2015 Top Plant Winner: Making connections locally, globally
The year was 1981. Phoenix Contact GmbH & Co. KG in Blomberg, Germany, had just created a U.S. subsidiary in Harrisburg, Pa. Its charter was to add value to products manufactured in Germany and distribute them to customers in the U.S. From there, vision, commitment, teamwork, and highly focused best practices transformed Phoenix Contact USA from a value-add assembly subsidiary into a global design and manufacturing enterprise—and the 2015 Plant Engineering Top Plant.
Phoenix Contact develops and manufactures industrial electrical and electronic technology products that power, protect, connect, and automate systems and equipment throughout many discrete, hybrid, and process industries.
Putting down roots in the U.S.
Phoenix Contact has evolved from a value-add assembly facility to a growing manufacturing hub to serve its U.S. and North American customer base. As a U.S. subsidiary of a German company, Phoenix Contact’s main product starting out was terminal blocks. "Going back 30 or 40 years, many companies started internationalizing," said Jack Nehlig, president, Phoenix Contact USA (see Figure 1). "One way to internationalize is to start a subsidiary, incorporate it, and put down roots. The first task of our new subsidiary was to sell German products to U.S. customers. From around 1982 to about 1990, that’s what we did."
During that time, Phoenix Contact in Harrisburg became more than just a distributor for its German-based headquarters. Driven by customers’ needs and ideas, the U.S.-based subsidiary began enhancing its products. "Customers asked us to put terminal blocks on Deutsches Institut für Normung (DIN) rails, add numbering labels, and perform some preassembly," Nehlig said. "We started doing those value-added services, light assembly, and marking."
Nehlig divided Phoenix Contact’s 33-year history in the U.S. into three decades of growth. "We spent the first decade selling products," he said. "The second decade, we added services to those products. And the third decade has been about becoming much more than just a value-add company. In 2005, we added actual new-product design and manufacturing here in Harrisburg." While Phoenix Contact successfully added design and manufacturing capabilities to its charter, it still performs the value-added services for its customers.
Designed locally, distributed globally
In addition to growing from a value-add assembly company to a design and manufacturing center, Phoenix Contact in Harrisburg has become an exporter to its German-based corporate team. The company went from no exports a decade ago to exporting around 30% of its manufacturing dollar volume in 2015. "From where we started to today, we’ve grown close to 400%," said Dave Skelton, vice president and general manager, Phoenix Contact, Harrisburg. "Even though we started with small numbers, we’re a significant business today. I really believe that impact is because of developing those products here."
A large part of the U.S. subsidiary’s mission is to be the manufacturing location for locally designed global products. "Today, we are recognized as a global leader in unmanaged Ethernet switches," Skelton said. "We started out with Ethernet products in 2005 because, in the U.S., the industry had already been deploying Ethernet in the manufacturing environment-much more than in Europe. At the time, it was being deployed with commercial-grade equipment because people wanted to get it done. We started industrializing Ethernet switches. The key to industrializing is designing products that can withstand shock, vibration, and temperature. Industrializing also includes mitigating the unwanted effects of electromagnetic interference."
Another example of locally designed, globally distributed products includes 900 MHz radios and WirelessHART. "We’re on our second generation of 900 MHz and this one was fully developed and is manufactured here now," said Skelton. "We developed the WirelessHART products here. And the adapters and the gateway products are also manufactured here."
Skelton said that the company’s process infrastructure products, such as FOUNDATION fieldbus and PROFIBUS PA components, were developed in Harrisburg. "We have a good customer base using those technologies, and the headquarters for those technologies are located in the U.S.," he said. "That made it very easy for us to develop and make those products here."
Skelton also pointed out that the reasons to develop and manufacture these products in the U.S. include being based on an American standard, access to technologies, early adopters, and the customers that can help Phoenix Contact USA bring those products into the market.
Evolving manufacturing capabilities
Phoenix Contact has experienced many changes in its manufacturing capabilities over the years. "We have gone from a value-add center-where we were buying a lot of components and putting them together-to a true development center for a global market here in the U.S.," said Todd Madden, manufacturing operations manager for industrial electronics products at the Harrisburg plant. "For example, we did the wave-soldering process on printed circuit boards with resistors, diodes, and Phoenix Contact terminal blocks. It was done for the North American market because we wanted to be close to the customers."
Cheryl Boyd, manufacturing operations manager for device-connection products, agrees. "We’ve gone from custom to a lot of standard serial production," she said (see Figure 2). "And we’ve gone from mostly manual to high-volume automated processes."
Skelton said that employing automation is a necessity for doing manufacturing in the U.S. "You can do selective manual work, but you have to have automation," he said. "It’s critical. And as soon as you add automation, you need skilled personnel."
"In our electronics assembly, there has been a big shift in the way our solder systems are designed to be more efficient," said Mike Correll, engineering manager for interface, I/O, and networks, mechanical product development (formerly manufacturing and development engineering manager). "Before, they were highly manual and batch processes. We migrated to newly installed automated pallet-transfer systems (see Figure 3). In this arrangement, our solder pallets are conveyed from an array of assembly flow lines. The pallets are bar-coded so the oven knows which thermal recipe to use. This system is fully conveyed, eliminating the manual transfers associated with our previous batch processes."
