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issue: March 2005 APPLIANCE Magazine

LG Electronics Mexico
Bringing LG Culture to Monterrey


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by David Simpson, contributing editor

ON LOCATION: APPLIANCE magazine traveled to Monterrey, Mexico to report on LG Electronics’ refrigerator manufacturing facility.

This LG Electronics Monterrey Mexico refrigerator manufacturing plant opened in 2001. Current capacity is almost 1 million units a year. Primary markets are the U.S., Mexico, and elsewhere in Latin America. The factory supplies about 40 percent of LG refrigerators sold in the U.S.

At its refrigerator plant near Monterrey, Mexico, LG Electronics increases production for the U.S. and Latin markets and inculcates a winning company culture and attitude.

LG Electronics (LGE), based in Seoul, Korea, has high aspirations for itself. Among these is to be a global top three company in electronics and information technology by 2010. It may already be there for major appliances. For microwave ovens alone, LGE’s Digital Appliance Company (DAC) produced 15 million units in 2003, and is reportedly the global leader. DAC is also said to be the leader in residential air-conditioner production. Other strengths are in washing machines, vacuum cleaners, and refrigerators.

While the company’s largest production facility by far is in Changwon, Korea, some three-quarters of sales take place outside Korea. To meet regional needs, DAC has several non-Korean manufacturing sites. The newest of these is near Monterrey, Nuevo Leon, Mexico. Here the company makes refrigerators for both the Latin American and U.S. markets. Refrigerators are primarily made under the company’s LG brand, but the facility also produces private label models.

The appliance maker’s presence in Mexico goes back to 1988, when it established a Mexican television manufacturing operation in Mexicali, Baja California Norte (BCN). At that time, it began marketing televisions and other products, including white goods, in Mexico. Throughout the next few years, the Mexican operation established several offices around the country. With the acquisition of Zenith Electronics Corporation (Glenview, IL, U.S.) in 1995, LG Electronics took over Zenith’s television production facility in Reynosa, Tamaulipas.

A refrigerator line stretches some 1,200 ft from pre-assembly to packaging. One of the two lines primarily produces smaller units for the Mexican and Latin American markets. The second line generally makes larger models for the U.S. market.

Investing in Mexico

LG Electronics Monterrey Mexico was established in April 2000. Groundbreak-ing for the U.S. $100-million facility took place in an industrial park in Apodaca, just outside Monterrey, in July.

The first construction phase included some 554,000 sq ft of floor space. This was primarily for manufacturing, but it also included office and warehouse space. In July 2001, the company began making top-mount refrigerators primarily for the Mexican and Latin American markets. Refrigerator sizes on this line normally range from 9 to 22 cu ft.

The second construction phase added 488,000 sq ft and another refrigerator line by January 2003. This line usually manufactures both top-mount and bottom-freezer models more than 18 cu ft for the U.S. market. Today, the facility provides approximately 40 percent of LG Electronics’ refrigerator models sold in the U.S. Current plant capacity is near 1 million units with two shifts.

“As LG white goods garner more attention in the U.S., it is clearly a logistical advantage for us to manufacture closer to the market,” says Daniel Lee, marketing director at LG Electronics U.S.A., Inc. (Englewood Cliffs, NJ, U.S.). LG Electronics, U.S.A. oversees all activities in the U.S. and Canada, as well as the Monterrey operation. “Another consideration is that Mexico and elsewhere in Latin America represent growing markets that we can better serve by producing appliances in Mexico. Monterrey has a business-oriented environment, and it is located just 125 miles from Laredo and McAllen, Texas [in the U.S.].”

Given expected sales growth, the company plans to continue increasing production on its two lines. Further down the road, the company is looking to initiate other products into production.

Assembled refrigerators progress down a conveyor line. Completed units undergo a series of safety and performance tests before proceeding to packaging. An in-house warehouse can handle up to 40,000 units at a time.

