Supply Chain Collaboration Will Determine Future Success
John Baliga, Associate Editor -- Semiconductor International, 1/1/2001
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That market has changed. Product lifecycles are getting shorter. The penalties for getting an IC out late — and for making more than needed — are getting worse. In other words, demand is more dynamic and the semiconductor industry needs to match its productivity to that demand. The key word here is "match," not "increase." In an environment where IC manufacturing cycle time is roughly equal to the lifecycle of the products in which they are used, making what is needed when it is needed is just as important as making state-of-the-art products (Fig. 1).
One challenge is to respond quickly to that dynamic demand. Most companies do treat it as dynamic, especially foundries. Over the years, though, the industry seems to have treated it more as quasi-static, and any vestige of that approach must disappear.
Another challenge is to reduce inventories, or die bank sizes, without sacrificing delivery performance. Lowering inventories not only lowers costs, it means less product needs to be flushed from the pipeline at the end of the product lifecycle. Inventories exist as a buffer or shock absorber to handle surges in demand, so reducing them requires that the supply chain respond faster to dips and surges in demand.
Many companies are looking to e-commerce and e-business as a part of their solution to operate more effectively. They are necessary enablers, but they are only a part of the solution. If the company's business processes are ad-hoc and chaotic, supercharging them could be disastrous. Business practices that can handle the increased speed must be in place before e-commerce is implemented.
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Effective supply chain management is the key to succeeding in a dynamic market. Because few companies, if any, can control their whole chain, the challenge is to make the ties between companies solid and effective.
Experts have various ways of labeling increased levels of supply chain capability. Tyndall et al1 list these stages as disconnected, integrated, seamless and transparent, and virtual corporation. Poirier2 lists them as sourcing and logistics, internal excellence, network construction, and industry leadership. There is agreement, though, that the supply chain is ultimately the thing that must be moved forward rather than any individual company.
"We've realized that key to success is really in the supply chain, and advancing that supply chain significantly, and ahead of your competitors," said Wayne Nesbit, vice president of worldwide external technology for Motorola.
Stages of progress
Depending on the starting point, moving to a point of high supply chain capability will require a few stages of improvement. Various experts give different lists of what those stages are, but there seems to be agreement that internal and external improvements are involved, and that no stage can be skipped.
These transitions involve cultural hurdles as much as they do procedural hurdles. Cultural limitations that exist in transforming a supply chain from a collection of silos to an integrated chain include barriers to sharing information and benefits. They must be addressed within each company before going on to form the necessary relationships with supply chain partners.
Internal improvement
The first step in making these ties strong is for companies within the chain to strengthen their internal processes. In general, internal processes should be used that make interactions within the company, and between companies, as simple as possible. Standardizing procurement processes, for example, reduces the cost of executing purchases. Consolidating purchases not only simplifies interactions with suppliers, it increases buying power.
Giving supply chain partners a consistent interface is important. "For us, the driver is consistency — trying to get, in the classical phrase, one face to our customer," said Stuart Ardern of Philips Semiconductors. Dealing differently with the same company in different regions would be a bad policy, he noted. "Either that customer is going to pick us off by phoning around in three regions and getting the best price out of us, or we're going to disappoint them by behaving differently in the different regions and we're going to turn off that customer."
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Additionally, a plan must be in place that assumes that demand is dynamic, and that the company's response should also be dynamic. Figure 2 depicts a representative process for using forecasts, demand and factory data to determine available-to-promise numbers at the business level, and scheduling updates at the factory level.
External improvement
After internal processes are in order, relationships with supply chain partners can be improved. Supply chain partners must share more information than before, so the whole chain can act coherently to adapt to dynamic demands. Streamlining arrangements must be made to enable faster action. An atmosphere must exist among the supply chain partners that allows and fosters close collaboration, possibly requiring strong shifts in culture.
Information sharing is done on a number of levels. On a minimal level, only enough information is shared to complete transactions. Beyond that is an interactive level, where supply chain partners share planning, forecast, roadmap and new product information. The third stage is one of interdependence.
On this third stage, Chris Givens, vice president of product development at Adexa, said, "You actually have members in the supply chain that have combined their business processes. So they've got interdependent business processes like vendor-managed inventory and supplier-managed inventory. They've connected their systems together through integration business-to-business software, and they've automated the process of order entry as well as collaborative planning."
