SUPPLY CHAIN PRACTICES REPORT A REPORT ON THE FINDINGS FROM THE 2010 GSA SUPPLY CHAIN PRACTICES SURVEY

Transcription

1 SUPPLY CHAIN PRACTICES REPORT A REPORT ON THE FINDINGS FROM THE 2010 GSA SUPPLY CHAIN PRACTICES SURVEY SPONSORED BY CONDUCTED BY

2 TABLE OF CONTENTS About GSA 2 About Sponsor 2 Principal Investigator 2 GSA Contact 2 Copyright & Legal Disclaimer 2 Executive Summary 3 Methodology & Demographics 4 Survey Results 5 Summary 13 ABOUT GSA The Global Semiconductor Alliance mission is to accelerate the growth and increase the return on invested capital of the global semiconductor industry by fostering a more effective ecosystem through collaboration, integration and innovation. It addresses the challenges within the supply chain including IP, EDA/design, wafer manufacturing, test and packaging to enable industry-wide solutions. Providing a platform for meaningful global collaboration, the Alliance identifies and articulates market opportunities, encourages and supports entrepreneurship, and provides members with comprehensive and unique market intelligence. Members include companies throughout the supply chain representing 25 countries across the globe. ABOUT SPONSOR JDA Software Group, Inc. (NASDAQ:JDAS - News), The Supply Chain Company, is a leading global provider of innovative supply chain management, merchandising and pricing excellence solutions. JDA empowers more than 6,000 companies of all sizes to make optimal decisions that improve profitability and achieve real results in the discrete and process manufacturing, wholesale distribution, transportation, retail and services industries. With an integrated solutions offering that spans the entire supply chain from materials to the consumer, JDA leverages the powerful heritage and knowledge capital of acquired market leaders. JDA s multiple service options provide customers with flexible configurations, rapid time-to-value, lower total cost of ownership and 24/7 functional and technical support and expertise. PRINCIPAL INVESTIGATOR The Supply Chain Practices Survey and Report were spearheaded by Aashish Singhvi, Sr. Project Manager, Services, JDA Software Inc. He can be reached at aashish.singhvi@jda.com. GSA CONTACT For questions regarding the Supply Chain Practices Survey and Report, please contact Chelsea Boone, Director of Research, GSA, cboone@gsaglobal.org, ext.123 COPYRIGHT & LEGAL DISCLAIMER This publication is protected by United States copyright laws and international treaties, and is copyrighted by Global Semiconductor Alliance (GSA) and JDA Software Group Incorporated (JDA). This document may not be reproduced or posted on another Web site beyond GSA and JDA without prior written consent of GSA and JDA. Unauthorized reproduction of this publication or any portion of it may result in severe civil and criminal penalties, and will be prosecuted to the maximum extent necessary to protect the rights of the publisher. All information contained in this document is current as of publication date. Opinions reflect judgment at the time of publication and are subject to change without notice. All information is from sources GSA and JDA considers reliable, but is not warranted by the publisher.

