Collaboration and the evolving semiconductor supply chain

Today’s electronics design and manufacturing landscape is very different to that of even just a few years ago. Increased globalization and pressure to outsource has increased the distance between engineers and production facilities. Consolidation of semiconductor suppliers has become an industry trend. Coupled with a desire to rationalize supplier bases, this has made design houses and manufacturing companies more reliant on a smaller number of supply partners which can result in greater risk to supply disruption.

More recently the global economic downturn has had a significant impact. Suppliers, distributors and customers have all had to micro-manage their balance sheet, paying closer attention than ever before to inventory, capacity and underlying core competencies. Yet despite this, organizations also expect their supply chain to be responsive and agile as business conditions improve and both spot demand and long-term demand grow.

Improving efficiency and mitigating risk
The supply chain must evolve if it is to match the requirements of this ever-changing sector. The recent economic environment has emphasized the need to continually drive down total cost of ownership (TCO), although in reality this should be a goal in both good times and bad. One of the keys to reducing TCO is a flexible, proactive and responsive supply chain that delivers efficiency improvements and risk reduction at all stages.

By definition, supply chains comprise many different organizations including raw material producers, component manufacturers, ODMs, distributors, OEMs, CEMs and system integrators. This mix of different parties presents certain challenges for ‘end-to-end’ forecasting. However, ‘end-to-end’ visibility is at the heart of delivering efficiency improvements and risk reduction. And it is for this reason that taking a truly collaborative approach to the supply chain is so important.

Fundamental to a collaborative approach are processes and systems that support the transparent flow of a wide variety of key information – including end user demand, production forecasts, quality data, manufacturing capacity and utilization, channel inventory levels, component leadtimes and availability of raw materials – between all of the organizations in the supply chain, irrespective of geographic location. However, the desire for information flow is only one part of the story. All parties must also have the tools and capabilities to analyze the elements of the dataflow that are relevant to them and then use that analysis as the basis for the decisions that will help them play their part in improving efficiency and reducing risk.

Facilitating collaboration
Collaboration requires ‘buy-in’ from all the companies in the supply chain, a commitment to sharing information for the good of the chain as a whole, and the development of strong, long-term relationships with chain partners. However, no matter how committed individual parties may be to a collaborative approach, one of the supply chain partners will typically need to take a lead. In the past, large broadline distributors were relied on heavily for this task along with the responsibility to hold inventory to buffer unforecasted upsides. Today, with the benefit of a global perspective across complex supply chains involving ODMs, OEMs, component distributors and CEMs, multi-national/global semiconductor manufacturers may be better placed to facilitate the collaborative supply chain. These large semiconductor companies are in the best position to reduce the risk of supply disruption for customers, especially in the ever changing business environments compounded by ever shorter consumer electronics products lifecycles.

The argument for semiconductor manufacturers to take the lead is compelling. Unlike distributors, most will have strong links with raw material suppliers and the ability to forecast potential shortages or price fluctuations that could impact their products. They also have insight into available fab capacities, strong relationships with both global and local distribution partners and direct experience of supporting global Tier 1 customers. What’s more a worldwide view across a wide variety of end customer segments puts multinational semiconductor companies in a good position to catch demand inflexions before many customers.

Effectively the semiconductor manufacturer has to become a ‘global service manager;’ taking the lead in managing the overall supply chain for its own operations as well as those of its customers, distribution channel partners and, its suppliers. Incumbent on this service manager role is investment in the tools, initiatives and business processes that support a collaborative supply chain model.

Tools and processes
The effective use of information technology is critical to supporting the collaborative models needed to address the requirements of a highly competitive industry built around rapidly changing demand and long planning cycles. The most effective tools are those that combine the best use of knowledge from within the company and across the supply chain with mathematical techniques and statistical analysis methods that provide high accuracy trend and long-term forecasting data.

IT systems that support demand driven supply networks (DDSNs), for example, bridge the gap between customer relationship management and supply chain management. Effective DDSNs comprise a system of technologies and processes that sense and react to real-time demand across a network of customers, suppliers and employees – for instance by prioritizing builds based on open orders and product at hand. Advanced planning tools can be used to improve deliveries while optimizing factory starts and inventory levels, and effective capacity management can be driven by conducting automated ‘what-if’ scenarios and simulations for changing demands. These tools should be integrated with systems that support long-range sales and operations planning, helping to build integrated demand plans that can be shared with other organizations within the supply chain.

No matter how sophisticated they may be, IT tools will only be truly effective when combined with robust business processes and programs and personnel who are tasked with measurably improving supply chain efficiencies. Global service managers, for example, should use available data to understand end customer demand changes, drive readiness within the supply chain and support the launch of new customer programs. Service program analysts can monitor customer and channel inventory levels, build safety stocks and optimize targets to strategically prepare for upturns. Other supply chain personnel should be available around the clock to handle customer crisis issues, address requirements for special or priority shipments and to escalate issues through the supply chain as appropriate.

Collaboration is the future
With the electronics industry showing the signs of a return to growth, the health of the supply chain is set to play a fundamental role in helping companies succeed in the upturn. The benefits of supply chain risk management and efficiency increases outweigh the costs. It is vital, therefore, to foster a highly collaborative supply chain management model that can successfully reduce the risk of surplus inventories, increase efficiencies and address challenges such as reducing in-transit mileage for material and finished product.

By taking the lead for their own operations as well as those of their customers, distribution channel partners and suppliers, large semiconductor manufacturers are well placed to facilitate collaborative end-to-end models that ensure every party along the chain shares in the operational efficiencies and risk reductions that drive down TCO.

Author Information
Mamoon Rashid is the Vice President, Global Supply Chain and External Manufacturing, for ON Semiconductor.