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Management Science and Engineering ISSN 1913-035X [Online]
Vol. 7, No. 3, 2013, pp. 111-117 www.cscanada.net
DOI:10.3968/j.mse.1913035X20130703.2554 www.cscanada.org

Manufacturing Excellence: A Case Study on the Improvement Journey of

Operations Management

YUAN Jia[a],*

[a]
School of Management and Economics, University of Electronic in LP. It produces miniature standard surface mount
Science and Technology of China, Chengdu, China.
* semiconductor consisting of transistors and diodes. The
Corresponding author.
products are used in electronic equipment, automotive
Received 11 April 2013; accepted 10 June 2013 industry, communication systems, broad band data
technology, computer and consumer electronic products,
etc. Operation management is the management of all the
Abstract resources and activities necessary to provide the market
This case illustrates the operations management with tangible goods and services (Chase, 2004). This
improvement journey of LP Semiconductor Co. Ltd. includes the systems and operations which creates and
What the teaching case describes includes strategic thrusts delivers the firm’s or the supply chain’s primary product
and priorities of improvement, design of operations, of services. It also includes the activities of planning,
managing of operations, and adaptation of operations. organizing, and controlling as well as the system design,
With the information provided by the case, participants operation and improvements in order to maximize the
could discuss the current situation and action for relationship between demand and supply. This case will
continued improvement from all dimensions of operations analyze the current situation and improvement areas of LP
management. From the teaching case, participants could Semiconductor Co. Ltd from all dimensions of operations
learn how to use the theories and methods of operations management.
management in actual business practice in order to
achieve the ultimate goal of manufacturing excellence. 1.2 Value Creating System of Industry
Key words: Case study; Operations management; Raw
Assembly Testing Wholesales
End product
Joint venture; Performance materials maker

Figure 1
YUAN Jia (2013). Manufacturing Excellence: A Case Study on the The Value Creating System in Semiconductor Industry
Improvement Journey of Operations Management. Management Science
and Engineering, 7 (3), 111-117. Available from: URL: http://www.cscanada. Regarding to LP, it is in Assembly and Testing, and the
net/index.php/mse/article/view/j.mse.1913035X20130703.2554 internal value creating system is:
DOI: http://dx.doi.org/10.3968/j.mse.1913035X20130703.2554
Raw Assembly &
QA Inside shipping
materials testing

Figure 2
The Internal Value Creating System of LP
1. INTRODUCTION
1.1 Introduction of LP Semiconductor Co. Ltd 1.3 Transformation Systems
LP was found on March 1st 1995. It is a joint venture LP is a manufacturing plant in semiconductor industry,
invested by ON Semiconductor and Ls Radio Company. which can be categorized as material processor, not as
As one of the most excellent semiconductor centers in an information processor or service processor. The plant
China, the company has been invested by more than produces semiconductor products, such as audion, diode
500 million dollars. There are two Final Assembly- and IC for manufactory of automobile and electronic
Test plants and one wafer fab in the company. Till product. In the process of producing, the WIP physical
now, there are more than 2000 employees are working goods are transferred from assembly to testing, then to

111 Copyright © Canadian Research & Development Center of Sciences and Cultures
Manufacturing Excellence: A Case Study on the
Improvement Journey of Operations Management

