demand driven supply network tm : turning risk management into a positive message

Author Name • 11-Apr-02

Demand Driven Supply NetworkTM :

Turning Risk Management Into a Positive Message

John Mallon

Director Supply Chain Solutions

ON Semiconductor

Stanford John Mallon JM22

Agenda

• About ON Semiconductor• Phase 1 2000 - 2003 Tactical Planning Optimization• Phase 2 2004 – 2006 Flexibility and Scenario Management• Phase 3 2007 – 2010 Collaborative Risk Management• Summary


Focus Segments and Customers

It is ON Semiconductor’s stated goal to be the leading supplier of premier power solutions worldwide


ON Supply Chain Solutions

2000 2003 20072005 2009

PHASE 3PHASE 3

Internal optimization

Real time order scheduling

Synchronized corporate and factory planning

Arms distance contracts

Inventory buffer management

Sell-Through planning

Two-tier optimization (lean projects)

Scenario management

Flexibility contracts

Shared demand scenarios and risk profiles (real demand collaboration)

Network optimized supply plans

Event driven management

Fulfillment contracts, shared risks/benefits

PHASE 1PHASE 1 PHASE 2PHASE 2

Internal optimization

Real time order scheduling

Synchronized corporate and factory planning

Arms distance contracts

Inventory buffer management

Sell-Through planning

Two-tier optimization (lean projects)

Scenario management

Flexibility contracts

Shared demand scenarios and risk profiles (real demand collaboration)

Network optimized supply plans

Event driven management

Fulfillment contracts, shared risks/benefits

Tactical Planning Optimization

Flexibility and Scenario Management

Collaborative Risk Management

The risk of a Supply Chain disaster occurs annually, or seldom.

The risk of not serving an opportunity with your customer is daily.


Agenda

• About ON Semiconductor• Phase 1 2000 - 2003• Phase 2 2004 – 2006 Flexibility and Scenario Management• Phase 3 2007 - 2010


PHASE 2 – Minimize Revenue Risk from Demand Obfuscation

• Investment in i2 Inventory Optimizer in 2004/05

• Investment in i2 Scenario Planner in 2006

ON has uniquely combined principles of Advanced Planning, Lean Manufacturing, and

Stochastic Methods to create OSCARSM ,

The ON Supply Chain ARchitecture

Inventory OptimizerOptimize inventory

in Supply Chain

Demand PlannerBest available

demand information

Master PlannerSemi-weekly

supply-demand match

Demand FulfillmentAccurate real-time

order promising

Corporate PlannerCapacity alignment

by business

Scenario PlannerEvaluate options for

possible futures

VMI ManagerVMI ManagerEDI Driven ReplenishmentEDI Driven Replenishment


Synchronization and closing the loopContinuous management to manage variability

Tactical Planning ExecutionStrategy Business Planning S&OP

Capacity Inventory Product

Demand

Financial

Inventory Inventory OptimizationOptimization

ScenarioScenarioPlanningPlanning

Inventory is the risk shock absorber between execution and tactical planning…..

