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by Ron Huston

It’s a small world,” neighbors exclaim when they run into each other while vacationing in other countries. But the world really is smaller today, a phenomenon largely due to communications advances that seem to shrink the globe. It’s wonderful to be able to communicate with people across the planet via telephone, e-mail and fax. Yet these advances enable another phenomenon that’s causing distress to many U.S. businesses--offshoring.

The cost-cutting practice of sending production capability to other countries is making headlines these days, but there’s nothing new about it. Ask anyone in the automotive industry. While we tend to link this practice to large companies and, recently, with organizations that send service jobs to India, those of us in smaller businesses aren’t immune to it. Even the smallest job shops are noticing the price pressure from competitors overseas.

However, you don’t have to roll over and play dead if your company is squeezed in this way. By committing to a customer focus, involving employees in continuously analyzing and improving processes, and providing a work environment where innovation is rewarded, you can meet the offshoring beast head on. Here’s how we did it.

You can’t compete. Really?
At Advanced Circuits, our success in the face of the current offshoring trend is due, ironically, to the pain we felt during the electronics recession of 1990-91. At that time, we were a struggling Denver manufacturer of printed circuit boards. We’d been in business for only a few years and, as the founder and only salesperson, I began to notice that more and more customers were sending their jobs to providers in Asia based on prices we couldn’t begin to match. Customers said the quality of overseas work was acceptable and lead time wasn’t an issue. I sweated, worried and endured the pain for several months. Finally, I decided to do something proactive.

“Something” quickly became “some things,” and in 1992 we launched a host of innovations and practice changes that transformed our company forever. We looked hard at what was really happening and what our capabilities were, especially those we thought offshore providers would have difficulty duplicating. Then we looked inside our organization for the resources we’d need to leverage those capabilities. The three key elements to our success were focus, technology and outstanding people--not necessarily in that order.

Focus on key customers
We discovered that not all orders were created equal. While we couldn’t compete for production orders with long lead times, we could compete successfully where delivery time was critical--generally three days or fewer--or when orders were too small to interest big manufacturers with hefty production setup costs. Our customers didn’t have to overcome a language barrier, as is often the case when placing orders with factories thousands of miles away in Asia. Within that first year, we put systems in place that enabled us to cut prices by 50 percent, triple production capacity, double profitability and achieve positive cash flow.

How did we do it?

First, we developed the concept of batching--combining different jobs in the same production run. Doing this enabled us to optimize the material used in each batch, which meant we were also reducing production costs while increasing capacity--a double whammy. We were determined to share these cost benefits with customers and reduced our prices.

After weeks of “what-if” analysis, I discovered the real secret to the business model that’s been propelling us forward ever since: focus on prototypes.

Engineers need prototypes for boards during the design process. They need them quickly, often in two or three days, and they need only a very small quantity. They frequently require several prototype versions of the same part number. Plus--and this proved to be a huge advantage for us--they often need to communicate directly with the fabricator about design specifications. All these requirements created a niche not filled by offshore providers. We only had to exploit the opportunity.

Of course, that proved easier said than done. In November 1992, we mailed 5,000 small brochures detailing our first pricing matrix. This in itself was revolutionary in the industry; prior to that time, all quotes were individually requested and delivered. We added two new deal-sweeteners--credit card capability and the promise that prototype orders would be delivered on time or they’d be free.

Almost immediately I found that I couldn’t answer the phone fast enough, so I hired my first sales associate. In 1993, 10 percent of our business was in prototypes. Today it’s 50 percent, and the balance is made up of small orders.

Technology speeds customer response
Two huge factors supported our efforts at this stage. The first was automation technology, which controls everything from order placement to computer aided manufacturing ( CAM) to accounting.

Using technology successfully also requires the ability to know when not to use it. A number of processes in our shop utilize automation to a point, then switch to more manual processes that are deemed faster, more reliable or more efficient. The important point is that we put into place the combination of best practices needed to grow our business. Thus, although we’ve seized the advantages that automated planning and tracking offer, we also rely on skilled humans for key production functionality where appropriate.

The Internet, of course, provided a different sort of technological support. Actually, it changed everything. It enhanced our ability to provide better and faster service. We were the first company to enable engineers to enter design parameters online, which allowed us to return quotes instantly. (Even today, many of our competitors take up to a week to return a quote.) We found that our customers also used our quote engine as a design tool. Because they could get quotes so fast, they were able to experiment with different board designs, densities and geometries. More than once we’ve had customers tell us that using our quote engine online helped them discover better, more economical ways to get their products to market.

Our engineering department, like most, tends to be the bottleneck in the order-to-production process, not because it isn’t good, but because it is. In a printed circuit-board shop, CAM engineers are the organization’s neural network. They review design data for manufacturability, then create the computer programs that control all aspects of a board’s production. With our concentration on prototypes, the ratio of orders to boards is very low. To maintain our speedy production, we needed to ensure very high throughput rates in engineering. That situation begged for Internet-based automation, and in 2003 we completed extensive programming to accomplish it.

The resulting service, FreeDFM.com, checks design files for manufacturability before orders are quoted or placed. It moves the “sanity check” to the front of the process, while a particular design is fresh in the designer’s mind. Most important to us, once the order is placed, it can speed through both the engineering and production processes--on average, 48 percent faster than orders handled the conventional way. That takes more than a day out of a typical three-day turnaround, time that can help a product get to market early or allow for an additional design cycle.

