Core manufacturing – Warehousing

Various types of components and raw materials should be available at the manufacturing facility to meet requirement of production as per production requisition orders (PRO’s). It is important to maintain optimum levels of inventory, such inventory levels are determined by various factors like component lead time, stocking capacity, price hedging of components etc. Depending on the type of business an electronic manufacturer is involved in, the warehouse can be divided for component storage for domestic product, component storage for export-oriented products or identified as bonded zone as per classification of special economic zones (SEZ’s) followed in some countries.

By: Ankan Mitra

Depending on various factors but primarily determined by the “on-the-shelf” life of an electronic component vs the expected obsolescence cycle of an electronic component one of the following warehouse option is chosen by electronic manufacturer. The warehouse service providers offer various value-added services like printing and labelling, shrink-wrapping, import and export documentation handling and 24 hours a day availability each working week.

Various regulatory compliance needs to be complied to for setting up a ware-house. Which includes distinction and designation if the ware-house is expected to hold components for export-oriented products. Insurance of the ware-house is a specific requirement considering high value of material being stored. There are various types of insurance options available for warehouse storing electronic components specially considering some of the material being stored may be hypothecated to a financial institution. Fire protection mechanism is another major requirement for warehouses with automatic equipment to detect any fire and trigger fire stopping mechanisms. Further, security of the warehouse is important with special CCTV cameras placed adequately along with deployment of access control systems to allow only authorized and trained personnel to enter the warehouse or to specific parts of the warehouse.

Materials in the warehouse are stored based on various types of categorization which are applied individually or in a combination. Such category options are: 1. price categorization, typically classified as Class-A, Class-B, Class-C 2. based on supply chain risks 3. based on frequency of use 4. storage requirement because of moisture sensitivity of devices 5. active or passive material 6.potential of metal parts to get tarnished 7. special electrostatic sensitive devices 8. self-purchased vs consignment stock
A typical electronic manufacturer’s layout and product flow is depicted in the following illustration.

The key functions of a warehouse are:

• Incoming Quality Check (IQC) can be part of the warehousing operations whereby the components are verified for form, fit and function using various equipment and documentation as required depending on the type of the component
• Goods Receipt Note (GRN) is prepared such that the details of component, quantity and related details are recorded in the electronic manufacturer’s Enterprise Resource Planning (ERP) system
• Counting of the component is done to verify the quantity received are as per the quantity stated in GRN and subsequently accepted as good stock in the warehouse
• Components storage at individual part number level as well as in SKU’s (Stock Keeping Units)
• For maintaining the SKU’s picking and kitting operation may be performed immediately after GRN and IQC process itself. Picking and kitting operation can be performed using manual, semi-automated or fully-automated methods as per the process defined by the electronic manufacturer
• Label printing, packaging in original packaging received or repackaging, labelling post packaging, selection of the right type of trays or tote boxes and ensuring component is stored in the right location within the warehouse are performed
• Material requirement planning can be part of the warehouse activity which receives inputs from the production requisition orders (PRO’s) using the ERP system of the electronic manufacturer
• Warehouse management software (WMS) integrates to the ERP to ensure proper storage of the components within the warehouse. Available space on a tray can be optimally used and various storage and picking strategy like FIFO (First In, First Out) or LIFO (Last In, First Out) principle can be applied
• Depending on the categorization of the component the user management system allocates individual access rights and guarantees optimal inventory levels
• Based on the PRO the components and material are retrieved and sign-off to production department
• Post production, any balance material the production department wants to return to the warehouse goes through a similar process of segregation, counting, label printing, repackaging, labelling and storage

Let us review the various methods in which components are categorized in the warehouse:

Price categorization: Typically, components are categorized based on price by the electronic manufacturers to fall in price bands. To ensure simplicity even the biggest electronic manufacturers divide the components in three price classes; Class-A, Class-B, Class-C. Class-A being the most expensive price band while Class-C is the least expensive price band. Usually, components classified as Class-A and Class-B are kept under additional security and access control.

Some electronic manufacturers maintain fixed price bands while others maintain flexible price bands depending on the highest price of the component present at any given time in the warehouse.

Supply chain risks: Some components face greater supply chain risk than others, hence adequate quantities of those components need to be procured in advance for which necessary internal justification is followed before securing the volumes. On receipt of these components the packaging is split to quantities which are needed for immediate operational requirement and rest of the stock is kept safely away and accounted as available stock for use in forecasted manufacturing volumes.

Frequency of use: Some components are used in various types of products manufactured by the electronic manufacturer. In such cases, the components are identified and special provisions for counting and retrieval of such components are made.

Additional storage requirement because of moisture sensitivity: Most of the components whether active or passive are sensitive to moisture. However, there are some components which are specifically classified as Moisture Sensitive Devices (MSD’s) which also includes Printed Circuit Boards (PCB’s). MSD are classified as per J-STD-033 and have defined “exposure time” depending on the component type. For MSD special provisions for storage are made using Dry Cabinets which ensure low humidity is maintained as per standard requirement followed by the electronic manufacturer. Such components need to be closely monitored for exposure to the environment and duration of such exposure be noted on each such exposure. In addition, special packaging material, vacuum sealing provision and indicators are used for such component types. These components are baked as per the standard requirement.

Active or passive material: Components like metal enclosures, heatsinks, cables and other electro-mechanical devices like fans etc. are considered as passive components. PCB’s are also considered as passive components; however, some PCB’s have embedded components and are categorized as active components. All electronic component present in the inventory are considered as active component and stored with adequate protection including protection to prevent ESD damage.

Materials with potential of getting tarnished: Some passive materials like copper heatsinks, cables etc. has potential to get tarnished due to environmental exposure. Such components are stored in original packaging and in environmentally controlled areas. Components which are partly used from a packaging are re-packaged and stored in environmentally controlled areas.

Special ESD sensitive parts: All electronic components are stored considering they are Electrostatic Discharge (ESD) sensitive by default. Details of ESD Sensitivity of parts are also mentioned through various types of packaging labels on the packaging box of the components too. However, there are Ultrasensitive ESD components used in manufacturing which can fail at VHBM<250V. Such devices are packed using additional faraday cage shielding in specially ionized cabinets.

Self-purchased vs consignment stock: Contract manufacturers in addition to maintaining its own inventory also keeps the stock of materials and components received from their customers. Such inventory is designated as consignment stock and stored separately. Inventory availability of such material and component is monitored using the ERP system of the electronic manufacturer.

There are various types of warehouse management software being used in the electronic component warehouses. These software does the following functions:

• Bin management (bin types and their dimensions) – which type of bin needs to be used for what type of component and its packaging
• Storage space management – depending on the frequency of use, size of storage space etc., manage space within the warehouse
• Management of materials and their properties – manage the key attributes related to the component including details like cut-off date by when the material has to be used, for moisture sensitive items duration the package contents have been exposed to atmosphere etc.
• High levels of stock accuracy – input of stock-level is used for re-ordering using the ERP system of the electronic manufacturer
• Multiple inventory management techniques including: FIFO and LIFO.

Typically cost of maintaining the warehouse which translates to inventory carrying cost can be 20%-30% of the electronic component cost itself. A contract electronic manufacturer can reach very high levels of inventory due to consistent procurement activities as well as consignment stock being sent by customers. Hence it is very important to review inventory and take necessary disposition on a regular basis, in large manufacturing companies such disposition is taken on a daily basis. Electronic manufacturers ensure that all components which are determined as obsolete are purged from the facility by following Engineering Change Order (ECO’s) issued internally or by its customers

By: Ankan Mitra

The author is the Ex-president, SMTA INDIA CHAPTER