QA, shipping warehouse, finally deliver to customers, engineer recourses and better geographical positions to
who are composed of companies of automobile (Delphi), attract technical talents. At the same time, they also have
electronic equipment ( Motorola, Nokia) and computer lower transport cost. The entry of local competitor triggers
appliance (Haier, Changhong), all of them are physical more fierce competition than before. Many competitors
properties. continue to develop new products and introduce new
technology on their products, such as using copper wire
1.4 Products & Services
instead of gold wire, producing in large amount on lead-
LP’s products are semiconductor components with the free components and provide total solution with lower
following characters: tangible, can be stored, production cost and high quality and reliability. It will be difficult
precedes consumption, low customer contact, can to attract new customers and retain current customers
be transported, quality is evidence. So we can think without new technology. Finally, it is hard to recruit
it produces “pure” goods, the operation output from qualified talents with high skills and retain them.
process is product. It also provides the service according
to demand by customer, such as quality issue analysis, 1.6.2 Dynamics
production line control system audit, etc. It is highly recommended to develop products with better
reliability and environmental protection to improve
1.5 Topology in Terms of 4Vs’ competition ability, which will challenge the internal
Regarding to the 4Vs (Volume, Variety, Variation and ability of R&D. It is hard for the competitors to enter the
Visibility), all dimensions have implications for the cost threshold of semiconductor, so the quantities of companies
of creating our products and services. The 4Vs analysis of participating in competition do not impact uncertainty a
LP is shown below, and the graphical analysis method is lot.
according to Slack (2001). From the technological perspective, inventions are
developing fast. Some competitors rapidly put into a large
amount of manpower and materials and strengthen new
Low Volume High development of products in order to introduce their new
technology on production line.
High Variety Low More and more international semiconductor entered
Chengdu, which is the capital of the Sichuan province.
Leshan is just a small city, so some skilled talents leave it
High Variation in demand Low
and search for more job opportunities in Chengdu. It has
already brought high level management’s attention to find
High Visibility Low a way to reduce brain drain and retain the talents.
1.6.3 Uncertainty
Since China joins WTO, local companies have more
Figure 3
The 4Vs Analysis of LP choices to select the suppliers from domestic and
international market with fair price. International
From the figure above, currently, it has high volume, companies can choose Chinese companies as their
low variety, low variation and low visibility to keep supplier as well, so the chance and risk coexist together.
processing cost down. Volume is high because of its high More and more multinational semiconductor
repeatability and systemization; variety is low because it companies are successful in China now, and the other
is routine and standardized; variation in demand is low international companies which do not enter Chinese
because it is stable and high utilization; visibility is low market may start to establish their local factories. In the
for the standardized manufacturing. meantime, the companies which already had production
lines in the developed regions of China may setup new
1.6 External Environment of the Organization
plants in the southwest of China due to low production
1.6.1 Complexity cost.
More and more customer in automobile, electronic/ The current customers may lose and it will be difficult
communication equipment and computer focus on to develop new customers if the competitors release new
environment-friendly product, small volume, and small high-tech products, because new technology introduction
power consumptive products, not merely quality. It is under high uncertainty.
requires that this type of products to meet the requirement Since China’s reform and opening-up in 1978, people
of customer should be introduced by strong R&D support. change their jobs more frequently than before, especially
Before, the primary competitor is outside of China, the after the reform of state-owned enterprises. The primary
advantage is lower cost comparing with the competitor; reason is that they continue to look for job opportunities
but right now, some semiconductor plant were established with higher salary, which will be in conflict with cost
to produce the same products in China with better reduction of manufacturing plants.

Copyright © Canadian Research & Development Center of Sciences and Cultures 112
 YUAN Jia (2013).
Management Science and Engineering, 7 (3), 111-117

Table 1
Characterization of External Environment
Item Customers Competitors Technology Labor Communities and other
stakeholders
Complexity Moderate High High High Moderate
Dynamics Moderate High High High Moderate
Uncertainty High High High Moderate Moderate

2 . S T R AT E G I C T H R U S T S A N D 1) Quality: it requires to do things right.

PRIORITIES OF IMPROVEMENT 2)Speed: it requires to do things fast
3)Dependability: it requires to do things on time
2.1 Business Unit Strategic Thrusts 4)Flexibility: it requires to be able to change what we
The strategic leadership field is rooted on Hambrick and do
Mason’s (1984) article. To achieve a long term competitive 5)Cost: it requires to do things cheaply
advantage, LP lists the following addressed primary 6)Quantity: it requires to have a necessary capacity
action-oriented issues to be resolved: people development 7)Innovation: it require to meet the potential
and commitment towards excellence; excellence towards requirement
perfection in manufacturing; develop next level of We can use the following matrix to scale how the
leadership via people development; develop technical above factors are important to LP by score. The graphical
competent engineers/technicians to drive productivity analysis method is according to Slack (2004).
via TPM (Lean 6 sigma); industrial Engineering BB and
GB, benchmarking activities and engineering excellence; Table 2
provide timely feedback to better manage manufacturing Importance/Performance Rating on the Nine-Point
Scale
operations; ensure at all times safety/health/environment Performance objectives 1 2 3 4 5 6 7 8 9
is in total compliance. Quality I P
Speed P I
2.2 Strategic Operation Unit Dependability P I
Flexibility P I
2.2.1 Polar Representation of Operations Performance Cost I,P
Objectives Quantity I P
Innovation I P

