The Newest Flex Shop in the U.S.
I-Connect007 sales team member Angela Alexander and I recently got a tour of Lenthor’s new Silicon Valley flex board shop and then sat down with President and CEO Mark Lencioni to discuss the new flex facility, the markets, management, and the future.
Barry Matties: Mark, give our readers a little background on Lenthor Engineering and what you do.
Mark Lencioni: We are entering our 31st year of business; having been founded in 1985. We are now located in our brand new, 55,000 sq. ft. state-of-the-art facility dedicated specifically to the fabrication and assembly of flex and rigid-flex products. We made it as “Lean” as possible for all our manufacturing systems to be very close to each other, in order to get the most efficiencies with our employees and product movement. It came out just like we planned.
Matties: So is Lenthor a flex shop primarily?
Lencioni: Yes, we specialize in flex circuit fabrication and assembly. We specialize in multilayer and rigid-flex technology, very high aspect ratios, high layer counts, and the technology to allow packaging to get into the size and shape it needs to be. We have succeeded by satisfying the toughest demands from the most demanding customers in the world.
Matties: Flex is still one of the fastest growing areas in the marketplace.
Lencioni: Yes, our customers’ products are the largest they will ever be and flex circuits are a natural solution to help people package things in the size and shape they need to be. They're getting smaller and smaller. From wearable devices, to cellphones, to any kind of mechanical device, automotive, military equipment, and some semiconductor equipment processing.
Matties: In your 30+ years, what's the most surprising thing you have seen in the flex market?
Lencioni: I would say the growth in both medical and military. We didn't really appreciate the opportunity these markets held for us until we did some specific market research after 9/11. The results of that research are what led us to move more heavily into these markets. If you look at the world and the environment we are in, these marketplaces are poised to be well-established for many, many years to come.
Matties: Your facility is an ITAR facility; what's the percentage of work that you bring through here?
Lencioni: We are about 55% military, 25% medical, and the rest balances across industrial and telecom.
Matties: Where do you see the largest growth coming from right now?
Lencioni: Military and Medical. Military obviously is in a very stable environment because it doesn't go offshore. We are finding growth from within a market that we are already well positioned to support. The medical market is also very favorable for us. We have developed the kind of process validation and control that market insists on.
Matties: Going back to your new facility, who laid out the facility?
Lencioni: It was a combination of Rich Clemente and myself. We took the processes, and with help from engineers regarding where they needed to be, we just started to lay it out. We did that with an architect, and so whatever building we decided to go into we just took that footprint and laid it right in.
Matties: When you are laying out a facility like this, what's the goal?
Lencioni: The goals were product efficiency and people movement. To really make sure that the product started finished within the most efficient process path, minimizing as best we could the movement and handling of materials.
Matties: When we first started the tour we talked about your old facility and the length of that process.
Lencioni: Yes, we had a campus environment previous to this which included three separate buildings. Although they were across the parking lot from each other, the movement of materials from beginning to end was about 2.2 miles. We re-validated what it is in our new factory and depending on product type the movement is down to about one eighth of a mile. The product moves with more efficiency, it doesn't get mishandled, and the employees are able to stay focused on their job of producing boards instead of moving materials.
Matties: I would think that with this reduction, and with this new flow, handling errors have reduced substantially?
Lencioni: Yes, we've seen improvements in our cost of quality levels and we're slowly realizing that. We develop and define each of the work cells and make them super-efficient for material handling and tool allocation. We brought in additional automation, as highlighted by our new programmable electroless line. Things are being done much more efficiently.
Matties: Just for a frame of reference, what sort of sales do you guys do here and how many employees do you have?
Lencioni: We're currently on track to do about $30 million this year. We have 170 employees, and we have open requisitions for 20 right now.
Matties: What areas are you hiring in right now?