3 EXECUTIVE SUMMARY In 2010, GSA s Supply Chain Performance Working Group partnered with JDA Software to release the Supply Chain Practices Survey. The objective of this survey was to gather information about semiconductor companies' (i.e., fabless, fab-lite and IDM) supply chain practices and compile it into a study that would be made available to the industry. Companies can gain valuable insights, trends and benchmarks from this research and can assess their supply chain maturity against the median and the best-in-class population. These insights will enable companies to take supply chain improvement initiatives that will help unlock the business value trapped within their supply chain. For semiconductor companies, specifically fabless, design is the first key value driver for success. Price is an additional value driver for growth. Supply chain is increasingly being recognized as a third strategic enabler critical for accelerating growth and success. This study explores what growing semiconductor companies need to do to take advantage of all market conditions, and explains why superior supply chain performance is a prerequisite for achieving market share and profit margin goals. Key findings include: Semiconductor companies of all sizes deal with a certain minimum level of complexity in their supply chain. Companies that have a mixed-model manufacturing strategy (combination of make-to-order, make-to-die bank and make-to-stock) should especially establish robust supply chain processes to manage demand, procurement, production and inventory. Semiconductor companies demonstrate strong execution and performance of the core processes of manufacturing and distribution through material requirements planning (MRP) and distribution/logistics, respectively. However, most companies continue to run MRP at a monthly cadence. Companies should consider increasing the frequency of their MRP process to at least weekly to make their supply chain more responsive to changing demand and supply conditions. 1 in 4 companies do not recognize sales and operations planning (S&OP) and demand forecasting as key supply chain processes. These processes, when put in place, allow companies to align their overall business goals to operations and financial plans. 1 in 3 companies do not recognize supplier collaboration as a formal supply chain process. Wafer and assembly/test houses are key suppliers in the extended semiconductor value chain. Having a formal supplier collaboration process would help companies gain operational agility with improved communication, visibility and alignment of supply to demand. Few companies recognize inventory optimization and capacity planning as supply chain processes. This is expected since in the initial growth stage of a semiconductor company the primary focus is on topline growth. As companies start focusing on efficiency for bottom-line growth, they should consider putting inventory optimization and capacity planning processes in place to help optimize cost. The majority of companies that have supply chain processes in place measure the performance of these processes. Key performance indicators (KPIs) help companies measure their supply chain s performance against company goals and competition, and provide valuable insights in improving processes and execution. These observations suggest that there is a significant opportunity for semiconductor companies to achieve leadership and the next level of maturity in their supply chain. MRP processes should be run weekly rather

4 than monthly. Capacity planning should become integral to generating a material- and capacity-feasible procurement and manufacturing plan. Demand forecasting and S&OP processes should be strengthened to improve alignment of operational goals with business and financial ones. As the focus grows on operational efficiency, inventory planning and optimization should be established as an independent process. Company executives should communicate clearly defined and measurable KPIs and associated goals for their supply chain. Companies should invest in a formal process to measure these KPIs that will assist with decision making and drive improvements that will make supply chain a competitive weapon for their company. METHODOLOGY & DEMOGRAPHICS Methodology The survey published asked companies questions across supply chain metrics, processes and tools. For each supply chain process (e.g., master production schedule (MPS), inventory planning, S&OP and forecasting), participants were asked to input whether they have a formal business process or not. If they did, they were then asked to rate the frequency and people involved for that process. For each metric, participants were asked to input whether they measure a particular supply chain metric or not. If they did, they were then asked what the current performance of their company was for that metric. Finally, participants were asked questions on the tools and data they use to enable their supply chain processes. Participants indicated whether the data storage is in a database or in spreadsheets, and how frequently the data is refreshed. Participants then indicated whether their companies use spreadsheets or an enterprise tool for conducting their planning process. In late 2010, the survey inputs were consolidated and the results are published in the following report. The objective of the report is to present information about the trends around supply chain processes, metrics, governance and tools for semiconductor companies of various sizes and in different stages of evolution. A strong trend or correlation can represent a best practice that can provide useful insights to readers. Demographics While both fabless and IDM companies participated, fabless companies accounted for the greatest percentage of survey respondents. Survey responses were received from 41 industry participants (39 fabless, 2 IDM). Companies with annual revenue of less than $150 million represent a significant segment of the overall fabless market. At the same time, the number of fabless semiconductor companies generating more than $150 million in annual revenue continues to grow. Figure 1. Company Size $ M 10% >$10B 2% <$1M 7% Figure 2. Company Headquarters $ M 15% $76-150M 22% $1-25M 39% $26-50M 5% Asia 2% Europe 37% North America 61%

