Supply Chain Issues in the High-Technology Semiconductor Industry

Meeting customer on-time delivery performance and reducing the time to commercialize new products are executives’ top two supply chain priorities.

by Sanjiv Chopra, June 2010

Semiconductors, software and electronics devices have become ubiquitous across the globe, serving many needs in diverse business and consumer markets. Despite this industry growth, delivering new products that meet customer requirements, increasing revenue growth and profitability, and efficiently managing a global operation are proving to be increasingly challenging.

There are a number of key trends in the semiconductor and IT industry:

  • Globalization: Company value chains are globally fragmented, with key operations dispersed in places as diverse as Silicon Valley (design), Taiwan (foundry), Bangalore (software), and Malaysia (assembly & testing). Globalization has also introduced a change in the customer mix and created diverse product requirements, driven by emerging economies such as China and India. This diversification and fragmentation has resulted in more complex processes, systems, and organizational structures.

  • Consumer market dominance: Consumer market segment now accounts for almost 70 percent of semiconductor output, impacting every company along the high-tech value chain. The consumer segment is very competitive and extremely price-sensitive. Success in this segment depends upon being able to manage fickle consumer tastes, fashion trends, promotions, seasonality, and availability of complementary services and content.


  • Increasing pace of innovation: Rapid product commoditization enabled by transition to digital technology and use of modular designs has resulted in shrinking product lifecycles — from 24 months to as low as 9 months. Companies must meet stringent time-to-market requirements, have processes that enhance agility in making changes, and allow flexibility to configure or localize products while meeting country-specific regulatory requirements.

  • Increasing product complexity: In order to drive differentiation, products are becoming increasingly sophisticated, integrating software, embedded systems, digital content, and specialized components and services. Companies must collaborate with numerous ecosystem partners to achieve this integration.

In order to understand the implications of these trends and the industry response, Oracle, in conjunction with Global Semiconductor Alliance (GSA), conducted a survey of supply chain executives. The survey was designed to understand participating companies’ supply chain priorities, their key process capability gaps and the strategic initiatives to address the gaps. The results of the survey are extremely illuminating and can be leveraged by others to audit their own supply chain capabilities.

Supply Chain Priorities
Given the dynamic nature of the market, it is not surprising to see that meeting customer on-time delivery performance and reducing the time to commercialize new products are executives’ top two supply chain priorities.

figure 1

In order to profitably balance “variable” demand against “short-term, fixed” capacity, supply chain executives also rank effective production capacity management high among priorities. Given that it takes a while before you can add additional, expensive production test capacity when demand picks up, or suffer low utilization in times of low demand, it is reasonable to expect that capacity planning would be a key priority. Ability to rationalize inventory throughout the supply chain, and improving demand forecast accuracy, round out the top five supply chain issues identified.

Improving demand forecast accuracy could reap big dividends along a variety of supply chain metrics — inventory cost, delivery performance, etc. Key to improving demand forecast is having a system-driven cross-functional sales and operations planning (S&OP) process that includes internal stakeholders from sales, marketing, NPI and finance, as well as demand-supply collaboration capabilities with external partners.

Supply Chain Capability Gaps
Remarkably, 78 percent of all participating companies highlighted the existence of manually intensive processes in supply chain planning and execution as large or medium capability gaps in improving their supply chain performance.

figure 2

Multiple manual or custom processes result in poor data quality and lack of trust in the planning data. Lack of process automation and standardization increases delivery and customer commit lead times, reduces on-time delivery performance, and limits customer responsiveness to forecast changes. An equally important capability gap is easy and real-time access to supply chain key performance indicators (KPIs), which prevents planners from making fact-based supply chain decisions.

Another key gap identified by companies is difficulty keeping supply chain planning data centralized and updated as business conditions change. In companies with lower process maturity, this data is typically distributed among several different individuals and resides in multiple spreadsheets with limited visibility across functional silos. The net result is big swings in supply chain performance, as the planning model and assumptions can quickly get out of synch with business realities. In mature organizations, however, supply chain planning and execution processes are increasingly standardized and automated so planners can spend the bulk of their time on value-added tasks such as managing supply chain exceptions, maintaining and updating the supply chain model, and running what-if scenarios to optimize supply chain performance.

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