Correll explained that industrial electronics products used to have a single wave-soldering machine that would run one job at a time. "Now, we can run anywhere from 8 to 10 different jobs because we have a fully conveyed system that feeds the wave-solder machines," he said. "We also have a separate, fully conveyed surface-mount line with automated inspection capability.
People make the difference
Emphasizing employee empowerment, development, and happiness is the basis for the employee-focused culture in Harrisburg. "I’ve learned that, by far, people are our greatest resource," Boyd said (see Figure 5). "On a daily basis, we strive to find ways to improve our processes without sacrificing product quality or compromising our vision. When given the opportunity, people are willing to pull together to achieve what needs to be done. You just need to provide them with the support and the chance to achieve those targets. This success could only have been achieved by all levels of our staff working together."
"The skill and knowledge of our workforce and our ability to learn are really what sets us apart," added Correll. "Our people are constantly called on to create manufacturing processes for new products. And often when we do that, we’re getting well outside of our comfort zone. In these cases, our workforce has always shown a real can-do attitude, and the ability to learn whatever is required to realize the new product. Whether it’s some kind of intricate soldering, a new test system, potting, or a complex automated assembly process, there’s really an attitude of, ‘We’re not certain how we’re going to do this, but we’re going to figure it out’."
"We are the real deal," said Boyd. "We are extremely focused on our customers and our employees at the same time. And that’s hard to manage. Phoenix Contact realizes that without its employees, there’s no way we can serve our customers. The company puts a lot of emphasis on employee empowerment, development, and happiness."
Employee empowerment and job ownership are evident at Phoenix Contact in Harrisburg, especially in how much emphasis the manufacturing team puts on teamwork (see Figure 6). "I can’t stress team building enough," Boyd said. "When people learn to work together-regardless of their differences, background, or training-amazing things happen. Working as a team at all levels allows you to gain understanding of the actual problem and real solution. Most of our solutions have come from everybody pulling together, talking about it, and creating solutions."
"Teams are extremely important in electronics assembly," said Correll. "A large part of our mission is to be the manufacturing location for locally designed global products. The production and manufacturing teams are integral to ensuring design for manufacturability (DFM). The product development engineers work directly with the production teams when conducting pilot runs and when building customer beta samples."
Madden said that teamwork also creates employee ownership. "Getting employee buy-in is very important," he said. "That’s what we’ve learned."
Recruiting, developing employees
Skelton recalled the early days of Phoenix Contact in Harrisburg: "When we started trying to recruit people, we had a hard time because we were new and we were looking for engineers in this community," he said. "And it was difficult to find people. This area has relatively low unemployment, in general. It was the same with direct employees; it has always been difficult to find people.
"We used traditional hiring mechanisms in the early days," Skelton said. "But, today, we’re growing our own—in production, and throughout the entire organization. For the professional workforce, we do internships and apprenticeships. The internships are typically for college students. We bring in sophomores and juniors as temporary technicians and engineers. We also work with local community colleges to organize internships. We hire a lot of our engineers and technicians through internship programs."
Skelton said that the company learns from interns, and interns learn from Phoenix Contact. "They get to learn about our company," he said. "They can see if this is the right environment and culture for them, and we do the same. They are developing, and we’re seeing how their work is and what kind of people they are. It’s a win-win."
Phoenix Contact and Harrisburg Area Community College (HACC) worked together to design and implement a Mechatronics Apprenticeship program, which was launched in 2011. Over a four-year period, apprentices simultaneously work at Phoenix Contact while pursuing an associate degree in mechatronics at HACC at no cost to the apprentice. In 2013, the Commonwealth of Pennsylvania’s Apprenticeship and Training Council and the U.S. Dept. of Labor’s Office of Apprenticeship recognized Phoenix Contact as an official apprenticeship and training sponsor and the first in the state to offer a mechatronics apprenticeship program. This means the program is available to any company that wants to start its own mechatronics program using the Phoenix Contact/HACC program as a model.
"We could find electronic technicians, we could find mechanical technicians, but we couldn’t find mechatronics technicians," Skelton said. "We chose to work with HACC and, together, we developed a curriculum and started the mechatronics apprenticeship program here."
According to Skelton, this apprenticeship program is paying off. "For us, this program has been fantastic because we were able to get skilled technicians," he said. "In one production area, we were able to tie a 13% improvement in overall equipment effectiveness (OEE) on a group of machines to when these technicians started working on them."
Turning Lean concepts into tools
Phoenix Contact employs Lean principles where they make sense, with plans to implement more as necessary. A company doesn’t have to be a Lean evangelist to make good use of Lean tools. "We actively pursue Lean disciplines in our facility," said Nehlig. "We are a good example of employing Lean disciplines in manufacturing."
"We do use a lot of Lean tools," Skelton said. "When we first started our move from our rented facility to here, 5S was our mantra. In our production areas, we’re using pull components wherever we can. We use value-stream mapping and Poka-yoke (a Japanese term that means "mistake-proofing") selectively. We use Kanban where we have the right volumes. The value-stream mapping has been a great help where we have had issues."