Lencioni: The majority of them are in the manufacturing area. We want to bolster staffing on the off-shifts, which are swing shifts, graveyards, and weekends. Those shifts help to utilize the factory as best we can, and to be able to produce products without stopping, which is important. Circuit board shops by nature run better when they are running. When you start them and stop them, it takes a lot to bring them down, and it takes a hell of a lot more to bring them back up. Temperatures, stability, and the baths like to be worked, so our goal is to run 24/7 and keep things moving, especially as we address the quick-turn market and time to market, which are critical for our customers. They have needs that have to be met, and our goal is to get them their products on time!
Matties: Where is the typical tolerance now in a flex shop?
Lencioni: We manage the same things most rigid shops manage, which are geometric feature sizes, trace and space requirements, dielectrics, and so on. I think the primary challenge for anybody in the flex business is still managing the material movement of the dielectrics. Controlling and maintaining processes addressing this fabrication challenge requires constant vigilance. When you look at the dielectrics being used, which are only 1 mm thick with maybe a quarter ounce of copper on each side, you're talking about handling a piece of aluminum foil.
Matties: What was the greatest challenge in achieving that?
Lencioni: It's really our handling—understanding how it is handled, from the day we start it up through to the day we ship it, by all of our employees, gloves and support materials, and things that make it work in each of the machines.
Matties: That material is just so fragile.
Lencioni: Flex circuits by nature have a lot of movement—X, Y, and Z—and they are very hydroscopic by nature. We constantly build a data library to understand material movement and its effect on layer registration. When we launch a product out of engineering we have a pretty good and predictable idea of how that material package is going to behave throughout our processes.
Matties: You've also incorporated some software controls in here. For example, in your plating area you have rectifiers that are not just controlled by operators, but they are controlled by past job specs.
Lencioni: Yes, we record all the data for every load that goes through, and we are able to recall the data from the previous lot so the next time a specific part number repeats itself we are able to produce it exactly how we produced it last time. We live and die by data; we collect it and use it to produce the same part over and over with consistency, that is what our customer is really looking for.
Matties: Were you doing that in your old facility as well?
Lencioni: No, these are all new installations that we had the opportunity to lay out correctly, add cable for it, and put computer systems in to deal with the storage. We have another program called Perfect Test, in which we're measuring the skew and shrinking and stretching the materials experience throughout all of our processes. After we’ve seen it go three or four times through the process, it does become very predictable. Those tools are very important for us in the flex circuit business.
Matties: I can see data is obviously a key strategy here. As we walked through you have monitors displaying all sorts of information from “Welcome” and “Happy Birthday” messages at the employee entrance, which is great, to the jobs that are coming onto the shop floor.
Lencioni: Information is the key to communication and getting things done. Efficiency without making mistakes is vital, and we installed monitors that basically tell the people what's coming down the pipeline. Our whole goal of the production control system is for it to act like an airport. Just like an airport, we have the planes departing and coming in. We want to be able to predict what's coming in the work cell so they can then produce the tooling for it and when it hits that work cell it's ready to go. Just like a plane coming in, you've got to have staff there available, you have to reload the plane, refuel it, and get it ready for the next journey.
It's really about understanding what is coming at you. It's kind of situational awareness. We have it in the color coding of our trays to the production control monitors that are instructing operators what job to work on next. There are customers who have various amounts of technology we are building from with many different layer counts, and a lot of sub-travelers are being produced. Flex circuits are kind of like a puzzle. You're producing not only the main travelers, but sub travelers—the base copper-clad dielectrics, coverlay materials, pre-pregs and adhesives, PTFE inserts, and special features such as pull tabs. It all has to come together into a main traveler at some point, so coordinating all those activities to get the product to the main gate is quite a task.
Matties: You're building such an interesting mix of products here, too. You shared some of your customer names here, in the military, and so on. It's really impressive technology.
Lencioni: We're definitely a Tier 3 supplier. We supply to the people that supply to the Army, the Navy, the Air Force, and the Marines. We take a lot of pride in what we do, and our employees know the product has to work every time. People's lives are in danger if it doesn't.
Matties: What about manufacturing in America? You and I started in this industry 30 years ago when there were 3,000 shops in the U.S., and now we are a few hundred or so. Do you see more coming back?