Capacity is the risk shock absorber between tactical and strategic planning


Primary benefitsManage inventory & delinquent revenue

• Measure inventory and days of supply

• Days of outstanding delinquency

• Maintain best-in class service

5.2

4.4

3.63.3

3.9

0.0

1.0

2.0

3.0

4.0

5.0

6.0

Q3'04 Q4'04 Q1'05 Q2'05 Q3'05

Days of Delinquent Revenue

25% Reduction

14% Reduction

DOS

Internal Inventories

$205

$193

$176

$172 $173

Q3'04 Q4'04 Q1'05 Q2'05 Q3'05

87 Days

85 Days

78 Days 77

Days75

Days

1% Increase

Direct OTD %

92%91% 91% 92% 93%

Q3'04 Q4'04 Q1'05 Q2'05 Q3'05


• About ON Semiconductor

• Phase 1 2000 - 2003

• Phase 2 2004 - 2006

• Phase 3 2007 – 2010 Collaborative Risk Management

– The Risks and Costs Ahead

– Scenario Planning Saves The (Supply Chain) World

• Summary

Agenda


The DDSN Capability Model

Culture

Technology

Continuous Improvement

Measurement

Organization

Business Process

OrchestratingCollaboratingAnticipatingReacting

Level 4Level 3Level 2Level 1

Supply Chain Excellence

DDSN Excellence

ePMLevel 1 - Implicit

Level 2 - Explicit

Level 3 - Synchronized

Level 4 -External Integration

Business and Supply Chain Objectives & Metrics

Reactive Documented/Explicit

Internally Aligned

Partner Aligned

Risk & Contract Management

Limited Management

Unilateral Limitation

Shared Mitigation

Design-in Mitigation

Process & Controls

Independent Cascading Process

Synchronized Process

Concurrent Process

People, Organization & Culture

Silos Internal Cooperation

External

Cooperation

Network Collaboration

Information & Data Management

Ad Hoc Asynchronous Narrow Visibility

Network Visibility

Continuous Improvement

Firefighting Internal/Unilateral

Mutual Embedded or Early/Mutual

The ESC Maturity Model

Collaboration Maturity

ON Semi has mastered Supply Chain Excellence, and the AMR DDSN model shows the way for the next generation of improvements

The ESC Maturity Model provides detailed insight into opportunities for improvement in business collaboration


The Risk of Satisfying Opportunities at Your Customer

Technology Platforms


Target

Flex Buffer - Capacity

Flex Buffer -Inventory

The Risk of Satisfying Opportunities at Your Customer

% Flexibility 5% 10% 15% 20% 25% 30%

% Margin Impact

20%

15%

10%

5%

Due to the Cycle Times of Production within Semiconductor, Flexibility models require the use of inventory and capacity buffers

ON Semi models indicate that a broad brush approach to a flex model can cost between 2% - 4% of margin for every 5% of Flex Model

A targeted approach using Demand Scenarios can drastically reduce the potential cost to both partners.

FLEXIBILITY MODELS

FLEXIBILITY COST


• About ON Semiconductor

• Phase 1 2000 - 2003

• Phase 2 2004 - 2006

• Phase 3 2007 – 2010

– The Risks Ahead

– Scenario Planning Saves The (Supply Chain) World

• Summary

Agenda


Intra-Prise

Bu

sin

esS

cen

ario

s Enter-Prise

Phase4

Customer Scenario Forecast

Using Scenarios To Enable Collaborative Risk Management

Dem

and

Sce

nar

ios

Customer High Confidence Forecast

Consensus Forecast

Su

pp

lyS

cen

ario

s

Structural Changes to BOM

Editing cycle times/yields

Down time – Holiday or Planned

Swap Capacity

Capacity Edits: Base, Min, Flex capacity

Constrain/Unconstrain Resources Phase 1

Phase 2

Phase3


Leading OEMs are: “Grabbing the Bull-Whip By The Horns”

Disty

OEM

EMSIEMSI

ODM3PLODM

Design

3PL

SEMI

Some OEM’s have exited the “Demand Synchronization” responsibility

Disty

OEM

EMSIEMSI

ODM3PLODM

Design3PL

SEMI

Successful OEM’s are “Re-engaging” to manage the Drum Beat

Leader’s Become excellent at Demand Consolidation and Stratified Forecasting

Leaders are supplying Tier 1,2,3 visibility of Stratified

Forecasts

Partner Relationships Collaborate on Flexibility Models:

1) Flexibility Terms and Liabilities

2) A,B,C Classification Models Aligned

3) Demand Ranges and Confidence Levels

Leading Component Suppliers are implementing processes and systems to manage flexibility models.

Leading Semi Suppliers are committing to the Drum Beat PLUS Flex Models

Material Flow

Information Flow

RetailRetail

Retail

Retail

Retail

Leadership OEM’s audit suppliers to assure they have capability to comply and not just signing agreements.

