The Changing Supply Chain

The growth of the consumer electronics market is creating changes in the semiconductor industry. New concerns, such as price points and refresh rates, have the industry looking for ways to manage an increasingly complex supply chain (Fig. 1). Today, many chipmakers, fabless design houses, and equipment manufactures are implementing some form of supply chain management (SCM) to bring down costs and keep up with growing customer demands.

SCM is a business operation or process. It is a function of information systems, physical sets of materials, people and facilities, designed to optimize the flow of materials and information to achieve a particular goal. For innovative and time-sensitive products, such as semiconductor devices, an emphasis is placed on the responsiveness of that supply chain.

Over the past 10–20 years, the semiconductor chip industry has been driven by technology and device sales dominated by higher-end business applications. Individual chips were generally purchased, put on a printed circuit board (PCB) and sold into products. Today, more is being done inside the semiconductor companies than ever before, noted Tom Linton, vice president and chief procurement officer at Freescale Semiconductor (Austin, Texas). Consumer products are the new drivers. Looking at this year's first quarter numbers for cell phones alone, worldwide shipments are up 10%, with total shipments of 91.1 million units. More that half of the units are from Finland-based mobile phone maker Nokia.

The sheer volume of electronic gadgets, including cell phones, video games, iPods and Blackberries, have had a tremendous impact on our daily lives. So it is not surprising that lower price points and 6–18 month refresh rates would impact the industry responsible for the electronic components. To the fab, it has meant producing devices that are smaller, lighter, faster, cheaper and better, giving the chipmakers an incentive to put more functions on an increasingly smaller piece of real estate that weighs and costs less. To accomplish this, the fab has added a degree of complexity at the device level and, more importantly, at the integration level.

1. The platform contains a 32-bit microcontroller, fully compliant IEEE 802.15.4 transceiver, balun and RF matching components integrated into a small-footprint land-grid array package. (Source: Freescale Semiconductor)

For example, in today's environment, a module is more likely to be sold instead of multiple individual chips. A module is an integrated system, which performs multiple functions inside of a cell phone, and has its own materials associated with it. A supply chain is driven off a bill of materials, the materials and components that make up a product. In the module, there may be anywhere from a dozen to 50 or more individual chips on a substrate that go into the package before the cap is put on.

At the same time the hardware is coming together, software and multiple test programs must be integrated into the process. Chip testing requires an ecosystem with many other chips, both inside the module and on the system board at the subassembly level. Software ramifications have to be understood and timed out so that the software and hardware are integrated in the solution, coming together at the right time. It could be months or a year away to where the end product has to be delivered to a customer.

With more integration and technology required from the fabs, a greater level of technical expertise is needed. Inside a procurement organization, for example, a procurement engineering background is necessary to get inside the bill of materials and understand and articulate both the value requirements and what can and should be done. Also, for the first time, engineering is being driven into supply chains. Chemistry is often involved, requiring the expertise of chemical engineers and, in other areas, the skill and know-how of electrical, mechanical and software engineers are needed.

Components in the supply chain may come from different parts of the world: software solutions in India, hardware procurement of organic substrates in China, or parts and compounds in Japan. Having a global and technical footprint, and being able to work with suppliers in that regard, is essential to accomplishing what needs to be done.

"The more technology provided, the more value is added," Linton said. This opens up the door to seeing the bigger picture and providing more services within more solutions to the customer. More than a supply chain, some call it a value chain.

Intel (Santa Clara, Calif.) and Samsung (Seuol, Korea) were forerunners in successfully implementing very sophisticated SCM programs to buffer fluctuating selling prices. Now, the need for SCM has become more widely accepted and, in some sectors, critical to maintaining a competitive edge.

SCM begins with a goal: knowing where you want to be. A successful supply chain is based on understanding demand, where the supply is, and the timing of the transition that moves a product from concept to delivery, stated Scott Grant, North American director of electronics and high-tech semiconductor practice at Accenture (Chicago). Fundamental to achieving this is visibility, the ability to look at the entire supply chain, as opposed to a particular piece of it, and manage its parts.