Lencioni: Well, as we have discussed earlier, we're kind of specialized in the medical and military markets. Medical sometimes will bring it back, but they usually have to stay domestic because they want robust products and control of quality. I think there is more on-shoring going on. We will still be able to beat and compete in the world, and now the prices are starting to come up globally from labor and those kind of things. I think America has a chance to define itself again.
Matties: Part of the reason I ask is because you are talking about substantial growth here. You're looking at headroom to almost double what you're doing. Where does all that come from?
Lencioni: New technologies. If you look at our customer base they're constantly evolving. We did get an uptick from the TTM/ViaSystems merger, so they walked away and can't support certain levels of business, and we started seeing some of that. There's been a couple of other facilities that have gone out of business, and we were in the right place at the right time and that helped us out. They find us in different ways. Sometimes it’s attrition, sometimes it’s the nature of the beast. We have not advertised this company yet.
Our growth has really been organic, word-of-mouth and customers we have done business with, and now we are looking at the next level. That's one of the reasons we are looking at expanding our marketing efforts.
Matties: You certainly have a strong story here, and it needs to be shared.
Lencioni: It's been really exciting to see it grow to where it is; our foundation is so sturdy and stable and ready to go that it's exciting to see a path.
Matties: It looks like you’ve built a great foundation, brought great tools in, and I see a lot of training going on, on the shop floor. Is cross training something that is being done by design here?
Lencioni: Yes, I'll have to show you some of our HR concepts; it is a results-producing management style, so everyone is rated from a one, as a beginner, to a five, as a master. Every single cell has every single process in there and every single person is ranked based on their skillsets. We look at our gap analysis to see into a work cell. If somebody calls in sick or is not available, we are able to see who we have for coverage on every shift of every cell. We have to make sure we have personnel resources that are rated at least a three or a four. This demonstrates a level of competency that we require in those areas in order to run those tools and produce those parts.
It's constant, every day, looking, evaluating, and making sure we have proper staff who are trained.
Matties: It looks like redundancy is something that is strong here. Like the power generators on the roof to keep all your servers running and so on.
Lencioni: When we look at our capital budgets every year, the biggest thing we look at is where our Achilles heels may be, and we try to adjust to those first. If we lose a certain technology for either maintenance or unpredictable downtime it is very hectic. It gets me really excited because it has to get up and running. We try to get as many operations with dual sets of equipment as we can to make sure we continually produce for our customers.
Matties: I think I saw you currently have one direct imaging unit here?
Lencioni: We have one LDI from Orbotech, and we are looking at purchasing our second one, maybe by the third quarter this year.
Matties: Is your goal to be completely digital?
Lencioni: Yes, a 100% digital environment and no off-contact printing or films produced. We're about 95% there right now.
Matties: That last 5% is the tough part though, isn’t it?
Lencioni: Yes, we do some soldermask imaging and that kind of stuff, but we're pretty close. The imager right now is at about 70% utilization of that tool, and as it gets closer to 80% and 90% that’s when we’ll start bringing that second tool on board.
Orbotech has been great. They have really good support systems, they're machines are pretty reliable, they have techs in the area, and everybody has their machines so parts are pretty available. I can't say that for all of our suppliers, but Orbotech does a pretty good job.
Matties: You're right here in Silicon Valley, so you must have a lot of supply choices.
Lencioni: Our primary vendor for materials is Insulectro; they are our largest supplier. They're great as far as storing materials, inventorying them, getting them to us just in time, and producing on the floor.
Matties: What about process improvement? I know you have a lot of data, but what are you doing to drive to higher technology?
Lencioni: The first thing we do is have several process engineers monitor the process. We're looking at data coming out of AOI inspection, and we're looking at where the defect was created. Whether it be surface prep, etching, or imaging, we’ll look and track that defect down, and process engineering is responsible to move that process up. Whether it be training more people or equipment upgrades, whatever it takes to get that feature size defined more consistently.