Volume
100 Remark: I—Important rating; P—Performance rating
80
Variety Efficiency (cost) The importance-performance matrix
60 Current
40 Future Good 1
20 Better than 2 Excess? B E A
3 C ^
Dependability 0 Functionality (quality)
Performance 4 Appropriate F
against Same as 5
competitions
6 +
7 D
Reliability Flexibility 8 Improve G Urgent action
Worse than 9
Bad 9 8 7 6 5 4 3 2 1
Speed

Figure 4 Less Qualifying Order

Polar Representation of Operations Performance important winning

Objectives Low Importance

for customers
High

Remark:

2.2.2 Performance & Important Matrix A indicates “Quality”

B indicates “Speed”
Before we identify the priority of performance objects, we C indicates “Dependability”

should know what the competitive factors are, what the D indicates “Flexibility”
E indicates “Cost”
competitor influences are, and then we can determine the F indicates “Quantity”
priorities to improve. G indicates “Innovation”

Competitive factors are basically is what our

customer’s requirement is or what their concern are. Figure 5
Generally, customer focuses on the following seven The Important-Performance Matrix
factors, which are also its performance objectives:

113 Copyright © Canadian Research & Development Center of Sciences and Cultures
Manufacturing Excellence: A Case Study on the
Improvement Journey of Operations Management

From the above, we can see that quality, speed, A. High volume/ low variety: LP produces
dependability, quantity and cost fall into “Appropriate” semiconductor components of over 100 million one week,
area, flexibility falls into “Improve” area and innovation and different varieties of products do not affect the basic
falls into “Urgent Action” area. So “innovation” should production process, so the variety is low.
get the highest priority, especially when compared with B. Repetitive: It produces one type of package on a
others. production line.
C. Large predictability: The output is based on the
capacity of production line.
3. DESIGN OF OPERATIONS
3.3 Design of Operations Network
3.1 Design of Products/Services 3.3.1 Forward/Backward Integration
Current Situation Current situation:
It currently focuses on producing common The following figure shows the current direction,
s e m i c o n d u c t o r c o m p o n e n t s b a s e d o n d i ff e r e n t extent and balance of vertical integration for LP.
requirements from customers.
A. Concept generation stage Domestic
At this stage, the ideas are basically from research and
development (R&D) engineers. R&D is responsible for
Raw material Assembly and Wholesales End customers
developing new knowledge and ideas in order to solve suppliers testing (internal)
particular problems or to grasp an opportunity. Narrow process span
B. Concept screening stage International
At this stage, it will detect whether the idea could be Wide process span

deployed based on the local resources, including both Backward

vertical Forward
hardware and engineer capacity. Then it will do necessary integration vertical
evaluation on acceptability, feasibility and risk. integration

C. Preliminary design Figure 6

At this stage, engineering department will define the The Current Direction, Extent and Balance of Vertical
standard procedures and processes exactly, such as the Integration for LP
specification, what BOM (Bill of Material) will be used Currently, most of the key raw material suppliers are
and how to adjust machines to produce the new package. from outside of China, and it can not be changed in a short
D. Evaluation and Improvement term. It only has one supplier for some raw materials, so
At this stage, the engineers from R&D department will it is out of control on the cost and risk. For the shipping,
analyze the new package together to determine whether since all finish goods are delivered to internal distribution
it is possible to improve something or it could be run center in Singapore, it is easy to handle this direction.
according to the current equipment capacity. Issue and actions:
E. Prototyping and final design Refer to the position in BEG and current situation,
At this stage, the EBR lots for new package will be the major thing should be considered is how to control
put into production to produce engineer prototyping, and wide raw material suppliers with good indicators on cost,
then the devices of the EBR lots will be sent to a special quality and timing. Many multinational companies invest
lab for professional parameters testing. Finally, the formal manufacturing plants in China and the local factories
procedure for new package will be developed. are growing fast, so it should plan to seek qualified
Issues to improve local suppliers for raw materials and it will be helpful to
According to the importance-performance matrix, it improve business performance.
should take action to improve flexibility and innovation 3.3.2 Location Decisions
ability immediately. Machines could be improved to
Current Situation
produce different devices/ packages with small adjustment
A. Land Cost: Leshan is a small city, and the land
in a short time. More training could be provided for
cost is cheaper than that of Chengdu (capital of Sichuan
employees from NPD (New Product Development)
Province).
department, and the engineers could be sent to other plants
B. Labor Cost: The life cost in Leshan is much cheaper
to study new knowledge and technology.
than that of Chengdu, therefore, the labor cost is lower to
3.2 Selection of Process Type employ the same skilled people.
LP is in manufacturing process type with high volume C. Energy Cost: There is a big power station in
and relatively narrow variety, so it could be considered as Leshan, and the lower price for energy promised by the
mass production. The reasons are described below: local government supports the development of LP.

