours," Ferrer pointed out.

Since the work that EMS-CAI takes on is labor-intensive, the labor force has been very important also. Ferrer said, "Our people must be multi-skilled to achieve flexibility." The employees have to undergo at least 45hrs. of training every year. EMS-CAI employees must also know not just their own jobs, but the jobs of those before and after them in the assembly line.

As much as EMS-CAI takes on labor-intensive jobs, Ferrer points out that they are high-tech.

"EMS is largely manual, but there is a way to do manual in a high-tech way. We can add sophistication to manual operation, and that's in the close monitoring of quality and productivity," explained Ferrer, pointing out the key differentiator between EMS-CAI and its offshore competitors.

Perry: [Our people] know the equation: More scraps means less profit for the company, which translates to less bonus for them.

Value proposition
Driving the company forward are its core values of continuous improvement, great customer service, value innovation and competitiveness. EMS-CAI also believes that these values will continue to be the backbone that will drive its future.

In 2004, the EMS-CAI started its operations in a 1,500m2 facility with only 90 operators and three managers. Four years and around 150 million assemblies later, EMS-CAI has proven it could meet the challenge, and has developed a value proposition unequaled by its low-cost rivals in China: quality and productivity.

"In terms of labor cost, China is still generally cheaper. However, to determine pricing, you have to consider cost of labor in relation to output. Since our output is higher, the higher labor cost is offset," Ferrer said, detailing further how his company is able to match China on pricing.

"We also deliver 99.9 percent good products from the materials consigned to us, translating to a loss rate of only 0.1 percent. Since materials account for some 70 percent of product cost, any savings on the material is very beneficial for the client."

"If they send the same lot to China, they not only lose some materials to defective products, they also get a yield of only 70 percent," added Perry Ferrer, business development director for EMS-CAI. "So even if they're cheaper, they lose on quality and productivity."

Floor culture
The emphasis on productivity and quality is most pronounced at the assembly floor.

"There is no such thing as perfect in manufacturing; there will always be defects. It is in how you respond to correct the defect that's important," Ferrer noted. Thus, workers are trained to call the attention of their supervisors when they make mistakes, and to ask for help when they encounter problems. They then try to resolve the matter within 24hrs.

"If the problem reaches our office, it is already costly," Perry said, "so we make them understand that the problem has to be nipped at the bud right there. There is no punishment if they admit they made a mistake, because then there is a chance to correct the problem before it gets bigger. Our people know the equation: More scraps means less profit for the company, which translates to less bonus for them."

Perry admits though, that having a young workforce ranging in age from 18 to 24 years can bring its own problems.

"Imagine the discipline that they have to use," he explained. "The worst part is that you promote one 20-year-old to group leader to manage a line of 12 who are the same age bracket. We put them in a situation that's very foreign to them." This is why training is very important.

Another notable lesson that EMS-CAI has learned is that it makes sense to hire engineering graduates from the provinces. Ferrer noted that they are "hungry for success, they want to prove themselves. They stick with you, and as long as you recognize them, they take pride in their work."

With so many employees, their evaluation is very important. "When you have 1,700 employees, you need to track the performance of every employee," Perry said, introducing the company's joint venture with Vietnam-based GlobalCybersoft Inc. "Not only are we an assembly, we are developing software for the electronics industry."

While there are "lots of financial and planning software, we need ground-level human resources software." Perry reported that the joint venture has been established as QMSoft Inc. and it is now benchmarking software that will eventually be leased to small electronics companies that would not be able to afford to purchase similar software.

Sharing mentality
Leasing the software would be part of EMS-CAI's social responsibility. "Part of our social responsibility is to share our expertise with other Filipino companies," Perry said.

Ferrer elaborated that their operation does not require a lot of money because the customers supply the equipment and the materials. "However, we have systems and procedures that we have established successfully in our model. If there are other Filipino entrepreneurs who would like to have a look, if our model can be replicated by other Filipinos, okay." And both Ferrers agree that as of now, they have no real competitors in the Philippines.

Time to grow
EMS-CAI's focus on quality and productivity has paid off. The company last year chalked up a growth figure of close to 25 percent, although the foreign exchange slump impacted its actual revenues.

Growth is not simply getting a lot of customers though. While all companies strive for growth, it is surprising to hear Perry say, "Getting a lot of customers, we don't want that."

However, the statement makes sense when he clarified that, "It's very difficult to sustain and give the same level of service as we are giving our existing customers."

These customers include IMI and Japanese big names such as Panasonic, Toshiba and Sanyo.

"Last year, we trained our people, and so this year we are ready to grow," Perry further explained.

And this year the company expects 20 percent growth, provided that the foreign exchange remains stable. This means an increase to PhP 500 million in 2008 from PhP 400 million in 2007. This is to be driven primarily by the expected ramp up in Blu-ray capacity and a few select new customers.

This expected growth is highlighted by the February inauguration of EMS-CAI's new 4,300m2 facility also in Laguna.

A workforce beef-up is also in the pipeline. The company currently has 1,700 personnel, with 900 more expected to come onboard this year, according to Noel Pagtalunan, manager of human resources administration. About 400 will be assigned to the Blu-ray expansion.

The Filipino-owned EMS provider was awarded its ISO 9001:2000 Quality Management System certification by SGS Philippines Inc. The certification, valid until July 2009, covers manufacturing and inspection of parts for optical disk drive and manufacturing and inspection of coil assembly.

With the market for electronic subcontracting showing no signs of slowing down, EMS-CAI is a company to watch out for, as the saga of this Philippine EMS firm has not yet seen its climax.

-EE Times-Asia

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