an innovative approach to managing uncertainty in a highly volatile supply chain mathieu clerkx...

An innovative approach to managing uncertainty in a highly volatile supply chain

Mathieu ClerkxPhilips SemiconductorsSenior vice presidentSupply chain management and ICT

Ton de KokProfessor of Operations Planning and ControlTechnische Universiteit EindhovenThe Netherlands

Acknowledgements are due to Fred Jansen and Jan van Doremalen (CQM), Erik van Wachem and Winfried Peeters (Philips Semiconductors)

Semiconductors 2Semiconductors


• The players• SCM improvement

framework• Process solution• Decision support

solution• Benefits and impact

SuperiorSupply Chain

Decision Making


Philips ElectronicsWorld’s 10th largest electronics corporation

• Active in consumer electronics, medical systems, lighting, semiconductors, domesticappliances and personal care

• Multinational workforce of 164,000 employees

• Sales 2003: € 29 billion

• Sales and service in 150 countries

• R&D expenditure 2003: € 2,6 billion

• Over 100,000 patent rights


DiffusionAssembly/

testing

OPU

FLEX

PCB

Finishedproduct Retail

WWW

Players Supply Chain Network

• Volatile, highly uncertain demand• Rapid evolution process and product technologies

20 weeks

Philips Semiconductors• Manufacturer of integrated

circuits (ICs)

• Focus on solutions for connected consumer applications

• A top 10 supplier; 2003 revenues€ 4,5 billion

Contract manufacturers• Manufacturing PCB’s and

flex unit outsourced

• Electronic Manufacturing Services (EMS)

• Original Design Manufacturers (ODM)

Philips Optical Storage• A significant player in optical

storage market

• A leading player in automotive and DVD recordable applications

• 2003 revenues€ 1,4 billion







Decision Making


demand

Componentsupplier

How manywafers to set-up?

How manyICs to

produce?

How manyICs to ship,

and to where?

Contractmanufacturers

How much toproduce

with whichsub-contractor?

OEM

How much toassemble and

where?

Multiple, interrelated decisions Made by many independent organizations across the chain

Fragmented decision making

demandBullwhip


4. Speed & focus ofdecision making

“We have todecide extremely

fast ”

The collaborative planning project Addressed four key requirements

3. Recognition of uncertainty

“We live ina volatile &

uncertain world”

“We have to share information and

synchronise decisions”

2. Information transparencyamongst all parties

“Only throughcollaborating with partners will our

supply chain win”

1. Strategic partnerships & collaboration


Decision Making




framework• Process solution

– Strategic partnerships & collaboration

– Information transparency amongst all parties

• Decision support solution

• Benefits and impact


Decision Making


CollaborativeplanningStrategic

partnership

The nature of the relationship is essential

VMIPriorityService

Customer captive

Marketexchange

Suppliercaptive

Supplier’s specific investments

Customer’s specific investments

PublicE-market

LiabilityExtra stock


Coming from...

WEEK [n]WEEK [n+6]

demand


demand

...to sharing & synchronization between all partners

WEEK [n]WEEK [n+2]

From sequential event propagation towards synchronized supply chain coordinationInformation leadtime reduction : - 4 weeks


demand

...to sharing & synchronization between all partners

Real-life data from eleven ERP systems

…. But data collection is restricted to key components !

Challenges

• Create information transparency • Synchronize many independent IT systems• Ensure data consistency• Well disciplined and synchronized work flow• Guarantee data security and authorization


Overall timeline

July 2001 Apr 2002 Now!Aug 2000

Proof of Concept phase (15 finished products)

Implementation phase

( > 50 finishedproducts)

Maintenance mode

Implemen tation

new release

Software enhan

cements

Implementation new accounts

Pilot

Commercialsoftware

Roll-out Implemen

tationmanual

Ton de Kok, Professor of Operations Planning and ControlTechnische Universiteit EindhovenThe Netherlands





solution– Recognition of uncertainty– Speed & focus of decision making

• Benefits and impact


Framing the problem

Stochastic dynamic demand•Sales plans over multiple periods•Short product life cycles