Copyright © Canadian Research & Development Center of Sciences and Cultures 114
 YUAN Jia (2013).
Management Science and Engineering, 7 (3), 111-117

D. Transportation Cost: Both raw materials and finish E. Community Factors: Since LP gets strong support
goods must be transported from or to Chengdu airport, from the local government, some preferential policies are
and the cost is high. published for LP specially, such as low tax rates.

Table 3
The Comparison Table with Chengdu
Land Cost Labor Cost Energy Cost Transportation Cost Community Factors
Leshan low low low high normal
Chengdu high high normal low good

Issues and Action

The current issue is that the high skilled talents are B. Information-process: It has established infrastructure
not enough. There is only one university in Leshan, so it on both data and voice communication, such as LAN (local
is difficult to recruit qualified electronic engineers from area network), WAN (wide area network), VPN (virtual
local market. To solve the problem, we should keep good private network), internet connections and internal PABX.
relationship with related universities located in Chengdu, Issues
create student sources focusing on those students whose Although it is doing well on both material-process
family is in Leshan, and encourage them to find jobs in and information-process, some independent and old
Leshan after their graduation from universities. systems make it difficult to integrate data to e-commerce
3.3.3 Balance of Capacity application, which is managed by the corporation in the
Current Situation US. Many interface programs are hard for maintenance
Its capacity strategy can be considered as capacity cushion and should be developed.
strategy, it is “Lead demand”. Local managers review the Action to Improvement
capacity vs total output and the trend of demand in every Currently the business relies heavily on internet
monthly operation review. Recently, the utilization is near technologies, those old systems which cannot or are
100%, which means there is no more time to do machine difficult to exchange information with new systems should
PM. be eliminated, and the old database with SQL database
Issue and Action should be replaced. It will strongly support decision
As recently the run rate is near 100%, it is a risk that making system and serve customers better.
machine may be out of service. The above discussion is
about the current phase in BEG, and the current immediate
action is to make innovative products for performance
4. MANAGING OF OPERATIONS
improvement. 4.1 Work Organization & Job Design
Improved capacity management drives cost efficiency
in operations and enhances asset utilization (Hahn & Current Situation
Kuhn, 2012). Currently the corporation is in the stage of
In order to avoid the conflict, LP should manage an “Empowerment”, and expected future positions are
appropriate inventory to free some machines; PM can be located at “Flexible Working” and “Self-Organization”.
done, and EBR could also be run for new testing lots to The following addressed how LP applies the key
improve performance. elements of job design currently:
A. Combining task
3.4 Process Technology LP provides necessary skill trainings to help people
Current Situation meet the basic job requirements. But some trained skills
It covers materials-process and information-process, but may not apply to their working areas. When people are
does not cover customer process. assigned to different jobs that they have been trained, they
A. Materials-process: It has implemented Computer still do not like it and just do their job, so there is still a
Numerically Controlled machines to control a machine lack of motivation.
instead of by hand, and all actions of equipments are B. Establishing client relationship
controlled by programs integrated in machines. Assembly Top management teams think that it is important to
robots do accurate position operation for components keep good communication with employees, and it sets
and complete products. This technology reduces up management dialogues with operators, apply “open
incorrect operation by operators. Computer-integrated door” culture and issue company newspaper to report
manufacturing is deployed in the whole plant since 1996, major events and publish company’s policy, communicate
which helps to monitor and control all aspects of the with all employees once a quarter. All these create a good
manufacturing process. communication environment.

