The Challenges and rewards of local manufacturing in Japan
11/01/1998
The challenges and rewards of local manufacturing in Japan
Yoichi Isago, Lam Research Co. Ltd., Sagamihara, Tokyo, Japan
Paul Lindstrom, Lam Research Corp., Fremont, California
Local manufacturing of US products in Japan is not a new concept, but such ventures are unusual in the semiconductor equipment industry. A successful partnership must be able to offer high-performance technology tailored to meet the specific requirements and specifications of the Japanese semiconductor industry.
Lam Research Corp. and Lam Research Co. Ltd., Lam`s wholly owned subsidiary in Japan (see figure), have entered into a manufacturing partnership with Yokogawa Electric Corp. of Musashino-shi, Tokyo, to meet the needs of our Japanese customers. Yokogawa Electric manufactures a wide array of industrial equipment and has design experience and global procurement capability. It will manufacture Lam`s Alliance-based multichamber systems in Japan, while Lam Research Co. Ltd. will continue to provide all customer support, including sales, applications, installation, training, and service. Production in Japan began in August and the partnership will be the driving force in our effort to increase market share in Japan.
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Lam Research Co. Ltd. in Sagamihara, Tokyo, Japan.
Joint venture advantages
Fully configured systems are shipped to Japan from Lam`s manufacturing facility in the US, based on Japanese customer specifications. Lam Japan provides the communications interface between Japanese customers and Lam`s US manufacturing staff for implementing customer applications requirements. Despite this effective approach, there are compelling reasons to move system manufacturing for Japanese customers to Japan. For example, customer perceptions are extremely important. Japanese customers perceive that the quality of products manufactured in Japan is higher than that of products manufactured in the US, pointing to significant differences between American and Japanese quality management philosophy and practices. They also believe costs will be lower for products manufactured locally. Consequently, they prefer purchasing Japanese-manufactured semiconductor tools for their semiconductor manufacturing plants. Other advantages include:
* Japan`s infrastructure for manufacturing and manufacturing engineering is solid and stable. The Japanese are proud to work in a manufacturing environment, making it easier to attract and retain top-level personnel.
* Manufacturing locally makes it easier to customize products to local customers` specifications.
* Local sources for parts reduce equipment and maintenance costs for customers.
* Customer service is faster and more comprehensive with a local presence.
* Product documentation is more precise and easier to use when created in Japan for the Japanese market.
* A local manufacturing presence supports the company`s growth in Japan.
* The risks associated with a fluctuating monetary exchange rate are reduced with a local presence.
In addition, local manufacturing by a Japanese company that is not primarily a semiconductor capital equipment manufacturer has the advantage of size and range of products to absorb the rapid market swings in the industry.
Choosing a partner
Choosing the right partner for a joint manufacturing venture was our most critical decision. Criteria included evaluating potential partners for complementary technologies, compatible management styles, and comparative industry position. Structuring a successful relationship required the advantageous melding of philosophy and practices in manufacturing, sales, service, training, and technology and product development. Add to this the agreements surrounding intellectual property concerns and rights, and the task was, and is, clearly not simple.
A key reason that Yokogawa Electric was our choice for a partner in Japan is its successful track record in partnering with US companies. Yokogawa has long-standing partnerships with firms such as HP, GE Medical, and Johnson Controls, where, for example, air conditioning systems have been manufactured since 1989. Yokogawa Electric has also been involved in several successful partnerships that require clean manufacturing, making it a good choice for semiconductor equipment manufacturing. For example, the company currently manufactures the TS 1000 mixed-signal LSI tester, TS 700 LCD driver tester, and PT 1000 particle analyzer. The company has a global procurement network through which it secures high-quality parts and materials at low cost from the worldwide market. We expect that the partnership between the three (Lam, Lam Japan, and Yokogawa) companies will provide a significant advantage in terms of quality, distribution, and cost of manufacturing.