5 SURVEY RESULTS Company Profile The data indicates that regardless of company size, semiconductor companies continue to deal with a certain minimum level of complexity in their supply chain. Figure 3 shows the breakdown of companies by their primary manufacturing strategy. More than 50% of companies surveyed have a mixed-model manufacturing strategy (combination of make-to-order, make-to-die bank and make-to-stock). This indicates that even for smaller companies, robust supply chain processes are essential to manage demand, procurement, production and inventory. Figure 3. Manufacturing Strategy MTS-Make To Stock 8% MTDB- Make To Die Bank 13% Mixed 53% MTO-Make To Order 28% As would be expected, the importance of supply chain and logistics increases as the volume and complexity of the company grows. The next two charts represent the distribution of companies based on existence of separate supply chain and logistics departments within the company. The charts indicate that even companies which generate less than $150 million in annual revenue recognize supply chain and logistics as part of their business processes. Once companies cross the $150 million mark, 50% of the time they invest in separate personnel focused solely on supply chain processes, and 50% of the time supply chain processes are integrated with operations. Figure 4. Co-Relation of Company Size to Existence of Separate Supply Chain Department in the Company 0% 20% 40% 60% 80% 100% <$1M 67% $1-25M 31% 69% $26-50M 100% $76-150M 22% 44% $ M 50% $ M 50% >$10B 100% N Integrated w/ Ops Y

6 Figure 5. Co-Relation of Company Size to Existence of Separate Logistics Department in the Company 0% 20% 40% 60% 80% 100% <$1M $1-25M $26-50M 6% 25% 67% 69% 100% $76-150M 67% $ M $ M 50% 50% >$10B 100% N Integrated w/ Ops Y Supply Chain Processes Supply Chain Data Regardless of whether a company uses advanced planning solutions or runs their supply chain planning on spreadsheets, fresh and accurate data is critical in creating a good operating plan and making quicker decisions. A key requirement of supply chain planning computer software should be a strong data model that allows for companies to consolidate all their supply chain data into a single repository. This allows for better governance, security and lower total cost to maintain supply chain data for the enterprise. Faster data refresh does not always equal more effective or superior supply chain planning. However, the ability to refresh data at a faster rate ensures data readiness when a company is ready to improve the speed of planning. For example, if a company has supply and demand information on a weekly/daily basis instead of monthly, they have the ability to start running MRP once a week instead of once a month. In this survey, participants were asked about the frequency at which they refresh key supply chain data elements.

7 Figure 6. Data Refresh Frequency of Supply Chain Data Elements 0% 20% 40% 60% 80% Backlog Owned Inventory 17% 13% 17% 19% 22% 53% 59% Consigned Inventory 3PL Inventory 4% 6% 20% 18% 28% 48% 71% WIP 7% 19% 74% Forecast 3% 27% 70% Real Time Daily Weekly Monthly The data indicates that the majority of companies refresh their transactional data (e.g., backlog, inventory, work-in-process (WIP)) daily. They refresh their external supplier data such as consigned inventory and procurement (not depicted in the chart) at a weekly rate and refresh their forecast once a month. An interesting observation is that 17% of companies refresh their backlog once a month. At the same time, owned inventory is refreshed daily or weekly. Considering how dynamic the market conditions are, companies with superior supply chain processes have the ability to refresh their backlog data in real time or daily. Companies who refresh their backlog monthly should consider making the backlog refresh faster. Process Execution Participants also responded about supply chain execution processes. The survey covered eight supply chain processes, from new product introduction (NPI) to order fulfillment, and included master production planning (a.k.a. MRP), S&OP and demand forecasting. Participants were asked to indicate if their company has a formal defined process in place, the frequency at which the process is executed and which organizations are involved in decision making.

8 Figure 7. Formal Supply Chain Planning and Execution Processes 0% 20% 40% 60% 80% 100% Forecasting 26% 74% Master Production Planning Inventory Optimization 4% 31% 69% 96% Supplier Collaboration 38% 62% Capacity Planning S&OP Demand Fulfillment 11% 27% 45% 55% 73% 89% Distribution & Logistics 7% 93% Formal Process No Formal Process The results indicate that except for inventory optimization, the majority of companies recognize each of these processes as part of supply chain planning. Master production planning and distribution/logistics are executed by greater than 90% of companies, with demand fulfillment following closely behind at 89%. Forecasting and S&OP are recognized by greater than 70% of companies, and supplier collaboration and capacity planning are recognized by greater than 50% of companies. Only 31% of companies consider inventory optimization as a formal planning process. This is expected since in the initial growth stage of a semiconductor company, the primary focus is on top-line growth. Additionally, since fabless companies outsource capacity to foundries and assembly/test houses, it helps explain why fewer companies recognize capacity planning as a formal process of their supply chain. Figure 8. Formal Inventory Planning Process (% of Respondents by Company Size) 0% 20% 40% 60% 80% 100% <$1M 0% 100% $1-25M 13% 69% $26-50M 50% $76-150M 11% 44% $ M 67% $ M 25% 50% >$10B 100% Formal Process No Formal Process

