Key insights from the seminar: “Unlocking supply chain capacity for the semiconductor industry"

The high-tech industry is facing various simultaneous challenges, which are causing a ‘perfect storm’. The main challenges which were discussed and recognized are:

1. Cyclical behavior in semiconductor industries is the past, growth is the future.

In the past, the semiconductor industry was defined by the launches of the main microchip producers, which caused high peaks and cyclical behavior. In today’s world of Industry 4.0, however, there are microchips everywhere. As a result, the semiconductor industry will grow to $1 trillion by 2030, which means that the semiconductor industry will more than double over the next nine years. With the industry set to double in size while the supply chain is facing major microchip shortages, the situation is challenging to say the least.

2.Scarcity of skilled human resources will remain a challenge for a long time.

ASML and its supply chain in the Eindhoven region alone expect to need an additional 70,000 employees by 2030, while companies like Philips, NXP and VDL have very similar expectations. To make this happen, the Triple Helix will have to team up closely with academia and government to align itself with research & education programs and infrastructure challenges. This will put pressure on housing and public transport, to name but two areas, so holistic regional coordination will be key in order to survive.

3. To avoid stunting growth, increased coordination is needed to unlock capacity in the semiconductor supply chain.

A recent PhD thesis showed that considerable savings can be achieved in the assembly of high-tech products by using all available information when making ordering decisions for long-lead-time components, including the number of outstanding orders for in-house produced made-to-order components. However, sharing data and information requires trust, leadership and entrepreneurship. Various great initiatives in data sharing and coordination fail because they lack these three key factors. Some perspective is important: how can you ensure that all partners in a supply chain can benefit from increased cooperation across the supply chain.

4. Production plans for end items at OEMs are fairly stable. Nevertheless, the supply chain suffers from large bullwhips.

It might sound contradictory, but though the production growth plans for end items at OEMs are fairly stable, they are not stable at the detailed level. Variability is a defining feature of the semiconductor supply chain for several reasons. Due to continuous engineering and improvement, requirements are changing at the detailed level. Each company in the supply chain applies its own logic to manage material flows, which causes the well-known bullwhip effect. In order to stay flexible, variability must somehow be buffered. However, traditional semiconductor supply chain control is based on just-in-time principles and make-to-order policies, which limits options for inventory and time buffers. Excess capacity was an important means to create flexibility, but since capacity has become very scarce, this form of buffering has become extremely hard. And when capacity is limited, utilization rises. Variability has a corruptive influence on lead time, especially under high utilization rates.

To safeguard flexibility and reliability, something will have to change! We will need to coordinate to determine which detailed changes can and cannot be made and what the consequences will be.

We will need various enablers to drive possible interventions:

• Shared awareness of common purpose and opportunity
• Trust between multi-tier participants
• Ensure benefits of chain improvements are shared by ALL tiers
• Multi-tier supply chain leadership to drive orchestration

Though these aspects might be seen as ‘soft’ skills, they are critical aspects and are necessary in order to lead change. To drive the implementation to unlock supply chain capacity, we discussed the following opportunities to initiate a successful transition:

1. Think ‘(sub-)Chain’, rather than ‘Company’ when setting up business planning – Rather than starting with all suppliers and the complete supply chain, focus on a (sub)chain when setting up business planning: exchange information and data about what is and is not possible to create insight in how flexible the (sub)chain is. With this approach, the transition can be controlled and managed in a smaller domain, while creating valuable insights for those responsible for the changes.

2. Focus on decisions, not just visibility – There is a strong trend and focus on data, AI and digital transformation. But to stay in control and keep things manageable, it is crucial to focus on the decisions you want to make: which data is necessary, and which is not? And is there really a drive to force a decision, once the findings are there? Translate insights to decision support. This attitude is important to create active and inspiring cooperation to foster continuous improvement. ‘Start with the end in mind’.

3. Intelligent solutions can be used to scale insights beyond 1-to-1 relationships – The power of tooling is that it creates insights and transparency. This insight might be painful, but at least it shows unbiased facts. This information can be relevant for other stakeholders as well, e.g., the direct dependent companies in the supply chain. Sharing information requires a legal framework and trust, of course, but is an important basis to avoid bull-whip effects and capacity limitations.

4. Build a holistic view on resolving the overall bottleneck in sub-chains– The sum of all previous opportunities creates a solid foundation: it creates building blocks from insights in sub-chains towards a holistic view with the right level of transparency to take decisions on resolving the overall bottleneck. And this can be achieved without sharing all the details on production processes: all you have to know is the impact on the input/output side of each stakeholder in the chain.

After agreeing on the vision outlined above with stakeholders in the high-tech supply chain, the next step is to create a ‘field lab’ to test this approach to unlocking supply chain capacity in practice for a certain (sub)chain. It is also important to investigate any potential quick wins, which can serve as a showcase for other (sub)chains and may help identify opportunities. Cooperation, trust and mutual understanding of each other’s situations and goals is key in the field lab. This will help avoid drawn-out discussions on legal matters, compliance, and governance. The high-tech industry has a unique position in the Netherlands. In Brainport Industries, high-tech suppliers form a unique high-tech ecosystem. The Smart Connected Supplier Network (SCSN) provides a fast-growing network for data exchange in the high-tech industry, so the starting point is great to create a field lab for collaboration. There are also promising examples from other industries, like Catena X in the automotive industry

Almost a dozen companies have already signed up to this field lab experiment, marking a promising development. By harnessing the right software and tooling and practical experience in technology and optimization, the first steps can be taken towards a digital twin for some (sub)chains. The findings and results will be shared at a future summit, to learn and improve. It would be great to build a digital twin in this controlled, trusting and collaborative way.

In an interactive setting, the following people shed their light on this topic, under the supervision of Simon Bambach, former CEO VDL ETG:

• Frans van Lierop, Senior Vice President Sourcing & Supply Chain ASML
• Jan Hennipman, CEO CoreDux
• John Blankendaal, Managing Director Brainport Industries
• Sylvester Eijffinger, Emeritus Professor of Financial Economics at Tilburg University
• Bert Pauli, a.o. Former deputy of the province Noord-Brabant
• Ronald de Putter, Advisor ORTEC and former Global SVP Supply Chain Management NXP and Royal Philips
• Frans van Helden, Managing Director Data Science & Consulting at ORTEC
• Goos Kant, Managing Partner at ORTEC and Professor Logistic Optimization at Tilburg University and JADS
• Noud Gademann, Principal Consultant Supply Chain Optimization at ORTEC
• Arthur Jurgens, Vice President at C3