Sun manufacturing fires robots Behind the scenes of Sun's manufacturing unit By Tom Inglesby

August  1996

The U.S. computer industry leads the world in rapid response to customers' needs -- real and perceived. Sun leads its competitors in turning orders into deliverables while increasing inventory and surprisingly decreasing automation.
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To call Sun Microsystems' manufacturing operations far-flung and extensive would be inaccurate. Its two assembly facilities -- in Milpitas, CA and Linlithgow, Scotland -- might qualify it for the far-flung title, but extensive? Not really. The Milpitas facility assembles components provided by outside suppliers -- even SPARC chips are made by Texas Instruments, not Sun -- in two areas: two SMT (surface mount technology) production lines where chips are "stuffed" onto prepared circuit boards, and system assembly lines where cabinets are "stuffed" with circuit boards, power supplies, network cards, and other components. Those elements of the system, desktop or server, that are not internal to the cabinet, such as monitors (from Sony) and keyboards, are shipped directly from the supplier to the Sun warehouse or customer.

Sun follows the precept that its core competencies lie in realms other than building keyboards or monitors from scratch. According to Marissa Peterson, Sun Microsystems Computer Corp. vice president of logistics and former director of U.S. manufacturing, "Our focus is on the value chain, and one of our driving forces is to continually tighten the links between the supplier and the customer. To do that, we need to remove complexities, to understand our core competencies, to push non-core work to outside experts who can do them better than Sun, and to continuously listen to our customers on where we can improve."

Sun's manufacturing strategy stands on several legs: outsourcing the non-core work, reengineering the business information systems, improving the environment for Sun's internal workers, using its own computer systems to greatest advantage. Throughout, the emphasis is on building quality into every product. In 1995, Sun was recognized in this area by the American Society for Competitiveness which awarded the company the Philip B. Crosby Medal for Competitiveness Through Quality.

A key ingredient in Sun's manufacturing success has been its relationships with suppliers. Sun is one of the most supplier-dependent companies in the computer industry. How dependent? About 50 cents of every dollar of revenue -- not cost but revenue -- is paid to outside suppliers. This is a co-dependency situation. Because Sun selects its suppliers carefully and limits their number, each supplier represents more than a vendor, it is a partner. The companies exchange information exhaustively, each knows the others' business intimately. Figures show that as much as 95 percent of Sun's supplier spending, a value exceeding $3 billion, goes to a cadre of 40 companies. "We choose our partners with great care," Peterson claimed, "and have faith in their ability to perform today and invest in tomorrow. By working closely with our suppliers, we have cut lead times for product development, manufacturing and delivery, in some cases by a factor of six or more."

Sun extends its partnership approach beyond the parts arena. It has contracted out its complete logistics operation to three companies. Logistics involve everything from inventory management, distribution, and warehousing, to actual shipping and delivery to customers. These three companies, competitors in their own right, agreed to form an alliance to provide Sun with a unified and integrated world-wide, world-class logistics service. Sun has seen a 30 percent reduction in freight, warehousing, inventory, and management costs due to this partnership.

"As traditional boundaries between Sun and its suppliers give way to strategic alliances," said Peterson, "the most meaningful indicator of competitiveness becomes total cost of ownership. We measure our suppliers on price, certainly, but also on quality, technology, service, and lead time. Together, we work on making all of us better, more competitive."

Not all of the other elements are in place -- some have been "in the works" for several years. Plans have changed many times during those years, leading some people to wonder if the changes represent flexibility or confusion. Throughout it all, Scott McNealy, Sun's often outspoken CEO, has assured friend and foe alike that the company's long term goals are the same: leading-edge technology with the highest quality and performance at a reasonable price, delivered on time and on target. Getting to that goal, however, hasn't been easy.