Matties: Do you set a roadmap in terms of the type of equipment and where you're headed?
Lencioni: Yes, we have a process of evaluating our customer base. We look at where their designs are going and we try to prescribe equipment that's going to suit us to handle that demand. For example, we are in the middle of qualifying a pressing system, because we are now looking at materials coming down the pipe that require much higher temperatures than the typical lamination cycles. Now we are forced to look at equipment sets that can handle high-temperature lamination cycles, and that will be our next challenge.
Matties: What sort of budget do you set for that? Is it a percentage of sale for capital reinvestment?
Lencioni: Typically we would look at the profits for the previous year, we look at shareholder return, and we look at what's available after that for capital equipment purchases. Most of our stuff is purchased through our bank, with whom we have a great relationship. They have helped us grow through the years. We're able to stretch those notes out to four-, five-, and six-year terms. We look at what our debt service is and we make sure our profits can service that debt and keep all the covenants in check.
Matties: You don't exist for 30 years by being irresponsible.
Lencioni: No, you have to really manage it. We've gone through three recessions. The first one was very devastating, when the dot-com busted and all that kind of stuff. The last two didn't even faze us. We positioned ourselves well in the marketplaces that were stable.
Matties: Was R&D still thriving, even in the recessions?
Lencioni: We didn't overspend. We're not on the cutting edge. We wait for technology to develop, purchase the equipment right behind it, and then provide our customers with a solid, well developed and supported technology.
Matties: What's the greatest challenge in running a flex shop?
Lencioni: Like any other company, as soon as you get past 100 employees, I always tell everybody it's the people. It's getting new people in as you grow, getting them trained in the Lenthor culture, and then getting that digested quickly so that they can be productive.
Matties: Automation plays a role in this, though, doesn't it? You're growing with people, but you're also looking at technology smartly, aren't you?
Lencioni: We've yet to see a technology that automates flex circuits. If you're in a roll-to-roll process, sure, but you'd be producing single- and double-sided circuits in huge volumes to support that capital equipment. We are still looking for companies to be ingenuitive in how they propose automation upgrades for the handling of the thin dielectrics we use everyday in manufacturing. In a rigid board business, it's easy to have automation machines that suck it up with a suction cup and move it to the next work cell. Flex circuits? Forget about it. It’s unfortunate, but we are still in a very manual, hands-on manufacturing environment. We don't see it getting away from that until somebody invents a new mousetrap.
Matties: For you, it's not so much about automation and investment, it's about process step reduction, I would think then.
Lencioni: Yes, Orbotech has got new imagers out there that will image both sides at one time. It will actually take the panel, flip it, and then image the other side, which is exciting. It would take us one less handling step. Little things like that. We're seeing micro advances that will eventually find their way to us.
Matties: Do you find when you look at your data that there's a particular area where you have the greatest amount of yield reduction or loss because of handling?
Lencioni: It's broad across the board. Definitely how we CO-BRA Bond® things and how we image things are probably some of our biggest challenges. We're taking in and cleaning those materials and we're still doing things with leaders. I hope the next-generation equipment can handle one-mil core pieces of material without them falling into the machine. Putting leaders on and taking them off is taking up time and space in the machine because you can't run panels next to each other. Then handling and pulling the tape off of the leader creates a potential defect of stretch or wrinkles in handling. Fingerprints have always been something any board shop struggles with. We've really done a lot to ensure people understand that fingerprints are the death of us all. They get into the substrate and sometimes you can't get it out. You'd think copper surfaces would be the one you’d be worried about, but for us it's the Kapton® surface on the outside. We run panels through a plasma process to clean the surface after laser processing and stuff or if we've gone down to open up a coverlay. When there is a fingerprint on a Kapton layer, all of a sudden it magically appears during the plasma process. It really is a cosmetic defect at the end of the day, but our customers see that it etches in, and they don't want the parts.