A product typically goes from R&D to a planning stage. During supply planning, materials or sources of materials are procured and tracked through fabrication, assembly and testing, then sent to packaging and distribution (Fig. 2 ). The physical flow of goods can provide visibility, such as how many analog vs. digital die are sitting in the buffer, and whether everything is ready if an integrated product needs to move forward. Any changes in the supply chain rely heavily on information technology (IT) to connect the flow of data to the physical products. Physical flow can also indicate problems occurring around operational flex points, providing information about the model and business process being used.

2. Supply chains are based on multiple layers of information from all sectors that impact the product flow. (Source: Accenture)

Software is an integral part of SCM. Some gather data, taking complicated lists of part numbers and different pieces of the supply chain to be viewed and managed, while others are powerful analytical tools. In SCM, the two commonly used software programs are Enterprise Resource Planning (ERP) and Manufacturing Execution System (MES). ERP is a system-level program, which evaluates how well a supply chain is integrated. It looks at questions regarding how well a bill of materials is structured, and how manufacturing routings are configured. It is essentially looking for gaps in the flow.

MES is used to control the flow of product through the fabrication and assembly and test facilities. As with everything in the supply chain, MES is connected to many other systems, including ERP, planning and financial. Once connected, "the managers can begin to look at a system-level assessment of how integrated, how their data quality looks, and how these systems flow together," Grant said.

Other software programs look at business intelligence, decision support and data management systems to understand where the data is coming from and when to determine inventory and potential demand. Decisions are made around what to produce and move through the supply chain. What is gained is visibility. What is learned is how well the supply is working and just how costly it is.

Managing greater complexity and device integration in supply chains has brought forth the development of software more suitable to the details of device tracking, as opposed to operations-centric business activities, stated Joe Dury, manager of Kalypso LP (Rutherfordton, N.C.). Software like Product Lifecycle Management (PLM) is designed for the engineering process, and is based on contextual knowledge rather than transactions. PLM manages a product across its lifecycle, from product concept to detailed design, simulation and analysis to end-of-life. The product design and development data referred to as a product record (Fig. 3 ) includes detailed product information from engineering, SCM, finance and other organizations required to design and build a product. PLM systems assist in making decisions about timing, cost and outsourcing.

3. Programs like Product Lifecycle Management (PLM) have been developed to address the unique needs of the semiconductor device industry, recording detailed information about the product. (Source: Kalypso)

Internal controls

Supply chains are all about timing. Time is managed from within a facility, as well as through interactions among outside suppliers. In a fab, the SCM process typically begins when a customer describes a future state of a product or position they need. The focus is on who can get them there, whether through a design or manufacturing capability or ongoing services. A tremendous amount of data flows during the process, and the velocity of the data is important. It is all being driven by what the customer needs to have done and how quickly it can be accomplished. The entire management system of that supply chain focuses on taking that future state or value being sought and bringing the technology, materials and personnel together to get it launched.

All the while, the clock is ticking. The product must be launched as quickly as possible, so the supply chain itself becomes driven by speed, Linton stated. The question is: How fast and effective am I relative to my competition? And how do I gain velocity?

Speeding up the process, compressing time requires visibility, a means of knowing what is happening in the supply chain at any point in time. To do this, chipmakers rely on software to track both the physical and information flow to simplify the collection of data and track the huge array of people, parts and processes in the supply chain. Among the many software programs used in SCM, enterprise-planning systems are used to tie together supply chain elements to facilitate the integration process.

The best supply chains are dynamic, giving suppliers on-time, real-time visibility to what is occurring in the fab, so they, the suppliers, can respond immediately. And because it is all about speed, if the supplier is starting and shipping a product before someone else, they often get the business.