Shop floor strategy
Visitors to the Sun Milpitas facility two years ago saw a large part of the high-volume desktop assembly building taken up with a complex, computer controlled maze of storage and test cells constructed as a giant matrix-style ASRS -- automated storage and retrieval system -- called the New Automated Desktop Line (NADL). Floor to 20-plus foot ceiling stood a honeycomb of work-in-process storage, reached by automated cranes that moved on tracks between cells -- work groups that perform many operations interactively to assemble a finished, tested, quality-checked product. It was, as Peterson recalls, "Just what you'd expect at the time. Major automation was coming into play at every factory in the world. It was viewed as providing a giant leap in productivity for high volume production. However, what we've found over the years is that high volume is important, but it has to be combined with high flexibility. You have to be able to respond to the customer, the market, the inevitable changes that are going to take place in your product line and product mix."

NADL automated many of the operations involved in the test, burn-in, and movement of systems into the final preparation and delivery areas. It's complex logic and custom design also used a lot of resources in the form of dedicated computers, engineering talent, and maintenance support to keep it up and running.

And, sometimes, it wasn't.

When it wasn't running properly, it ground production to a halt. There was little human intervention possible with the system. If the system was down, no one could climb a ladder to get a certain unit for shipment. Peterson said, "You'd ask an operator for a specific unit, up high on the rack, and he'd have to call a highly-skilled engineer or programmer to change the program to get the unit you wanted. All of that took time, and we want to respond to our customers faster, not have the most awesome looking storage structure in the industry."

So, although it met Sun's volume needs, they felt there was more to be gained. Sun knew it had a great untapped potential in its people, if they could only be given the best tools. This was a case where automation, instead of helping workers, was actually an impediment to improving productivity. Those at the Scotland facility, which didn't have this level of automation, pointed out that it might be unnecessary in California too. The Linlithgow plant is a near-clone operation of Milpitas, producing the same products for European and Asian markets. Since both facilities did the same things, comparisions were easily made.

Multiple factors
One complexity was the mix of work being done in the facility. Not only was high-volume production going on throughout the day, special orders were being run through the same line. And to make things even more difficult, prototypes and new products, in small batches, were taking their place alongside the mass-produced systems.

Shortening cycle times was another consideration in changing the structure of the assembly facility. New product introduction (NPI) at Sun is not a vaporware event. Sufficient product must be available to feed the pipeline at the time of an NPI, but existing orders and stock systems can't be ignored during the changeover. "Time is very important," Peterson explained. "As our product life cycles shorten, we must have the ability to execute NPI routinely. The quality of our new products and prototypes is also very important. We needed a system that could respond to these challenges."

Sun's initial approach was to have multiple manufacturing facilities for high-volume production, for prototypes and small batches of new products, and for low-volume systems that required custom assembly. One word comes to mind: overhead. By consolidating these facilities, Sun could cut its overhead burden and utilize its people better while reducing space and product movement requirements. How they went about that change says a lot about the company's philosophy of developing its flexible, knowledge-based workforce.

Clean sheet approach
Peterson, who joined Sun in 1994, remembers seeing the ASRS and saying, "We've got to get rid of that dinosaur!" Still, the investment was great and the system did do its job, but it was a limited -- and limiting -- one. A task force of workers and supervisors was given a challenge: "You have been complaining about the way things are done, now do something about it." They were given space in one of the assembly buildings and a budget, then told to look at the problem -- not fix what was wrong but figure out how to do right from the start. Unlike most companies with a significant investment in automation and equipment, Sun didn't limit the task force to improving the existing systems. It wanted "clean-sheet thinking." It got it.

"The `Dune' task force [named after the science-fiction novel] tried to keep an open mind, not just say, `throw everything out,'" said member Theresa Casey. "We examined the functions of the ASRS and what it could and couldn't do. From a statistical standpoint, it handled so much information that something was bound to go wrong. And it did. Since everything was hooked to everything else, in a serial fashion, if one part crashed, the whole system was down. The task force took the approach that this was our own company, our own space and our own money to use. We had a production goal, I think the number we used was 400 units per day. What we came up with wasn't elegant and nifty like the automation, it uses people instead of machines in a lot of places, but it works, and it works better. There was more flexibility than the old system."

All the metrics applied to production have been improved with the new system. And although the evaluation, planning, and testing in prototype form lasted a year, the final new assembly system came up in about six weeks at a cost one-hundredth that of the ASRS. Cycle time is faster, failures are fewer, and overall quality is higher.