It is little things like that you discover when you are producing parts that are different than in a rigid board environment. It's really specialized, and that's why a lot of companies try to get into flex circuits and end up failing miserably. I can't tell you how many customers we get because a rigid shop told them they could do their flex circuits, messed them up completely, and then we're in the rescue business trying to turn them around and get their confidence in flex circuits built back up. What's happening now is every product is getting a flex circuit introduced to it. Typically a rigid board manufacturer gets questioned by the customer saying, "Hey, I have these flex circuits these engineers are designing, can you get them done?" And of course, because it is a very profitable market segment, a lot of those manufacturers are dying to get into our market share.
So they are giving it a try, but unless they have specialized tooling and understand the process they are going to struggle. You'll find out eventually that maybe it doesn't mix in well with the rigid board business. We see that problem quite often.
Matties: It's also hard to compete with 30 years of experience.
Lencioni: Yes, there is a lot of tribal knowledge, some of it is hard-coded in. Things we've learned, and making sure that things are produced consistently. At the end of the day, it's about consistency.
Matties: What's your best memory of circuit board manufacturing?
Lencioni: Barry, there are so many over the years such as our new facility but what stands out the most is my direct interaction with our people. Let's see, we recently brought back the beer bust. We actually had a party resulting from our best grossing quarter when we had our first three million dollar month. A lot of companies have shied away from people celebrating things, especially with beer or alcohol. They see it as a liability. We enjoy ourselves here at Lenthor, and so we had a nice beer bust last Friday to celebrate the good things. We had it catered with a barbecue company and they cooked ribs and chicken. Everybody celebrated and we had a moment to reflect back on a good time. It's really about enjoying those things. We try to celebrate birthdays for our people, and every time we hit a milestone. For example, moving this factory was a huge process and something to celebrate.
Matties: It’s probably no easy undertaking. We were talking to one of your quality people, and they said it took two years of paperwork?
Lencioni: Moving a factory is not for the faint of heart. If you have a budget, you probably need to double it because of unforeseen contracting. When you contract to build out a fab, there are so many unknowns. I was very particular about how things were going to be put in place, the location and how it looked and felt and where the window locations were. But even though an architect may get your best intentions on a drawing and the contractor bids it for that drawing, we still had over 150 change orders. Those just add on to the bill. We went a million dollars over budget just in change orders, because I wanted it to look and feel a certain way at the end of the day.
Matties: It looks great.
Lencioni: At the end of the day I got the glass windows I wanted and all the windows lined up perfectly down the pipe. I’m a little feng shui-ish, so the carpet had to flow a certain way and people's desks had to face a certain way in order to get good energy.
Angela Alexander: It definitely has a good feeling here; it's light and airy.
Lencioni: You’ve got to have well-lit areas. I was real picky about the color of the floors and the grit in the floor so people wouldn't slip and slide. For example, this floor here is a very vibrant blue. First, I wanted to have these types of floors throughout the factory, and then I got talked out of it. Someone said, "No, that's too bright. It will be too much." Then we put the first floor in and all of the sudden everybody said, "Oh, can I have my floor like that?"
This floor color is like a swimming pool in a certain sense. We wanted it that way so that for the people who have to pay attention to details it's an exciting room to be in. They have to be alive, because it's kind of a bright room.
Matties: It looks really good. You've done a great job, and you're right Angela, you feel the energy as you walk through.
Lencioni: Our customers that come in say they get a warm fuzzy feeling, and our goal when a customer comes in is for them to not leave without placing an order. They go, "Yeah, we want our stuff built here." Then it is for us to transition them from their current supply base and bring them in. When they come through and they see the systems in place, they look at the people who are supporting them and the longevity of our management team and workforce, they know they've got a good stable structure and that their boards will be predictable when they get them.
Alexander: I was impressed with the staff. I haven't even talked to that many, but the employees were all very busy doing their jobs and they all were smiling.
Matties: Right, they were all engaged.
Lencioni: We let our customers engage with our employees all the time, talk to them, and ask them what's going on in the process. We have several customers that have their own badges. They come in, look at the process, verify, touch and feel. It's always a trust-but-verify process.
