There are a number of definitions for supply chain optimization. Our perspective is a broad definition, where the goal of supply chain optimization is to maximize revenue and/or product margins by building the right thing at the right time for the right people. To achieve this goal requires a sophisticated level of understanding and action.
There are three internal corporate objectives for supply chain optimization. At a basic level these are the goals for: finance (inventory minimization), sales (flexibility and availability), and production (consistent production line loading).
In the semiconductor industry, there is an extended supply chain that usually (in today’s fabless world) combines a series of production locations (suppliers or your own) to build your product. So optimizing certainly requires a deep understanding of what it takes to successfully build your products.
However, the goal is to optimize revenue and/or product margin. This requires viewing the full end-to-end cycle of the value chain. The value chain adds the processes that happen between the shipment of your product and it reaching the hands of the end customer. Historically, for much of the semiconductor industry, this has required moving through distributors to EMS companies to the business or consumer product company through the channels that company has to the eventual end customer. There are often more steps between shipment of your product and it reaching the end customer than there are in your manufacturing process.
Teaching supply chain dynamics sometimes leverages a simulation game called “The Beer Game.” The game uses a fictional value chain for a beer producer, wholesaler, distributor, and retailer to illustrate how demand signals are interpreted and communicated across the value chain. For example a retailer may experience an increase in demand – which is communicated by bigger orders to the distributor, who adds their own interpretation to the demand and communicates that to the wholesaler, and so on.
The Beer Game illustrates how small changes by each player, combined with a lack of overall value chain visibility, can cause dramatic fluctuations in the product flow, a “bullwhip effect.” This type of effect is a significant issue in the semiconductor value chain – where the demand data and signals that reach the semiconductor company may have passed through three to five different planning systems first. Demand planning and interpretation is a significant challenge.To summarize – in the language of the supply chain team. We need to:
- Effectively plan – based on an understanding of demand and supply capacity
- Effectively build – running production efficiently and effectively
- Leveraging effective tools – production systems that collect, analyze, and leverage data