Advanced Circuits Inc. - Changing Conditions for PCB Industry in the Early 1990s
Changing Conditions for PCB Industry in the Early 1990s
PCB manufacturers located in the United States were starting to be squeezed out of the market by offshore companies, particularly in Taiwan, that could take advantage of cheap labor. The situation was exacerbated by a downturn in the economy that crippled the PCB industry in 1991 and 1992, just as Advanced Circuits was beginning to establish itself. During this period the number of domestic board makers fell from 2,500 to just 700. It was in 1992 that Advanced Circuits reached a major turning point. The company either had to learn to adapt to business conditions or perish. Huston recognized that the company could take advantage of its location to offer faster service to U.S. customers. Overnight delivery of PCBs made in Asia took at least two days, and at the time at least one week was needed to complete a project on a quick turnaround basis. Unable to compete on larger contracts with long lead times, Huston concluded at the beginning of 1992 that he could drum up business if he could offer three-day turnaround, something that was impossible for larger board makers due to their high set-up costs. Moreover, because there was no language barrier, Advanced Circuits would be able to offer personalized service.
Over the course of the next year, Advanced Circuits reorganized its production routines to minimize the amount of time a board lay idle. While a project might only require 20 hours of manufacturing, it could sit unfinished for several days. The first step the company took was to institute batching, so that a number of jobs were combined in the same production run. Not only was time saved, but the use of materials was optimized, leading to lower costs that could be passed on to customers in the form of savings. Next, as he recounted in an article he wrote for Logistics Today, Huston "spent the entire month of July spreadsheeting. My living room was covered with spreadsheets experimenting with every possible combination of lead-time, order size and engineering assumptions (based on three jobs per batch). My objective was to discover the optimum combination of lead-time and order-size variables that could be priced attractively and be of no interest to big offshore providers." His conclusion was that Advanced Circuits should concentrate on prototypes, which were needed quickly in limited quantities and often required clarification on design specifications, a factor that played to the company's advantage in language compatibility. In the words of Huston, "We stopped fishing for whales and started fishing for minnows."
In November 1992 Huston mailed out some 5,000 brochures to potential customers, pitching Advanced Circuits' quick turnaround, promising that boards would be delivered on time or they were free. To make the offer even more attractive, the company accepted credit cards for the work. The response was immediate and strong: the telephone began ringing with new orders, making it necessary for Huston to hire his first sales associate. To achieve success with its new strategy, Advanced Circuits eventually broke down the manufacturing of PCBs to 20 processes. Although automated, they were complex and required oversight. The status of each order, where it was on the shop floor and how it stood against the deadline, was closely monitored. At the start of each day product managers and senior managers took stock on where they stood with orders.
Advanced Circuits began a string of profitable years, as it continued to exploit gaps in the offshore PCB manufacturing business model. The making of prototype PCBs accounted for 10 percent of the company's business by the end of 1993, an amount that would reach 50 percent a decade later. The rest of the company's business was in limited production runs. The sweet spot for the company's success lay with orders of ten units or less needed within a week.
As Advanced Circuits grew, it hired an increasing number of people, and Huston displayed an innovative way to manage people that resulted in company loyalty and an extremely low level of employee turnover. He was good at establishing goals that, if met, rewarded employees, sometimes with money and sometimes in less tangible ways. In 1998, in order to increase daily sales from $28,000 to $30,000, he promised each of his eight sales people $50 cash each week that they achieved a daily average above $30,000. The goal was met in the first week. A year later, he devised a more flamboyant way to improve production. He had a $200 car hauled into the parking lot along with a sledgehammer. Every day the employees could bludgeon the car if they had no redo jobs. The goal was to flatten the car in three months. It was a fun diversion, but seeing the car as employees drove into work was a visual reminder about the company's emphasis on quality control. When the company hit a sales ceiling, unable to crack the $1 million mark in monthly sales, Huston promised to take employees and their families out to lunch once the ceiling was pierced. The very next month sales totaled $1.1 million and Huston picked up a $7,000 lunch tab. A more traditional incentive was the company's profit-sharing plan instituted in 2002, that was more than generous for a business its size. By meeting sales and productivity goals, employees received a 5 percent monthly bonus, plus performance bonuses awarded three times a year. As a result, employees received an additional 20 percent of their salary over the course of a year. Having a highly motivated workforce paid off in other ways as well. When employees were surveyed in 2004, many complained that management was too slow to fire nonperformers. Thus the drive to create an even more productive workforce was being generated from the bottom up and allowed management to weed out poor performers with the blessing of the group.
Business grew so steadily in the 1990s that Advanced Circuits became overwhelmed by the number of requests for quotes by phone or fax. The company turned to the Internet, becoming the first in the industry to bring online instant price quoting, ordering, and order status capabilities to the Web. The demand for its services became so strong in 1999 and 2000 that one of the greatest challenges facing the company was capacity management. Rather than raise prices to ease the pressure, Advanced Circuits decided instead to reexamine its operations. It identified bottlenecks in both the design and manufacturing areas and took steps to manage capacity issues by simply building boards faster.
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