In the past, elements in supply chains communicated serially. An email was sent out and an answer was returned. This slow method has been replaced with simultaneous communication, which uses a business-to-business software system for handling transactions over the Internet. For example, a planner can type into the intercompany system what and how much product is needed, and as it is being typed, the supplier is viewing the order. If the fab's demand profile changes, the supplier can witness the change. At this point, the only thing lacking is the ability to directly monitor what is going on inside different parts of the supply chain.

Whatever form of SCM is used in whatever setting, the goals remain the same. However, what may work on the chip side may not be optimal for the supply side.

Equipment building requires more flexibility than chip making because they face greater fluctuations in demand and longer lead times. Nevertheless, vendors have to be more efficient and more conscientious in terms of cost, quality and time than ever before.

"There has been a growing demand to have the systems up and in production in a matter of weeks and days as opposed to months," noted Gino Addiego, executive vice president of corporate operations at Novellus Systems (San Jose). Quality and reliability are expected to be maintained at a level to ensure the customer can run his or her factories at higher capacity levels to remain competitive. The bottom line is that the livelihood of equipment and component suppliers in the chain depends on their ability to maintain their part of the flow to keep the supply chain running smoothly. "One approach is to cut away the fat," Addiego stated. "If you don't," he warned, "you're out of business, and someone who can cut it will take your business away."

To achieve this goal, Novellus turned its focus on "lean" manufacturing SCM. Interestingly, they looked for examples from the automobile industry and found what they were looking for in the pioneer of lean methods, Toyota. This simple yet powerful technique is called the 5 Ss.

Each of the 5 Ss refers to a Japanese word that is used to instill good house keeping practices in the workplace. They translate as follows:

• Seiri (say-re): organization
• Seiton (say-ton): orderliness
• Seiso (say-so): cleanliness
• Seiketsu (say-ke-tsou): always clean
• Shitsuke (she-tsou-ke): discipline

The first step in a lean environment is to organize, clean and remove everything out of the manufacturing facilities that does not belong there (Fig. 4 ). This may include accumulated clutter, unused tools or dead equipment, some the size of rooms.

4. The newly organized and decluttered assembly line, based on the 5S concept of lean manufacturing, freed space and led to greater efficiency. (Source: Novellus Systems)

Next, orderliness and cleanliness put everything in its place, and every area is made clean and tidy. Tools are easily assessable, whether next to a piece of equipment or hooked on a near by pegboard. Adjustable tools are tossed and replaced by dedicated tools suited for the job, thus decreasing the number of mistakes. When building the same equipment day in and day out, orderliness saves time — faster capability and exact usage. Maintaining a lean environment and avoiding the build up of clutter and waste cover the last two Ss.

Once the fat is trimmed, the lean concept moves in, simplifying the way the work is done. First, the work force is divided into teams of two and the workload is divided into a series of steps. Each team is trained at a particular job and learns it well, then rotates to another job. In this manner, the engineers are able to help each other in terms of understanding what to do, providing the flexibility to fill in for each other.

Finally, equipment is built only when all components are present. Instead of trying to get ahead by working on what is available, all necessary parts must be on-hand to start. To do this requires greater synchronization with suppliers. Eliminating fat around the delivery date saves dollars on both sides.

The impact of lean manufacturing has been impressive. Novellus was able to close one of its factories, handling all manufacturing in two facilities, with space to grow. Shorter lead times and lifetime cycles have also been met. "For the last three years, we have had a 50% reduction in factory cycle time, making us more competitive," Addiego said. SCM programs come in many forms and a variety of methods to achieve cost reduction and faster turn around times.

The implementation of SCM systems over the past few years has been changing the way the semiconductor industry is doing business and making a strong work ethic even more powerful. The spirit of competition is in full force.

Accenture's Grant said there are more challenges ahead. "We have moved from mass production to mass customization to nearly a one-to-one design," he said. The level of custom-designed devices is increasingly challenging the supply network. Many questions arise such as can custom components from multiple products be tracked? Clearly, supply chains of the future will be even more dynamic and visible, where developing problems can be quickly prevented or managed. One thing about the semiconductor industry, if there is a growing trend, a solution will soon be in the works.