According to Nehlig, the two main drivers of the company’s manufacturing efficiency are Lean disciplines and global ISO certification. When Phoenix Contact in Harrisburg launched its development and manufacturing initiative in 2005, it also chose to pursue global ISO certification-on one certificate. "We believe that global ISO certification is very conducive to improving our efficiencies and achieving excellence in manufacturing," Nehlig said. "And if we’re on one certificate and don’t follow our ISO processes properly in Harrisburg, our German headquarters can lose its certificate."
Pursuing the goal of trust
"At Phoenix Contact, we believe we have proven that, with the right strategy and the right focus on our people, we can successfully manufacture in the U.S. and compete globally from the U.S.," said Nehlig. "It was decisive investment, a focus on the long term, the pursuit of excellence while you do it, and really treating and developing our people right to match that goal."
Looking to the future, Phoenix Contact is focusing more on trust than dollar-volume ranking. "In our mission and vision statements, we’ve set a company goal to be the most trusted brand in our industry by 2020," Nehlig said. "We believe that if your customer is going to truly trust you, you better be excellent at everything you do—from communicating with them to building products. If you have total trust, you must be performing in a highly effective and excellent manner."
New design and manufacturing (D&M) center
In the fall of 2012, Phoenix Contact began a major expansion project to accommodate the growing workforce and to increase its local manufacturing capacity. The project was completed in spring of 2014. The first floor of the new facility added 50,000 sq ft of production and support space. The second and third floors are home to the D&M engineering and product management teams.
The D&M engineering space, also called the "R&D center," has features that Skelton identified as "necessary to facilitate collaboration." They include:
- An open-office space design with low cubicle walls encourages collaboration. All workstations can be adjusted for standing or sitting.
- Most employees have permanent work spaces. However, they can choose to work from numerous mobile offices or open areas-including an outside terrace.
- Project rooms are available in different configurations, which allows engineering teams to set up long-term projects without the need to tear down, move, and reconfigure (see Figure 7).
- Engineering labs to test products for specific requirements include radio frequency, electromagnetic compatibility, high-voltage surge-protection requirements, UL, and various environmental conditions.
- Three video conference rooms enable collaboration with colleagues in Germany, Ann Arbor, and Houston.
Skelton said that what people like most about the R&D center are 1) the sun; 2) the option of standing or sitting to work; and 3) the project rooms.
Phoenix Contact USA timeline
Phoenix Contact’s history in the U.S. indicates growth at every milestone.
1981: Phoenix Contact establishes Phoenix Contact USA, one of its first international subsidiaries. Over the next few decades, the subsidiary operated primarily as a sales company. However, even from the early days, there was a small amount of manufacturing in the form of value-added assembly.
1985: The office moved from Harrisburg to Lower Swatara Township, a few miles outside of the city.
1998: Opened landmark tower in the U.S.
2002: Due to company growth and lack of space in the U.S. headquarters, manufacturing operations moved to a leased space across the street.
2005: Phoenix Contact changed its business structure and established the U.S. as one of three regional business units. Phoenix Contact Development and Manufacturing Inc. is responsible for local product management, development, and manufacturing.
2007: Opened Houston Customer Technology Center to better serve the oil and gas industry.
2008: Opened the fully automated Logistics Center for the Americas, which receives products from Germany and ships to customers throughout North and South America. Phoenix Contact also exports U.S.-manufactured products to Germany and other countries through the LCA.
2010: Manufacturing moved back to the 586 Fulling Mill Road headquarters, vacating space formerly occupied by the original Logistics Center.
2011: Introduced the Mechatronics Apprenticeship program.
2012: Opened the Ann Arbor Customer and Technology Center, home to the software development center, and also a sales office with a strong focus on the automotive industry.
2014: Opened the San Jose Customer Technology Center to serve customers in Silicon Valley.
2014: Opened the new Development and Manufacturing facility.
Phoenix Contact: vital statistics
Plant size: 100,000 sq ft (total facility square footage: 360,000).
Number of employees: 223 D&M employees in the Pa. facility; 520 total in Pa.; 700 total in U.S. (includes offices in Michigan, Texas, California, and field sales personnel).
Number of shifts: 2
Industries served: Phoenix Contact products can be found in virtually all industrial settings with a strong strategic focus on the automotive, energy, oil and gas, transportation infrastructure, and water/wastewater markets.
Products produced: The D&M company manages nearly 7,000 specific part numbers, but many are customer-specific and not all are manufactured in Harrisburg. Major product groups produced in Harrisburg include:
- Custom/configured sensor/actuator cables and connectors · Printed circuit board terminal blocks
- VARIOFACE Professional (VIP) system, cabling modules, and adapters
- WirelessHART and 900 MHz radios and adapters
- Process infrastructure (FOUNDATION Fieldbus and PROFIBUS PA components)
- Industrial PCs (Valueline and Designline).
Original facilities in Harrisburg: 1981; moved to current location in 1985.
Major facility expansions:
- 1998 office tower
- 2008 distribution warehouse
- 2010 manufacturing modernization
- 2014 expansion and upgrade of electronics production.
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