9 Frequency of Planning MRP software changed the game in assisting with planning manufacturing processes. Enterprise resource planning (ERP) changed the game in business applications and added unprecedented efficiency to how different functions/departments operate in an enterprise. Advanced planning systems (APS), with their primary focus on the supply chain, are changing the game in how companies run the full spectrum of their supply chain processes across the extended enterprise which includes suppliers and customers. Semiconductor manufacturing processes are the most advanced among high-tech manufacturing and have the ability to re-align the assembly line at increasing frequency while maintaining low down times. This means that companies which have the ability to plan more frequently and make decisions more quickly are better able to re-align their demand and supply as demand and supply conditions change. Figure 9. Frequency Distribution of Key Planning Processes S&OP 7% 59% MRP 13% 29% 58% Forecasting 4% 4% 23% 69% 0% 20% 40% 60% 80% Daily Weekly Monthly Quarterly Forecasting is the process of generating an anticipated demand signal to procure/manufacture supply against future orders. The data indicates that more than 95% of companies generate their forecasts monthly or at a faster cadence. This is in line with the best practices of a monthly forecasting process. MRP, which is also referred to as supply planning or generating a MPS, is the process of matching demand with supply and generating a procurement plan and manufacturing start plan for factories, as well as an available-to-promise (ATP) supply plan to promise and schedule new orders. The data indicates that around 42% of companies run the MRP process weekly or faster, and 58% of companies run this process at a monthly cadence. Companies with best-in-class supply chains run MRP weekly or multiple times a week. Since the demand (orders) and supply (wafer/die supply and manufacturing output) change on a daily basis, being able to refresh the start plan and the ATP picture at a weekly or faster cadence allows for companies to better align demand and supply. Companies running MRP at a monthly cadence should consider improving the frequency of this process. S&OP is a cross-functional business process that enables companies to balance demand and supply/capacity in the medium/long-term horizon. It allows companies to link their business goals with operations and financial plans. The survey data indicates that 59% of companies are running S&OP at a monthly cadence. This is inline with best-in-class supply chain benchmarks of running S&OP on a monthly basis with weekly adjustments.

10 Supply Chain Metrics Supply chain metrics provide companies with leading and lagging indicators of how to measure their supply chain s performance. These metrics are critical in taking the pulse of a company s supply chain. Companies were surveyed on if they had a formalized process to measure and report these metrics and what their company s current performance is against established goals. Figure 10. Measurement of Supply Chain Metrics 0% 20% 40% 60% 80% 100% Forecast Accuracy Delivery Performance to Commit Delivery Performance to CRD Product Lead Times 19% 32% 39% 59% 55% 76% 71% 88% Inventory Capacity Utilization 42% 49% 68% 68% Manufacturing Cycle Time 45% 66% NPI Performance 51% 65% Supplier Performance Product Quality Cost Metrics 68% 42% 56% 58% 51% 65% Measure Do Not Measure The data indicates that, on average, 64% of companies measure all key supply chain metrics. A large majority of companies measure product lead times, forecast accuracy and delivery performance to commit. Fewer companies measure NPI performance, cost metrics and capacity utilization. Forecast Accuracy Forecast accuracy measures the performance of forecasting demand ahead of actual orders received. Forecasting is the first process in the supply chain that drives procurement and manufacturing. High forecast accuracy drives more competitive product lead times with better positioning of supply and lower inventory excess and obsolescence.

