April 01, 2000

Contract manufacturer, Unisem (M) Bhd will not strike one as a tech-savvy organisation. But one look at their stock prices would change your mind. The company which was listed on the main board of Kuala Lumpur Stock Exchange on July 30, 1998 at RM5.10 has shot up to RM30.00 last December. Within18 months.

Though industry observers would attribute it to the current rise in tech related stocks at the local bourse, a closer look reveals a shrewd business approach to maintain its robust rate coupled with a niche market segment.

The company revenues grew about 50 per cent in 1999 to close at RM300 million, up from RM209 million in 1998. It enjoyed RM218 million sales for first three quarters, chalking approximately 65 percent growth from quarter to quarter

In the competitive and often cyclical semiconductor market, subcontract manufacturers were outperforming world growth by about 30 percent.

Said chief executive Colin MacDonald: "Analysts expect double digit growth rates in the next three years since subcontract manufacturing continues to outperform overall industry growth rates."

Unisem received its license from Ministry of International Trade and Industry to manufacture semiconductor devices and incorporated a company in 1991. As a second tier contract manufacturer, the company began mass producing its semiconductor assembly and packaging operations in July 1992.

Within a year, it launched its fine-pitch (thin and small) assembly and packaging operations and kicked off production of a new integrated circuit (IC) package range. Six months later, it diversified its services to include electrical testing and tape and reel packing operations.

Not content to be one of the boys in the contract manufacturing business, the company embarked to add value to its products and services in order to stand out from the rest.

And in March 1996, Unisem completed fine tuning its production and delivery process thus allowing it to offer drop-ship services (direct shipment to end-customers) for its customers.

For the company's management team, it would have seemed that its objectives were met by being able to operate as a "one-stop" semiconductor contract manufacturing house. But it was only the beginning.

"The sky is the limit in the electronics industry and those who excel in manufacturing excellence will be doing even better," said its senior marketing manager John Lee.

Small steps

Although weekly production output stands above 35 million units for ICs and other semiconductor devices, headcount has remained modest at 2,300 employees. The numbers indicate a more than healthy production output of over 2,000 units daily per person.

With a new plant due to start operations in the second half of this year, MacDonald is optimistic that it will bring on much needed capacity to cope with the growing demand.

According to MIS manager SB Wong, the company had spent huge amount of man hours improving the Computer Aided Design and Electronic Resource Planning systems that have been put in place since the early 1990s to reduce human error and to ensure the processes are hardy.

"From the start, the management recognised the importance of using information technology to improve our business," he said.

He added that computing systems have been aligned and customised to meet their needs down to the last detail. And with an aim to provide instant accessibility to important data, the company had unwittingly forced its employees to be technology literate.

Wong, a programmer by training, also revealed that most of computer software in use at the company had been built from ground up. While he had a pick of the shrink-wrapped products on the shelf, he was quick to realise that the majority would not suit their needs.

"No doubt, designing our own was not easy but we knew what we wanted, our processes were very specific so what better way than to do create our own," Wong reiterated.

In doing so, they were also able to follow each process all the way through and decide which precisely must be tracked.

"We have an audit trail of everything we do and this can be checked daily as the system updates it," Wong said.

He added that while production ensured each process is completed, a work in progress chart to track yield, defects and a log transaction was generated in parallel and in real-time for managers.

Currently two IBM RS/6000 servers networked to over 100 PCs channel the data from various sections to the management. Both servers also back up one another and deliver 100 per cent uptime.

The journey

As a sub-contract manufacturer, the chain of events begin once a product arrives at the its facility. Although each product comes with its own description, relevant personnel in the production department within Unisem will key in data to generate documentation for the central database.

As the product journeys from start to finish, every step is recorded. Faulty devices discovered along the way are pulled out, identified, and kept for further inspection.

The rejected devices are not ignored nor discarded. "We extract information from it and hand it over to our engineers to study in detail," Wong said.

This, he added, reduces the error rate in future.

According to the company's financial controller Loh Chee Cheong, the meticulous checks made at the production end had contributed a great deal to corporate savings. "These check and balances helped us to manage better and reduce man to machine ratio for the processes from 1:1 to 1: 5," he said.

He added that the management is also able to track progress at the production line via PCs on their desks. "The monitoring process is an important element in our business to ensure everything runs smoothly and continuously," Loh said.

While the supply chain within the organisation is working smoothly, Unisem is mindful that its customers are kept updated. Customers are able to access their mailbox assigned to them to check on development and progress of their products.

"If any of our customers - mostly located abroad - need to make changes, they can do it online as we run 24 hours. So while we are asleep, they tell us what they want and by the time we get back to work in the morning, we can get down to it" Lee added.

Unisem serves more than 70 customers all over the world with a certain portion of its products catering to a very niche market. Close to 80 per cent of the sales of its integrated circuits (ICs) and other semiconductor devices are to the direct export markets of USA, Canada, UK, Europe, Japan and Asia. The balance is shipped to multinational corporations located at various industrial zones within Malaysia.

The future augurs well for Unisem as the outsourcing in the semiconductor industry continues to be vibrant. According to Lee, the rapid evolution in the IT market and demand for more sophisticated devices by original equipment manufacturers (OEMs) will give them an opportunity to expand their component portfolio.

Lee also noted that OEMs are divesting and outsourcing the high volume, commodity end of their business to sub-contractor manufacturers.

The company is in the midst of ramp up and doubled capacity in the year 1999. "We are going into new packages like MLP (micro-leadless packages), CSP (chip scale packages) and BGA (ball grade array)," Lee said.

He added that a new 280,000 sq ft facility is set to come on board in the second half of this year. The new building, still under construction, will be an extension of its current processes as well as have new lines producing new products.

Research and development is underway to improve testing and packaging of new devices.

Lee is confident that business will boom as semiconductor devices will continue to be a vital part of the next generation of Internet devices, PCs, digital imaging products, palmtops and cellular phones.

"We intend to automate as much as possible as we intend to stick to our lean and mean model of working to continue to deliver products required by our clients," he said.

The strategy to increase productivity with tight headcount also meant better payoffs for everyone involved.

Meanwhile, Loh said that Unisem is also conscious of its role as a responsible corporate citizen and has taken pains to upgrade the existing waste treatment plant within their facility.

He added that more than RM1 million had been spent to build the plant which is in compliance with the requirements of the Department of Environment.

With all the necessary building blocks in place, the challenge for the future is to improve delivery.

Lee also disclosed that delivery time, from door to door, has improved to seven days from a previous 14-day timeframe.

"An aggressive seven day delivery cycle is imperative due to tight market requirements and stiff competition," he said.

For the management team at contract manufacturing house, speed and size certainly matters.

This perhaps indicate that the success Unisem has achieved has spurred the company to want to move out of the second tier sub-contracting industry into the playing field dominated by the big boys.

Published in Intelligent Enterprise