A tour of the line
Instead of automation, people load kits of parts and send them on simple roller conveyors to work benches where people assemble the desktop systems. Since the most flexible assembly system in the world is an experienced, knowledgeable worker with the proper tools at hand, dealing with product mix is not a problem. Quick tests at the assembly bench weed out the few bad components from suppliers. Units are completed and pushed, manually, down the conveyor to the next station, a burn-in and test pick-up point.

The systems are assembled on "hot pallets" which contain the necessary wiring to interface the system to the test equipment through a single connector on the edge of the pallet. The pallets are manually inserted into a rack stationed at the end of the conveyor. But this isn't a lift-and-load operation. As the units flow to the station, they are pushed into the rack, and the rack shelf is ratcheted a notch to make room for the next system. When the rack is full, the operator can wheel it to the test location, connect it quickly, and let the test program run automatically. Since the rack holds eight systems, and there are many racks, a failure causes only eight, not hundreds, of units to be out of service.

Meanwhile, back at the work bench, the technician pushes a button that signals the area where parts kits are assembled to send another down the line. This is a simple electronic kanban or pull system that lets the worker proceed at his or her pace without products coming down the line, stacking up like jets over O'Hare in a storm. Coupled with just-in-time delivery of supplier parts and subassemblies, these changes mean lower inventory and faster response to engineering and customer requirements.

Bottom-line results
How well has the change from automation to "people power" impacted the bottom line at Sun? According to Peterson, "In the second quarter of 1995, revenue was an amazing $412,000 per employee. Annual inventory turns stood at 11.5, about twice what they were just five years ago. By going to the cell-based, people-oriented manufacturing philosophy, we have improved the numbers that accountants like to see and more importantly, we've improved the numbers that manufacturers like to see."

For comparison purposes, Sun's major competitors had 1995 revenue per employee figures of $319,240 (IBM), $290,858 (Hewlett-Packard), and $223,824 (Digital Equipment Corp.). The elimination of some automation also meant a slight increase in personnel. However, Sun's manufacturing employment is highly variable so putting an exact number to the change is difficult. At peak demand, headcount in manufacturing can be almost double what it is during slower cycles. For example, production employment is given as 350 to 600 by Sun management.

But numbers don't tell the whole story. "We are more flexible, scalable, modular than ever before," Peterson said. "We can run one, two, three cells as the demand requires and partition the cells to concentrate on NPI products without disrupting the flow of a profitable existing line of products. Where Sun had gotten carried away with the notion of automation for everything, we know now that automation should be used to help workers, and not be applied indiscriminately. We have a manufacturing facility that emphasizes some of the same qualities we want in our products: it's simple, robust and of the highest utility and quality. And if demand calls for it, we know that we can add a cell in five weeks. Try doing that with automated systems."

Growth fuels changes
And in fact, growth has required the implementation of additional cells for the server line. Director of U.S. manufacturing Chris Shatara said, "If there is any one word that captures the essence of Sun's server business, that word is growth. Growth has caused us many challenges lately as we ramp up for additional production. For example, our server production has been growing at a rate of 15 percent per quarter; desktops are showing a more modest growth rate at eight to 10 percent annually. With annual production of about 70,000 desktop units and 8,000 servers, we have a continuing challenge to find ways to increase production without increasing space."

"The consolidation of the server line into the same facility with the desktop line and the board assembly, configuration and test operations has made some of that easier," Shatara said. "Space is still an issue, but by removing some engineering offices, we are dealing with it. Instead of adding a third SMT (Surface Mount Technology) board assembly area dedicated to NPI, we have expanded the server assembly operations. Now one SMT line will be dedicated to NPI production and the other to mass production."

Shatara notes that some changes were made to the desktop cell approach to accommodate the servers. "We made the test rack shelves more adjustable to accommodate the different heights of servers. Now we can have five `Scorpions' [SPARCserver 1000] in a rack or two `Duraflames' [Ultra Enterprise 3000] or three `Campfires' [Ultra Enterprise 4000] as needed. There were some other changes but the most visible difference is that the server line is much more cluttered since we are expanding so rapidly. Not that expansion is a bad thing!"