According to Eiji Mikawa, president of Yokogawa, "Lam Research is a leading supplier of etch systems. We believe that producing Lam`s semiconductor manufacturing equipment will further increase customer satisfaction. We also anticipate synergistic effects from integration of these systems and our existing semiconductor-related products, such as LSI testers, from both the development and manufacturing perspectives. For example, we will be extending our numerical control technology to semiconductor equipment manufacturing."
Implementing our partnership
In conjunction with Lam, Yokogawa Electric will procure materials, handle manufacturing, improve processes, and provide quality assurance for Lam`s Alliance family of multichamber systems. This will allow Lam and Lam Japan to focus on marketing, sales, user support, and technology and process development.
Yokogawa`s manufacturing technique is called the new Yokogawa production system, which eliminates waste by using just-in-time parts delivery, even in high-product-mix and small-lot environments. Yokogawa Electric will apply its advanced numerical control machining technology in manufacturing semiconductor systems and pursue manufacturing process improvements.
In addition to overcoming cultural challenges, implementing the manufacturing of semiconductor equipment, with its narrow specifications, in other countries requires development of a complete series of tightly defined and controlled business processes that can be mirrored in every manufacturing location worldwide. For example, one particular challenge will be to develop an engineering change order system that will work between two factories thousands of miles apart. Managing and documenting engineering changes are well-known problems in any manufacturing system, even one that is small and entirely local.
Implementing the Lam-Yokogawa manufacturing partnership will involve up-front investment of extensive resources in both Japan and the US to work through the technical and logistics problems and develop thorough, effective plans that are transferable to other locations. We believe that careful preparation will ensure long-term success and quality manufacturing.
One specific example of transferring manufacturing to Japan is the sourcing of piece parts. Yokogawa Electric will be manufacturing major modules. Initially, we will ship them parts kits and subassemblies, and they will then progress to building those subassemblies with parts provided by the US factory. Finally, they will move on to procuring parts from their facility.
The US team includes 15-20 Lam employees from our US headquarters in Fremont, CA, who will provide long-term dedicated support for manufacturing in Japan even after implementation has been completed. Essential to developing the set of business practices needed, this group has expertise in a broad range of functional disciplines such as master scheduling, materials purchasing, warehousing, and production engineering. The Yokogawa team includes production personnel and production engineering, materials planning, and procurement expertise. The team will learn about the products and assembly processes and will set up and run manufacturing lines in Japan. The Lam Japan team includes operations and configuration management, as well as purchasing expertise to coordinate build-configuration and system start-up in the field.
From this large and diverse team, smaller, dedicated teams are being established for each process that needs to be developed. Each team includes a representative from Lam Japan, Lam Fremont, Yokogawa, and any other key stakeholders for that process module. Each team will develop the process, document it, and test it. A point of contact is in place among the three organizations for the purposes of troubleshooting and taking corrective action, if necessary. This collaborative effort among the three groups is much more than just a transfer of information and procedures. Our goal is to mirror the US and Japanese manufacturing lines so they can jointly learn about how to implement the highest-quality, most cost-effective, and most consistent manufacturing possible.
In addition to manufacturing processes and testing, other areas requiring significant planning include mass production schedules, the configuration of equipment, and the engineering of custom product specifications for Japanese customers. A few challenging areas being evaluated include:
* managing the supplier base as it moves from existing suppliers to potential new suppliers in Japan, in an effort to source parts for both manufacturing facilities with the best cost and quality. Ultimately, the supplier base will be the same for both the domestic and Japanese manufacturing lines.
* implementing product customization to meet Japanese customers` requirements and fold those requirements into the
standard product. In some cases, it may be advantageous to outsource customization, particularly if the changes are significant.
* standardizing and supporting the many activities and processes to ensure that the geographic distance and the cultural and language differences don`t adversely impact success.
Staffing and training
We are organizing training in major production modules of the overall system to be manufactured. Classes in assembly, test, and systems test processes for a given module are offered, followed by setup of a manufacturing line and implementation of production. This sequence will continue until staff members are familiar with each system module and implementation of production is complete.