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Streamlining arrangements, such as vendor-managed inventory and line side stocking, help to speed the reaction to updated information. These arrangements require point-of-use data — what is used when — but they also need to be built on long-term commitments. Usually, the buying company commits to buying a certain amount over a given period of time. Then, instead of issuing a new purchase order every time material is needed, the replenishment procedure itself is automatic. The interdependence needed for an arrangement like automatic replenishment requires a long-term component to work.
One of the typical barriers to successfully implementing supply chain partnerships is reluctance to share benefits. If some partners are shut out from the benefits of closer collaboration, they may participate with less enthusiasm, become unable to continue innovating as needed, or even be choked out of participating. One notable example of this problem in the semiconductor industry occurred with MES software suppliers.4 When innovation was needed most from them, most of them had to be acquired by larger companies to continue serving the industry.
Overall productivity
In the context of serving the supply chain, productivity can be viewed as a self-similar picture. At the tool level, productivity is measured in wafer throughput, which is often normalized to the theoretical maximum and called overall equipment effectiveness (OEE).
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This thinking can be extended to the supply chain. When looking at the company level, it may not be necessary or wise to have a factory run at full capacity. The bottleneck in the supply chain may occur as a drop in the capacity of a packaging facility, a drop in demand for a particular IC or even a drop in the general economy. Though it would not be practical if the fab were the bottleneck in the supply chain, running below full capacity would allow the flexibility to change to a new product.
Intentionally running below full capacity, however, is rarely if ever practical. Having a mix of products makes the fab less sensitive to the demand of any one product. For each of the products, however, the constraint principle still applies: Make what the next step can handle — no more, no less. The Table lists the similarities between optimizing a tool, the fab and the supply chain.
| Self-Similar Productivity Picture | ||
| Tool level | Fab-wide level | Supply chain level |
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Basic principles
When companies are prepared to act coherently as part of a supply chain, there are principles they can follow to optimize supply chain performance:1-2
Treat customers unequally. Though it is important to provide a consistent face to each customer, it is not necessary or practical to present the same face to all. Some high-volume customers will require a closer relationship, while some lower-volume customers may require less attention. Though this may seem counter to the idea of having standardized business processes and procedures, it is not. Having standardized processes and procedures allows decisions about service levels to be based more on business needs, and less on the limitations of processes and procedures.
Be customer-focused. The customer should be able to go to one source for information. Product lines, delivery channels and service should be designed around customer needs rather than supplier needs. Service can be a major differentiator, and the supply chain that adjusts best to the customer will win, giving the members of that chain success.
Move information first, material second. Information can be moved more easily than material. Leveraging information well can eliminate inefficient or unnecessary material movement, which can lower costs and improve service.
Learn to deal with real information. Now that information is much more available, customers and suppliers can see fluctuations that have always existed, but were not visible before. People will eventually learn to deal with these fluctuations appropriately but, until then, companies must use wisdom in how they share information. Automated business processes mean that people mostly handle exceptions. This is efficient, but may cause undue alarm.
Delayed differentiation. This works best in cases where overall demand for similar products is very steady, but demand for specific products within that family is volatile. If those products are identical up to a certain point in the manufacturing process, product can be started in a push fashion according to the steady overall demand. Then the reaction time for manufacturing an individual product becomes the time required to perform the last, differentiating steps, not the overall manufacturing time.
Conclusion
Over the years, the semiconductor industry has developed a reputation for thinking of itself as the master of the electronics supply chain. Now it is becoming apparent that all links in the supply chain are vital, and the end customer is really the master. Since companies cannot afford to be fully vertical, it will be supply chains — not individual companies — that win business. Companies that do their part to be excellent supply chain partners will be the winners in upcoming years. •
Additional reading
Interested in more information about the supply chain? Check out another perspective from our sister publication, Supply Chain Management Review, at http://www.manufacturing.net/scl/scmr/lessons/lessons.htm.
REFERENCES
- G. Tyndall, C. Gopal, W. Partsch, J. Kamauff, Supercharging Supply Chains,John Wiley & Sons, 1998.
- C. Poirier, Advanced Supply Chain Management,Berrett-Koehler, 1999.
- C. Fine, Clockspeed,Perseus Books, 1998.
- J. Fraser, "Treating Software Strategically: Beyond Traditional MES."
- E. Goldratt, The Goal,North River Press, 2nd rev. ed., 1992.