Sell it, use it
Sun puts its computers where its slogan is. "The network is the computer" has stood the test of time. Now it's being put to a real-world test within the company that made the phrase an industry cliche. Recently, Sun outsourced the last of its mainframe-based financial applications, pulled the plug on its big iron and switched the company to client/server systems just like it's been switching customers for years.

What took it so long? In the early 1990s, Scott McNealy admitted that Sun felt leery of doing what it had been counseling others to do, run the whole enterprise on a client/server, Unix-based system. At that time, he felt the hardware was capable but the software was just coming up to speed.

To make the transition, Sun worked another of its partnerships, this time with Oracle Corp., which was introducing new applications aimed at the manufacturing software market and needed a reference site. Since Sun needed robust client/server software designed for manufacturing on the next generation of open systems, these giants of Silicon Valley worked to implement and refine Oracle Manufacturing on Sun servers and desktop workstations. There have been a number of delays in getting the software systems up and running. Planned for staged introduction in the Milpitas facility this summer, the final switch-over is now expected in 1997 at both facilities concurrently.

It's the information, stupid
As McNealy often says, "Information is the major weapon that companies will use to compete in the coming years. You either use information well or lose the battle." If you can measure information use by physical methods, Sun is stockpiling its weapons at a rapid rate. Every aspect of Sun's manufacturing and operations is connected to a world-wide network of Sun systems. There are more than 250 applications -- from order taking and processing to shop floor control and logistics planning -- that control every function from supplier to customer. Sun has more than 22,000 nodes on its network, which might seem surprising for a company of 15,000 employees. But these are numbers, and what really counts is performance.

You'd think that when he was vice president of materials, John Blaine, currently vice president of operations at SunExpress, would have thought in terms of parts and supplies. He didn't. "We don't really manage parts, we manage information," he confided last year. "Managing the appropriate information tells us much more than counting parts. We must constantly inform our internal operations and our external suppliers what our plans are and where we think we are going. To do this better, we have simplified a number of our systems, our ways of doing business. That means we have spent time in reengineering our systems and our approach while implementing the new software. By working with specialty vendors such as Red Pepper Software, we've been able to cut the implementation time in many areas while broadening the scope of our systems. Red Pepper allows us to run optimization and simulations so we can make the right decisions based upon inventory and supplier capacity along with other factors." With an open systems architecture, Sun's system allows players such as Red Pepper to fit in where they offer the best application.

Virtual company
Sun is implementing what some call the "virtual company." Blaine acknowledged that and said, "We have evolved from a do-it-all company to one that leads in sharing information with its suppliers. We have come to terms with letting go of some of the functions other companies hold on to. What we are striving for is a balance that allows us to get the best quality product out the doors as fast as possible to meet customer demands. Getting our suppliers in the process up front and sharing our compete knowledge base with them so they can do what they do best will ultimately give us the results we need."

Going back to the idea of sticking to its core competencies, Blaine concluded, "Supplier management is a core competency for any world-wide, world-class operation. Things like planning, supplier management, information management and new product introductions or product transition management are what we view as core competencies. While sharing information, being open to our suppliers, has some potential security problems, not sharing that information can cause much more of a problem. Again, it's a matter of striking a balance and that's a high priority in our Information Resources group."

Balance is important for a company experiencing the growth that Sun is right now. And balance means being ready to expand...or contract...operations as necessary. In the end, balance and flexibility are going to be synonymous in manufacturing around the world. It is today at Sun.

Resources

• American Society for Competitiveness
  http://www.iup.edu/busins/ascindex.html
• Oracle manufacturing applications
  http://www.oracle.com/products/applications/html/mfg.html
• RedPepper
  http://www.pepper.com
• Sun servers
  http://www.sun.com/products-n-solutions/hw/servers/business.html

About the author
Tom Inglesby is an editor and writer specializing in manufacturing management topics, based in Scottsdale, AZ. Reach Tom at tom.inglesby@sunworld.com.

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