For the Yokogawa partnership, we are setting up core teams of Yokogawa employees in the US to learn about the process modules. Each team will then return to Japan and set up a manufacturing line for that module at the Yokogawa facility. Employees will rotate back and forth between Japan and the US: some of the members will stay in the US, and new team members will replace those who are cycled back. This will continue throughout the manufacturing transition over a course of many months as the Japanese employees continue to build more and more of the product modules in Japan.
Yokogawa, with extensive experience in the production of electronics, has already been involved with clean manufacturing for nonsemiconductor equipment, so the company understands its importance for semiconductor equipment. There are, however, some technologies the staff will need to learn, and we will provide extensive training, particularly in the areas of high-vacuum technology and wafer handling. Training will emphasize the assembly techniques for noncontaminated, leak-tight process chambers and the special requirements of wafer-handling robotics.
Differing approaches to manufacturing
The successful blend of two diverse cultures in a productive manufacturing venture can only be achieved after careful comparative analysis. Significant differences between US and Japanese companies can be attributed primarily to differences in management practices and cultural influences. For example, in process control philosophy, Japan`s processes are generally slower and more robust than the same operations in the US. The emphasis is more on reliability and minimizing process variation than on the economy of faster cycle times. Additionally, the Japanese worker takes particular pride in developing manufacturing expertise and having in-depth manufacturing experience. In Japan, a long-term career in manufacturing confers a high level of prestige.
Protecting intellectual property
An underlying concern for any high technology company outsourcing aspects of manufacturing and providing detailed support information is the protection of patents and trade secrets (intellectual property). In this partnership, we have the advantage of working with a company that offers the very best in manufacturing capabilities, but is not primarily a semiconductor equipment supplier. We are only subcontracting manufacturing and the documentation exchanged with our partner is thus limited to the manufacturing activities that Yokogawa will provide. In the end, and of primary importance, we rely on trust and mutual respect based on the established reputation of our partner.
Meeting local needs
The partnership described is an effective approach to addressing competitive issues in local markets. Since every major geographic market has unique requirements, the proximity of the people and resources involved in both delivering and supporting products has many advantages - not the least of which are the use of local language in manuals and full understanding of local users. Manufacturing the highest-quality product at the lowest cost is essential to increasing market share in local markets, and local-area manufacturing is a powerful way to meet those goals. This approach can be used effectively in Japan because of its strong manufacturing infrastructure and expertise.
The past decade has seen a dramatic improvement in Japan`s market accessibility. Joint ventures account for a rising percent of US companies manufacturing affiliate assets in Japan. These partnerships pair companies with mutually complementary strengths and weaknesses to transmit technology and manufacturing skills from one country to the other. Firms in both countries have used joint ventures to acquire technology and manufacturing skills, thus improving or defending their competitive position in world markets. Well-known examples of such successful partnerships include Ford-Mazda for automobile manufacturing and Xerox-Fuji for photocopy machine manufacturing.
A mutually beneficial arrangement
The success of a company and its customers hinges on the inevitable fluctuations of the global business climate. US and Japanese companies can acquire valuable technology, management, and manufacturing skills through joint ventures designed to spread technology worldwide. The favorable balance of advantage generated by a successfully fashioned joint manufacturing venture can provide the ballast needed to sustain success. Yokogawa is held in high regard for its global procurement capability, design, system manufacturing, and wide array of products. As a model for a global manufacturing joint venture, the Lam-Yokogawa partnership meets all of the defining criteria for mutual advantage.
YOICHI ISAGO joined Applied Materials Japan as chief of the Osaka sales office in 1979. He was promoted to director of etch product business in 1986 and deputy VP in 1992. Isago became managing director of PVD manufacturing in 1993, where he established and developed new divisions. In 1996, he became executive VP of the product business group. Isago resigned from Applied in 1997; he is currently president of Lam Research Co. Ltd.
PAUL LINDSTROM received his AASEET from DeVry. He spent 21 years at Applied Materials, where he held various positions, including VP of worldwide manufacturing. Lindstrom joined Lam Research Corp. in January 1998, as VP of global manufacturing operations. Lam Research Corp., 4650 Cushing Parkway, Fremont, CA 94538-6470; ph 510/659-0200, fax 510/659-1560.