Multi-itemMulti-echelon

Mixed BOM structure•Item in multiple parents•Item has multiple children

Hard material constraints•Should be taken into account

explicity

Soft capacity constraints•Assume infinite capacity

Stochastic dynamic supplyof materials

•Stochastic lead times•Stochastic yield


Two modelling routes towards APS

Deterministicmodel

Model solution

SCPsolution

Stochasticmodel

Policy

SCPsolution

Real worldproblem


How much inventory given customer service levelsMulti-item, multi-echelon, stochastic stationary demand

StochasticN-echelon

system

Optimal SBS-policy

StationarySBS-policy

10-20% less inventory

investment

LinearProgramming

problem

Safety stockki

Simplexalgorithm

Too much inventory held

upstream

Periodic review,BOM, added value,

service level


Determining control parametersMulti-item, multi-echelon, stochastic stationary demand


service level

StochasticN-echelon

system

Optimal SBS-policy


Safety stocks follow from

stochastic model

LinearProgramming

problem

Safety stockki

Simplexalgorithm

Hard to set appropriate safety

stocks


Sensitivity to cost parameters

Verysensitiveto cost

parameters

LinearProgramming

problem

Safety stockki

Simplexalgorithm

Robust solutions

StochasticN-echelon

system

Optimal SBS-policy


Conclusions based on experimental study in De Kok (2001) and De Kok and Fransoo (2003)

Multi-item, multi-echelon, stochastic stationary demand


service level


SpeedMulti-item, multi-echelon, stochastic dynamic demand

StochasticN-echelon

system

Optimal SBS-policy

DynamicSBS-policy

SECONDS

LinearProgramming

problem

Safety stockki

Simplexalgorithm

HOURS Periodic review,BOM, added value,

service level


Remaining modeling issues

• Planned lead times• Weekly update of WIP and stocks• Safety lead time

Stochastic lead times

• Weekly update of WIP and stocks• Safety lead timeStochastic yield

• SBS policy structure• Weekly update salesplans• Safety lead time

Stochastic dynamic demand


Unique features and transportability

• SBS policies ensure:– consistency between safety stocks and

operational plans– root cause analysis and corrective actions

through backward pegging – fast re-calculation for interactive problem

solving• Generic multi-item, multi-echelon network

model







Decision Making


Proof of benefits during ramp-down

0

20

40

60

80

100

120

140

160

2001

42

2001

48

2002

02

2002

07

2002

12

2002

17

2002

22

2002

27

2002

34

2002

39

2002

44

2002

49

2003

04

Week number

Qua

ntity

in 1

000

piec

es

Timely ramp-down to minimise

obsolescence

cumulative demand

cumulative supply

Demand / Supply gap before CP was fully

operational

Echelon stock IC

Dynamic target base stock IC


0

500

1000

1500

2000

2500

3000

3500

4000

2002

24

2002

29

2002

36

2002

41

2002

46

2002

51

2003

06

2003

11

2003

16

2003

24

2003

29

2003

34

2003

39

Week num ber

Qu

an

tity

in 1

00

0 p

iece

s

cum ulativedem andcum ulative supply

Very fast response time

of 2 weeks

Proof of benefits during ramp-up

cumulative demand

cumulative supply

No over-reactions to temporary demand changes

Without compromising

customer service!


€€’s Benefits Collaborative Planning

• Proven benefits• Less obsolescence, lower

inventories and increased sales account for majority recurring benefits

• Fast implementation with new software and well developed implementation manual

• Payback period < 6 months• High demand CP in current

allocation times

5

14

28

3

8

16

0

5

10

15

20

25

30

35

now end 2004 end 2005

mil

lio

n E

uro

benefits inventories

>50

>80

>120


Conclusion

Collaborative Planning really works!

demand

an innovative approach to managing uncertainty in a highly volatile supply chain mathieu clerkx...

Documents

authorization semiconductors

data collection

partners demandweek

implemen tationmanualton

consumer electronics

semiconductorsthe nature

kokprofessor of operations

independent organizations