11 Figure 11. Distribution of Unit Forecast Accuracy (% of Respondents by Accuracy Range) 40% 24% 24% 20% 10% 14% 17% 10% 0% <50% 50-60% 61-70% 71-80% 81-90% % X-axis is forecast accuracy. Y-axis is % of total companies The chart indicates that 89% of companies have forecast accuracy of better than 50%. The median forecast accuracy performance of survey participants is high at between 75% and 85%. This indicates that most semiconductor companies are putting emphasis on forecasting in the early growth stages. Delivery Performance The delivery performance set of metrics measures three KPIs. Delivery to commit measures order fulfillment against the promise date. Delivery to customer request date (CRD) measures order fulfillment against the CRD. Performance to standard lead time measures the ability to promise on standard lead times or competitive lead times. Delivery performance metrics are a key measure of the supply chain s execution performance and a key driver of high customer service levels. High delivery to commit performance results in high customer satisfaction. High delivery to CRD and performance to standard lead times gives a competitive advantage and allows companies to win market share and business. Figure 12. Distribution of Delivery Performance Metrics % % % 29% 42% 41% 4% 5% 0 <50% 50-75% 76-90% % Delivery to Commit Delivery to CRD Performance to LT

12 The data indicates that a large majority of companies have delivery to commit performance in the % range, and all companies have delivery to commit performance of 76% or higher. This indicates that most companies are able to fulfill their promise date. Just looking at delivery to commit, however, does not provide the complete picture. This is due to the fact that a company could pad their schedule dates and achieve very high commit performance. Therefore, let us look at delivery to CRD performance. The data also indicates that almost a third of the respondents have delivery to CRD performance of higher than 90%. And 75% of companies have delivery to CRD performance greater than 75%. This is superior delivery to CRD performance as compared to the average/median performance of established larger semiconductor IDMs and high-tech electronics companies. This is also unexpected as this survey was conducted in 2010 when the macro semiconductor environment was still constrained. In a constrained environment, you expect delivery to CRD to degrade, as companies are less able to commit to standard lead times. Around 25% of companies reported delivery to CRD performance of lower than 75%. These companies have the opportunity to improve their delivery performance to add competitive advantage to their growth strategy. Inventory Inventory plays an important role within any company since it reflects the amount of capital tied up. For semiconductor companies, especially companies with a short product lifecycle portfolio, higher inventory turns also mean there is less risk of excess, obsolescence and write-offs. More importantly, higher inventory turns also mean that the right inventory is being positioned against anticipated demand (through better forecasting and execution) which drives competitive advantage with shorter lead time commits. 80% Figure 13. Distribution of Inventory Turns 60% 62% 40% 20% 23% 8% 8% 0% The survey data indicates that a majority of companies are able to turn their inventory between four and six times a year. Conversely, their average days on hand of inventory is 60 to 90 days. Almost 25% of companies reported inventory turns to be three or less. The annual revenue of most companies in that bucket is less than $150 million. One can argue that during a company s high-growth period the primary focus is on growing the top line with revenue and market share and less on improving efficiency through inventory optimization. However, as stated earlier, inventory turns also reflect upon the mix of inventory positioned to support demand. Therefore, companies of all sizes can benefit from improving their inventory performance through improved inventory planning and optimization processes.

13 SUMMARY From a supply chain perspective, comprehending changing customer demand and rapidly synchronizing global supply is essential to creating a sustained competitive advantage. This study indicated that many of the best supply chain practices continue to be recognized and adopted by many semiconductor companies. However, many semiconductor companies continue to struggle with their supply chain strategy and have significant opportunity for supply chain improvement initiatives that will help unlock the business value trapped within their supply chain. The semiconductor business model presents great opportunity as well as increased complexity across the value chain. As a semiconductor company begins to achieve scale, superior supply chain performance quickly becomes a prerequisite for achieving critical market share and profit margin goals. There are two key broad observations from this study that applies to the overall GSA community. First, companies can gain significant operational agility from running a master production plan more frequently than once a month and in creating a material- and capacity-feasible plan. Second, the importance of measuring supply chain performance through metrics and KPIs must be recognized by companies of all sizes as a critical success factor for supply chain agility. These two topics could be considered for a future supply chain workshop or a deeper dive study by GSA to assist semiconductor companies with making improvements in these areas. GSA appreciates those companies who participated in the survey and JDA Software and those in the Supply Chain Performance Working Group that helped develop the study and survey. We welcome your comments and feedback on this study. Please provide your feedback to: Chelsea Boone, Director of Research, GSA, cboone@gsaglobal.org.