Data Exchanges


Collaborative Scenario Planning: A Major Supply Chain Breakthrough to Manage Synchronization

Todays B2B

Single Number Forecast

Poor Accuracy

Updated Weekly

Simple Contracts

OEM (Original Equipment Marketer)

Retail

Point Of Sale

Promotion Plans

Marketing &

Business PlansS & OP

PlanningProcurement

Tomorrows B2B -> Event driven capability

Single Number Fcst - > Range Forecast, Risk Stratified

Poor Accuracy - > Accuracy mitigated through Scenario data and Flex Models

Updated As Needed - > Execution Daily, Planning Semi- Weekly, Scenario Monthly, Events Inbetween

Simple Contracts -> Flex Contracts Sharing Risk on Scenario’s

ScenarioPlanning

10 %

50 %

90 %


Consensus Plan Generation

Quarter Forecasted (Q): Q2 2004 PTI2 : P? Fcst Date 3/15/2004

Q(-3) Sell Through Revenue 10 10 10 10 10Q(-2) Sell Through Revenue 11 11 11 11 11Q(-1) Sell Through Revenue (Current Projection) 13 13 13 13 13Baseline CDP for Q (From DP) 14 14 14 14 14

0 0 0 0 0.5510.0

11.0

13.0 as of

14.0 as of

as of

as of 3/15/2004

Causes of revenue delta between Q(-1) and QUnlikely

DownsidePossible

DownsideBase

AssumptionPotential Upside

Unlikely Upside

"Probability" 5% 20% 50% 20% 5%

Prod1 Design Win at CTM1 (almost certain) 0.00 0.50 0.50 0.80 1.00Prod2 Design Win at CTM2 (low probability) 0.00 0.00 0.00 1.00 1.00Recover market Share at CTM3 on prod3 (0.20) 0.00 0.50 0.80 1.00ASP Degradation (0.10) (0.10) (0.05) 0.00 0.05Seasonal Volumes at CTM4 0.70 0.70 0.70 0.90 1.20CTM5 end of production on Appli1 (0.30) (0.30) (0.30) (0.30) (0.30)Miscellaneous Design Wins on Family1 0.00 0.20 0.50 0.60 0.70Quality Issue on Prod4 at CTM5 (0.50) (0.40) (0.30) (0.10) 0.00

Q Sell through Revenue Forecast (Nominal) 14.55 14.55 14.55 14.55 14.55Forecast Profile 12.6 13.6 14.6 16.7 17.7

% Delta from Nominal -13% -7% 0% 15% 21%

Delta from Nominal (1.95) (0.95) 0.00 2.15 3.10

0% 5% 25% 75% 95%100% 95% 75% 5% 0%

Current Forecast (from sales)Final Sell Through Revenue Forecast Consensus:

Q(-3) Sell Through RevenueQ(-2) Sell Through RevenueQ(-1) Sell Through Revenue (Current Projection)Baseline CDP for Q (From DP)

13.6

14.6

16.7

00.10.20.30.40.50.60.70.80.9

1

10 11 12 13 14 15 16 17 18

Probability Curve

Revenue Likelihood

Discrete Revenue Events


Leveraging the CPFR Model (Collaborative Planning, Forecast and Replenishment)

DIST EMSI

Program Forecast - Monthly

Demand Pull

Weekly, Daily

Bus Plan/ Contract

Semi-Annual, Quarterly

Demand Scenario

ON OEM

Account Planning

NPI, Capacity and Inventory

Planning(Scenario’s)

Internal Supply Chain Planning and Execution

Business Planning

SalesPlanning

OrderPlanning

Allocated Capacity- Monthly

SupplierPlanning

NPI, Capacity and Inventory

Planning(Scenario’s)

Internal Supply Chain Planning and Execution

CPFR Model


Challenges to Collaborative Risk Management

• Trust – Can we Agree on the Benefits of separating the whip from the “bull” ?– Can we get over the lack of trust in sharing business scenario data ?– What types of T’s and C’s will be set for different Demand Strata ?

• Definition of Processes– Need supply chain communities to keep working it– Need standards bodies to drive approach

• Systems to Communicate– How will the strata and risk levels be identified in the data sets ?– Need standards work around the multiple “demand scenarios” and “demand

strata and confidence levels”

• Systems to Create the Visibility– APS type solutions - pegging of demand types

– Management of Demand Strata within corporations – visible to partners– Formal modeling of business scenarios, with risk sharing strategies to assure

supplier readiness.


In skating over thin ice, our safety is in our speed.

—Ralph Waldo Emerson


Thank You

demand driven supply network tm : turning risk management into a positive message

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