115 Copyright © Canadian Research & Development Center of Sciences and Cultures
Manufacturing Excellence: A Case Study on the
Improvement Journey of Operations Management

C. Opening feedback channels 4.3 Supply Chain Management

It established feedback channels mainly through HR
4.3.1 Push Control & Pull Control
department.
Current Situation
Expectation in Future
The current situation of LP is pull control. LP is a joint
In the future, it will strive toward to be empowerment
venture, most of the systems are independent in local,
stage. Employees must have enough knowledge or skills
and are not integrated into ONSemi’s system. But it
to establish the stage of empowerment, flexible and self-
is important to follow ONSemi’s process to produce
organization in the corporation. For example, IT engineers
according to orders. ONSemi has deployed ERP globally,
just focus on the IT system deployment and maintenance
the inventory of wafer is in ONSemi, but other BOM
now. But in the future, they must understand how to
is in local system, so the local system has to meet the
link the advantage of IT to business, and create IT basis
requirement of ONSemi. Cachon (2004) shows that: with
application to help business unit to improve productivity.
a push contract there is a single wholesale price and the
This requires people to have enough knowledge and
retailer, by ordering his entire supply before the selling
strong team spirit. To achieve the goal, more training
season, bears all of the supply chain’s inventory risk; a
will be provided to employees to improve their technical
pull contract also has a single wholesale price, but the
knowledge and skills. The job description will be designed
supplier bears the supply chain’s inventory risk. At the
with more clear statement, and everybody knows the
same time, the operation process is based on the standard
responsibility clearly.
procedure on the production line. The internal customers
4.2 Nature of Planning and Control just accept the products from form-end, they accept what
The planning and control of LP is the process of the form-end provide to them.
reconciling demand with supply, so the nature of planning Expectation in Future
and control depends on both the nature of demand and With the BB (Black Belt) and GB (Green Belt) projects
supply. start, the pace and specification of what is done will be
Current Situation set by the “customer” workstation. “Pull” work is from
Since the total outputs of products are based on the order the preceding workstation, which is in opposite direction
distribution by ONSemi global marketing planning comparing with “push” (Wikner et al., 2007). demonstrate
department, the demand of LP is dependent. Global that it is possible to mix push and pull inventory systems
planning will allocate the orders from customers or are to satisfy customer demand at various levels of production
forecasted by the marketing department based on total variability. It is important to compare the two outsourcing
planning and operation capacity. For example, when global structures under a push contract (whereby orders are
planner gets an order from the customer, as ONSemi owns placed before demand is realized) and a pull contract
another assembly/testing plant in Malaysia, the planner (whereby orders are placed after demand is realized).
will log into the system to evaluate and decide which 4.3.2 Integration Trend in Supply Chain
plant to finish the order. Sometimes, the planner should The supply chain integration is becoming the trend
balance it between LP and the Malaysia’s plant. When according to the current marketing requirement. The
the planner finishes the order distribution, the amount of reasons are:
related raw materials will be generated automatically in A.Information share: Both the customer and supplier
the planning system, a notification message will be sent to share necessary information together to benefit both. If
the local planner, and the LP local planner will release the information is available and is shared throughout the
purchasing request to the purchasing department. chain, all the operations can monitor the true demand.
For the order sequencing, LP follows the sequence B.Vendor-managed inventory: Even when using the
below: same information, differences in forecast methods or
A. Customer Priority: The order from the important purchasing practices can lead to fluctuations in orders
customers will be considered first regardless of its volume. between operations in the chain. In order to avoid it,
B. Due Date: The objective is to deliver products to the one way is to allow upstream supplier to manage the
customers on time. inventories of its downstream customer.
C. FIFO (First In First Out): LP follows this for normal 4.3.3 MRP & JIT
orders.
Current Situation
Expectation in Future Currently, LP does not have MRP system. The traditional
Currently LP’s planner just follow the notification by control method used in Western countries has been
email from ONSemi to do planning, the information is material requirements planning (MRP) (Anderson et al.,
not enough to help them to generate deep report for local 1982). In the 1970s, just-in-time (JIT) technology was
management. So it is expected to setup a planning system successfully developed in the Toyota Motor Company of
to track more information needed to control the orders Japan (Sugimori et al., 1977; Kimura & Terada, 1981).
better.