Employees: the ultimate human interface
There are many more ways the Internet and other technologies changed our business, but another component is arguably even more critical. The addition of my first sales associate in 1993 was the first of many new hires in sales, engineering, IT, support staff and production. We now have 195 employees, and all of them contribute to the innovative spirit of continuous, incremental improvement that typifies Advanced Circuits.

The human element is the foundation of our competitive success. Our company runs like a well-oiled machine, fueled by innovation and execution, and supported by motivation, education and resources. Good ideas are often proposed and delivered by employees, all of whom firmly subscribe to the notion of “customer focus.” This simply means that everyone approaches tasks from the customer’s viewpoint.

To help stay on track regarding customer satisfaction, we put response cards in every shipment. These short surveys, printed on a postage-paid postcard, keep us focused directly on what we’re doing for every customer and give us the opportunity to respond promptly in the event that corrective action is needed. As an unexpected consequence, the cards provide a means for customers to compliment the individual employees who’ve made their experience extraordinary.

A customer focus is a great device for motivating employees because it removes all ambiguity from the decision-making process. Our view is, if it’s good for our customers, it’s probably good for us. For example, during a recent redesign of our Web site, designers were given the challenge to make the site as functionally robust as possible while keeping it completely intuitive and easy for customers to use. The designers’ mantra was, “Two clicks to anywhere.” All the easy quoting, ordering, and status-checking functionality was retained and enhanced while new navigation was implemented whereby users never have to back out of a cyber cul-de-sac to move on. There’s even color coding to help avoid getting lost. Even though the site was just launched, a wish list of future enhancements based on customer and employee feedback has already been created.

Advanced Circuits is seriously committed to employee education and training in all disciplines. We employ a full-time corporate training manager who’s a certified IPC trainer (IPC is the interconnect industry organization), and all employees are required to spend at least four hours per month in training. Where appropriate, employees benefit from general skills education as well as specific technical skills training. Perhaps most important, all employees participate in a two-day seminar on customer focus provided by an outside facilitator. This heavy investment in training and cross training results in a flexible and responsive workforce--exactly what’s needed to excel in a global economy. Because our people are cross trained, we’re able to manage our capacity much more efficiently so we can respond fast to customer needs.

On the corporate side, it also results in productivity, profitability and growth. Advanced Circuits just received its sixth consecutive “Fast 50” award from Deloitte & Touche for being one of the 50 fastest-growing technology companies in the state of Colorado. Just recently, we were nominated as one of Denver’s best places to work, a competition sponsored by the Denver Business Journal.

We try hard to make Advanced Circuits a personally rewarding place to work. Besides all the training and a host of corporate-style benefits (including health and disability insurance, 401K, profit sharing and so on), we sponsor basketball, soccer, softball and golf teams. We host lunches at the slightest excuse and put on a great holiday party. We’ve even taken the entire company to celebration weekends in Las Vegas.

All employees are financially rewarded based on achieving goals over which they have control, so they can directly affect their own success and that of their teammates. Such goals must be clear and measurable to be effective, and metrics abound in every area of our company. Some examples:

During the past two years, yield improved from 97.7 percent to 98.9 percent.

We enjoy 99-percent equipment uptime due to equipment reliability initiatives, including redundancy and spare parts planning.

Improved yield allows us to eliminate 5-percent planned overage.

99.8 percent of orders are shipped on time.

57 percent of orders are shipped early.

For the past three-and-one-half years, we’ve added 200 new customers every month.


Working smart
The world of printed circuit boards encompasses a very broad range of technologies, and it gets broader all the time--more than 32 layers, very tight traces and spaces, flexible circuit technologies, tiny holes and so on. Our challenge is to focus our efforts on the subsets of those technologies. We don’t remain static, but we do focus on “regular” technology (e.g., two to 12 layers) that we know we can reliably provide in very small quantities in a very small timeframe.

There’s that “small” word again, this time applied to the size of jobs we do and the range of specifications we embrace. Business on the small side--small orders, quick turnaround, a small set of core competencies, small and continuous process improvements--has been very good to Advanced Circuits. Eleven years after the first offshoring alarm, managing capacity is still the name of the game. We know how to play it better now. The rules continue to change, but knowing how to take advantage of the “holes” in printed circuit board solutions provided by larger competition has enabled our company to resist the offshoring threat. It’s also allowed us to compete effectively with other U.S. manufacturers.

What do I know now about competing with offshore providers?

For us, the recipe for success contains three ingredients: maintaining a strong customer focus, utilizing technology and investing in people. Offshoring created business pain and an unfair cost advantage in favor of offshore providers, but simultaneously offered a diverging path to success. For us, the business of “small” is very big business indeed.

About the author
Ron Huston is CEO of Advanced Circuits, an industry leader in printed circuit boards. Under Huston’s leadership, Advanced Circuits has six times been named one of Colorado’s 50 fastest-growing technology companies by Deloitte & Touche. Last year the company was included in the SBA’s list of Top 50 Small Businesses, and it received the Metro Golden award for environmental responsibility two consecutive years. Huston was named one of Fortune Small Business’ “best bosses” of 2004.