Refrigerator Production

At the Monterrey plant, line one produces primarily for the Latin American market and stretches some 1,200 ft. It progresses through two pre-assembly areas, foam injection, assembly, inspection, and packaging. Next to the line are cabinet and door liner molding and door assembly areas. The layout of line two is similar, with the addition of a subassembly area to the side. Here the company assembles components, including shelves with metal and glass parts.

A key advantage of the line similarities is that any model can be produced on either line. This flexibility enables the company to make maximum use of the lines. Flexibility is further enhanced since the company can freely intermix models. Even single models can be made on either line.

Cabinets are formed and punched in the plant, using pre-coated steel from local suppliers. Cabinet liners are made of ABS sheets that are blow molded near the line. Each line’s molding equipment normally produces liners only for one line, but is capable of making liners for any model.

Pre-assembly begins with the liners being automatically placed in the cabinets. The first pre-assembly area has workers seal and tape in preparation for insulation injection. Workers in a second pre-assembly area install the bottom and back plates to stabilize the units. Workers here also do sealing.

Once units are ready for insulation, they enter an automated foam injection system capable of handling nearly 30 units at a time. The cavities are preheated prior to the polyurethane foam injection. Cyclopentane is used as the blowing agent. It takes just 20 sec for the foam to set, and units are in the insulation section for 7 min. Each line has its own equipment, but has flexibility to insulate any model.

Following cabinet foam injection, units enter a buffer area. Line one’s buffer holds 120 units while line two’s buffer holds 70. Because line one usually produces smaller, simpler models, it can produce products faster. However, the company often uses its ability to produce any model on either line to help balance line speeds.

Next is the assembly area proper, with units receiving all components, including doors, shelves, wiring, labels, literature, and refrigeration systems. Refrigerant is automatically injected into the system, and a worker checks for leaks with a hand-held helium sniffer.

Overlooking each line is a large production board that displays real-time line statistics, such as the production target and present quantity, and a line layout. If a manufacturing fault is discovered, the line is shut down. The layout shows the location of the stoppage and alerts all workers by playing a short musical tune. On-going production statistics are also shown on screens in the office area.

Completed refrigerators go to a line quality control area. They are connected to power for 25 to 30 min, and undergo a series of safety and performance tests. If a safety, performance, or appearance fault is found, a worker will place a label on the refrigerator, and it will be routed off line for repair. Once repaired, it is returned to the quality control area for another inspection. The company also performs audits off line. It extensively tests five units per shift, taking them from final inspection and the warehouse.

Inspected units travel a short distance by overhead conveyor and then down into the packaging area. Workers located above the refrigerators slide corrugated boxes onto the units, and other workers affix box labels. Packaged refrigerators are automatically sealed with a banding machine. A sensor reads the carton label, and routes the packaged unit to the proper end-of-line conveyor.

From here, workers in forklift trucks move the refrigerators to the warehouse. The in-house warehouse can hold 40,000 refrigerators in approximately 200,000 sq ft. The company is also renting a nearby warehouse.

While some refrigerators leave the plant via truck, the factory has two rail sidings. One is for units going to Mexico, while the other is for U.S.-bound units. “Costs for rail shipments are half those for shipping by truck,” says Mr. Lee. “To take better advantage of the economics, location of warehouses near rail lines will continue to be considered in our overall SCM (supply chain management) decisions.”

Six Sigma Centered Quality

“We want to have the lowest cost and the highest quality, compared to the competition,” declares B.S. Hwang, production director. To get there, the Monterrey operation has given a central role to a Six Sigma Quality Initiative. The initiative was adopted by the parent company in 1996. Technically, Six Sigma is a statistical measure that says a manufacturing process must not make more than 3.4 defects per million. LGE also considers it a business strategy that allows the company to gain a competitive edge in quality, cost, and customer satisfaction. The program is broken into four processes—measure, analyze, improve, and control. Six Sigma is also considered a philosophy of “we should work smarter, not harder.”