Copyright © Canadian Research & Development Center of Sciences and Cultures 116
 YUAN Jia (2013).
Management Science and Engineering, 7 (3), 111-117

JIT is a pull system basically. LP has deployed LSS (Lean Expectation in Future
Six Sigma) in the whole plant, and there are over twenty Trainers could learn new ways to make the class
project teams to focus on lean production in order to interesting and fun, and more on-job training could be
improve productivity and reduce cost. Managers simply provided.
process with lean tools to make internal and external
satisfaction. It not only makes effective process, but also
has a good inventory control. At the same time, activities CONCLUSION
of CI teams help to improve the productivity in the The teaching case uses the theory and methodology
production lines. regarding to operations management to analyze the current
Expectation in Future situation, and then come up with the corresponding
JIT activities could not be limited to the manufacturing solutions to the existed problems for improvement.
department, but be deployed in other departments as well, Future discussions could focus on the areas of managerial
especially in supplier chain. Poor inventory will cause coherence (leadership, decision making) and formulation
unpredictability in an operation, and unpredictability of operations strategy.
causes waste.
REFERENCES
5. ADAPTATION OF OPERATIONS Anderson, J. C., Schroeder, R. G., Tupy, S. E., & White, E. M.
(1982). Material requirements planning systems: The state
5.1 Knowledge Management of the art. Production and Inventory Management, 23(4),
Current Situation 51- 66.
LP pays more attention on knowledge management. Cachon, G. (2004). The allocation of inventory risk in a supply
A committee named T&E (teaching and education) is chain: Push, pull and advance-purchase discount contracts.
responsible for knowledge introduction, which is directly Management Science, 50(2), 222-238.
managed by HR manager. Some technique courses related Chase, R. B., Jacobs, F. R., & Aquilano, N. J. (2004). Operations
to product are introduced for production engineers and management for competitive advantage (10th ed.). New
technicians, such as technical ladder, TPM introduction, York, NY: McGraw-Hill.
and technical paper forum. Special training lab is Hahn, G. J., & Kuhn, H. (2012). Value-based performance and
established for the operators, such as general electronic risk management in supply chains: A robust optimization
knowledge training, and some excellent operators could approach. International Journal of Production Economics,
design the training courses to share their experience. 139(1), 135-144.
Basic management skill training courses are designed to Hambrick D. C., & Mason. P. A. (1984). Upper-echelons: The
train managers, such as how to do a presentation, how organization as a reflection of its top managers. Academy of
to manage a meeting, how to manage a project and how Management Review, 9(2), 193-206.
to communicate with their team and boss. Knowledge Kimura, O., & Terada, H. (1981). Design and analysis of
sharing and introduction of the company about culture and pull system, a method of multistage production control.
the industry standard is designed for all employees. For International Journal of Production Research, 19(3), 241-
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requirements and procedures are provided to employees to Slack, N., Chambers, S., & Johnston, R. (2004). Operations
know the details. Management (4th ed.). London: FT Prentice Hall.
Expectation in Future Sugimori, Y., Kusunoki, K., Cho, F., & Uchikawa, S.
In the post-industrial era, the success of a corporation lies (1977). Toyota production system and Kanban system
more in its social assets—its corporate IQ and learning materialization of just-in-time and respect-for-human
capacity—than in its physical assets (Zohar, 1997). It system. International Journal of Production Research, 15,
should pay more attention on the feedback to improve 553-564.
knowledge introduction. T&E committee should help Wikner, J., Naim, M. M., & Rudberg, M. (2007). Exploiting
introducer to update knowledge to the team level and the the order book for mass customized manufacturing control
organization level. systems with capacity limitation. IEEE Transactions on
Engineering Management, 54 (1), 145-155.
5.2 Motivate Learning & Sharing of Information Zohar, D. (1997). Rewiring the corporate brain: Using the new
Current Situation science to rethink how we structure and lead organizations.
Currently, most of the training courses force employees San Francisco: Berrett-Koehler.
to participate, and it is difficult to achieve the objective of
the training. On the other hand, in order to develop good
training courses, LP awards good trainers every year.

117 Copyright © Canadian Research & Development Center of Sciences and Cultures