Matties: Is there anything that we haven't talked about that you feel we should?
Lencioni: Gosh, if I look at the industry, I think it's sad to see that we don't have enough new equipment coming into it. It’s a very limited base of drill manufacturers and conveyorized manufacturers. IPS may be the only domestic company building stuff. With most of the supply base being located internationally It becomes a whole different set of challenges, because when their equipment breaks you have to fly parts in from Singapore or different parts of the world, and you're down two or three days. If you have a domestic supplier with good parts management, they can get a pump in real quick or a nozzle or things that are important for that tool. It's important to get us back up to speed quickly.
The thing that interests us is the whole printed electronics market. We don't know where that's going.
Matties: It's going fast, wherever it's going.
Lencioni: Yes, between wearables and all that kind of stuff, our next factory we will probably be more focused on moving into that marketplace. Right now we are still waiting to see what's going on, who's going to build it, and how cheap it's going to have to be. The price point is so low that it's not exciting for us to chase after it. We need things that give us margins so that we can invest in capital equipment. If we don't have those margins to work with, then our company becomes older, technology becomes obsolete, and we can’t keep up with the newest, latest and greatest widgets.
Matties: Right now it looks like it is best suited for rapid prototypes and one-offs. Sitting at your desk, if you wanted something in your hands, you can print it out. Five to ten years from now I think it's a game changer.
Lencioni: Yeah, we are keeping an eye on the additive processor. We're going to see where that's going, but I haven't seen the tools entering the market segment just yet.
I think wearable electronics are things of the future. There's things that I have looked at from an investment standpoint to figure out, "Well, how is that going to happen?" and, "Oh they're going to have to have a sensor in there to do certain things." I'm keeping an eye on it.
Matties: Mark this has been great. Thank you so much for inviting us, and walking us through and letting us see what you've done here for 30 years.
Lencioni: It’s been a great journey and it's been fun. With this platform here, we are able to do wonderful things. We had a clean sheet of paper, and we spent years figuring out how to bring it together. Then to execute and bring it up to speed while maintaining a growing and thriving business at the same time was really an accomplishment that not very many companies can pull off. I can understand publicly owned companies that print money and go buy a bunch of stuff, but we did it all privately.
Matties: It was all self-funded.
Lencioni: It was, and we have a very small shareholder base. It’s been a good development time for businesses because interest rates have been low, but there's also a threshold and risk of banks reducing their cash flow.
Matties: You happen to be on the high end of a growing market, so this is an easy decision.
Lencioni: Yeah, but if you look at our SIC code, a lot of companies have not made it. They're leery because they see other shops that just didn't make it, because they didn't have the infrastructure and they didn't grow the market.
Matties: They're leery of management, but when they come and look at what you've done, obviously it’s different. You're the first public shop being built in how many years?
Lencioni: Twenty years probably, and the first in the Bay Area. You have to believe in the industry, you have to believe in the products, and I was able to convince everybody that this was the right thing to do, and to do it now.
Matties: You're a second generation PCB guy right?
Lencioni: My father grew up in the business and so I grew up in the business.
Matties: You have it etched in your blood.
Lencioni: Yes, once it's in there, it doesn't get out. What else am I going to do anyway?
Matties: Exactly. We get to a point in our life that’s "What else would we do?" We're having fun.
Lencioni: Even at my age, I'm 55 this year, I've got a good 15 years left in me.
Matties: And you have a lot of experience to apply.
Lencioni: I think that's probably the key to our business growth. Because I grew up in the manufacturing world, I've done every process in 30 years of building circuit boards, so you can't bullshit me. When we have a process issue, processing engineers and customers cannot talk over my head. I understand what we are doing. Let's go fix it, get it back on track and go.
Matties: That's a great spot to be in.
Lencioni: Most CEOs tend to be hands off. I'm more hands on and definitely still get tremendous excitement from walking around and seeing the product.
Matties: You've been hands on in the past, you've run etchers and you know what the deal is. Mark, thanks so much. It's been great catching up with you.