“Workers now receive 40 to 45 hours of Six Sigma training, in classes that take place four times a year,” says Mr. Hwang. “They must pass both written and oral exams and participate in two Six Sigma projects. We give additional training to some workers, who become ‘black belt’ specialists in one area. These specialists receive training through the Internet and may also train in Korea.” As of late 2004, the company reports that 80 percent of workers are trained in Six Sigma techniques.

The plant’s quality policy is “to produce the world’s best refrigerators, assuring high quality and quick response in order to satisfy our customers’ needs.” Among the strategies is to use the Six Sigma process as a common language and to expand the process from the initial R&D area through production. Another strategy is to provide continuous improvement in quality assurance systems (including ISO 9001 and Q-Plus) and to eventually stabilize product quality as has been done in the Changwon, Korea plant. In the service area, the strategy is to supply parts immediately and to undertake continuous training and field quality monitoring.

Workers engage in three types of Six Sigma projects. Natural Work Team (NWT) projects are carried out by workers and supervisors who look at possible improvements in their area. One person-one project (1P-1P), as the name implies, features a single person using Six Sigma methodology. Tear Down and Redesign (TDR) enlists specialists from various departments. Such a team might be constituted, for instance, to address a high recall rate. Results of projects may be displayed on boards along the production lines for all to see.

The company has a goal of receiving 50 percent of parts and materials from local (non-Korean) companies. It has worked closely with suppliers on quality and has been sharing the results of audits. As of late 2004, LGE reported that the parts per million (PPM) quality improvement for these suppliers ranged from 30 to 45 percent.

More broadly, LGE emphasizes the importance of innovation. A telling phrase common throughout the company culture is “Fast Innovation, Fast Growth.” Again, Six Sigma plays a central role, as teams look at projects that can add innovations in such areas as productivity, costs, and logistics. The importance of quality and innovation are seen in the company’s organization chart, which shows these areas reporting directly to the facility’s president, Hong Goo Kim.

New workers attend Innovation School to be exposed to the company’s emphasis on quality and innovation, as well as the company culture. Held twice a month, the 3-day school has workers look at different quality tools and learn the company’s way of thinking.

Workers are taught the “LGE Way.” This corporate philosophy means that “A great company makes great people. And great people make a great company.” This is sometimes shortened to “Great Company Great People.” The basic idea is that a winning company culture develops as the result of company growth strategy and management style and workers’ talent and leadership.

As part of a team effort, workers engage in a 15-min meeting at the end of their shifts. Among activities are exercises and recitation of a team cheer. The company also helps workers by offering an internal high school training program. It also supports informal groups and sponsors a family open house.

Next to one production line, the company has a recreation area, called a “digital park,” with exercise and video game equipment. It sometimes sponsors contests here as well.

Employment has been steadily growing as production has been ramped up. Currently, there are more than 1,100 production workers for two shifts. Of these, about 700 are direct employees, while another 400 are outsourced. The latter are not permanent workers, but are taken on when needed. There are also more than 300 non-production workers.

How Far to Go?

The Mexican operation is justifiably proud of its progress so far.

“When we started here, we had no infrastructure, no people with skills, no logistics, no warehouse space,” points out Mr. Hwang. “But, by going step by step, we have taken great strides. We built our first million units by June 2004. Today, we have a more dedicated and trained workforce, we have more reliable suppliers, and we continue to improve our productivity and quality.”

Further down the road, plans are not so firm, but the broad outlines are known. “We are getting significant refrigeration distribution in Latin America, but we have not addressed the Brazilian or Argentine markets,” Mr. Hwang explains. “Brazil in particular will be a major effort, as its annual market is some 5 million refrigerators. In addition, the designs on these refrigerators are different than what we now produce. We want to be sure everything is perfect before we enter Brazil.”

Mr. Lee adds that LGE wants to have everything “exactly right” before it considers expanding the Monterrey facility. “When we do, we are going to have the best designs, the best quality, and the best service,” he says. “We want products that will help take us to our goal, which is to be one of the top three white goods companies in the U.S., as well as in Mexico and the rest of Latin America.”

 

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