AAA Supply Chains: Agility, Adaptability, and Alignment

AAA Supply Chains:Agility, Adaptability and AlignmentHau L. LeeStanford University

High Tech Supply Chain EnvironmentFast changing hardware and softwareMultiple sources of technological advancesFrequent product transitionsManufacturing cost pressuresShort product and technology cyclesOutsourced manufacturing partnersOutsourced design partnersConsumer electronics channelOther associated product providersMultiple supply chain partnersFashion like productStrong competitive forcesIncreasing product varietyPotential of external disruptionsDemand and supply uncertaintiesChallengesChallengesImplicationsIncreasing demand and supply uncertaintiesUncertainty drives need for flexibilityShortening product and technology cyclesDynamic instead of static supply chainsMultiple outsourced supply chain partnersDifferential interests of multiple playersStrategies To WinChallengesImplicationsIncreasing demand and supply uncertaintiesUncertainty drives need for flexibilityShortening product and technology cyclesDynamic instead of static supply chainsMultiple outsourced supply chain partnersDifferential interests of multiple playersAgilityAdaptabilityAlignmentStrategies To WinChallengesImplicationsIncreasing demand and supply uncertaintiesUncertainty drives need for flexibilityShortening product and technology cyclesDynamic instead of static supply chainsMultiple outsourced supply chain partnersDifferential interests of multiple playersAgilityAdaptabilityAlignmentSeven-Eleven JapanLargest convenience store chain in Japan ($23.3B annual sales) with 10,853 outlets (1,200 sq. ft each)#1 in fast foods #1 in battery, ladies stocking sales#2 in paperback/magazine sales55 Inventory turns/yearValue of $1 InvestmentSEJNikkei

Total Information System Network

ISDNNetwork

7-11 Japan district officeOFC mobile computerManufacturerCombined distribution centerStoreHost computerSatellite centerMultimedia distributionMultimedia distributionMultimedia transmission7-11 Japan HQDedicated lineSeven-Eleven Japans Sense And RespondIdentifyAnalyzeActMeasurePOS+Total visibilityCorrelation and Substitution Local events Product transitionsLocalized promotionsShelf & merchandizingNew product developmentTrust-based agile logisticsDynamic shelvingSupplier collaborations

Speedy NPI With Collaboration

New product release dataGeneral design changesChip design dataChip design changesMechanical design dataMfg. Design changesSourcing changes

MexicoCaliforniaHungary

TexasChip Design (GPU & MCP)Chip SupplyMechanical DesignPlasticsComponent ProcurementPCBA Mfg.TestingSystem Build & TestFinal PackagingGeneral DesignStrategic SourcingMarketing & Distribution

2001 Product launch in 14 months (versus 20 months for Sony Playstation 2), winning 3.6% market share in 4 months.

2nd Source Manufacturing

Chip Packaging

Mechanical Design ServicesProcure ComponentsPlasticsPCBA Mfg.TestingFinal Packaging

Chip Design (GPU & MCP)In November and December 2005, Xbox launched Xbox 360 simultaneously in N America and Europe, beating Sonys Playstation 3 by close to a year.Chip Design

3rd Source Manufacturing

Transportationcustoms clearanceAgility And Xbox 360Supply Chain Excellence At Xilinx

Product postponement: field-programmable integrated circuitsProcess postponement: die-bank as decoupling point and customize to order. IRL (Internet-Reconfigurable Logic) allows reconfiguration remotely via the InternetPostponement strategy supports NPI and upgradesNumber 1 market leader

Wafer fabricationDie-bankFA&TCrisis Bared Ones Weakness, Others StrengthWall Street Journal, January 29, 2001March 17, 2000, lightning-induced fire at Philips radio-frequency chips factory in Albuquerque, New Mexico

B2B Outsourcing As Business DifferentiatorPercent of RespondentsBased on a Stanford study on Driving Business Value through B2B Outsourcing, supported by GXS, 2007B2B Outsourcing Accelerated B2B IntegrationPercent of trading partners integrated via B2B solutionsBased on a Stanford study on Driving Business Value through B2B Outsourcing, supported by GXS, 2007IT Savings From B2B OutsourcingAverage Percent ImprovementBased on a Stanford study on Driving Business Value through B2B Outsourcing, supported by GXS, 2007Building AgilityIntegrated Information Systems Centralized CommandLocal EmpowermentDecentralized ControlDeep IntelligenceEfficient ExecutionSensible SenseResponsive ResponseStrategies To WinChallengesImplicationsIncreasing demand and supply uncertaintiesUncertainty drives need for flexibilityShortening product and technology cyclesDynamic instead of static supply chainsMultiple outsourced supply chain partnersDifferential interests of multiple playersAgilityAdaptabilityAlignmentOklahoma City as central procurement, stocking, kitting and assembly site for North America and Asia.Lucent Technologies 5ESS80-90Complex technology with Lucent as leaderPrimary market in North AmericaSupply base in Asia not well developed91-00Response time a competitive pressureFast growing market in AsiaBulk of supply base in Asia1996: Taiwan and Qingdao as engineering, procurement and final assembly hub for Asia, backed up by OKC.Dynamic Supply Chain StrategiesTechnologyMarketFocusStrategyLeadershipConcentrated supply/demandMargin and controlCentralizationMaturityRegionally distributed supply/demandResponsivenessExpanded networkDeclineGlobally distributed supply/demandAgilityValue chain redesignSupply Chain Evolutions At Lucent20005*No. of plants295*No. of suppliers3,000900No. of enclosures477Inventory turn16-7ProfitabilityHeavy lossesProfitable for 4 consecutive quarters*24 plants were sold off or closed. Celestica, Jabil, Sanmina and Solectron now handle 95% of total production needs

Worlds Most Admired Company In SteelFortune 2003NYSE (February 04 to January 07)POSCOS&P5002005Sales ($B)Profit (%)Arcelor40.5713Mittal28.1312JFE24.3712NSC22.939POSCO21.4218Integrated Steel ManufacturingBlast Furnace(Remove Oxygen& Impurities)Residual CarbonRemoval, OtherAlloys AddedCastingReheating IngotsRollingIron OreCrude (Pig) IronLiquid SteelSlabIngotsRolled wires, plates, pipesContinuous casting to save energyFactory layout to cut cycle time from days to hoursReal time production controlInnovative FINEX processSource of national prideCurrent Industry ChallengesProjected worldwide steel shortageIn 2004-2005Iron ore cost rose by 20%Coking coal cost rose by 80%Freight cost rose significantlyIncreasing pressures of trade barriersUSChinaSteel consumption (tons/person)Dis-integration StrategyJV with US Steel in 2002 on finishing plant in PittsburghThailand: Cold Roll plant for Auto steel sheets (1/06)Nagoya, Japan: Cold Roll plant for Auto (2/06)Kunsan China: Cold Roll plant for Auto (02/04)Maharashtra, India: Plant for Electrical steel sheet (11/05)Crude steel manufacturing near iron ore mines; finishing plants near customers.JV and strategic alliances with iron ore suppliers in India, Brazil and AustraliaPlans to build crude steel plants in Brazil12 M-ton steel plant ($12B) in Orissa, India; Phase I by Dec 2010 with investment of $3.7B Iron Ore SupplyCrude Steel ProductionFinishing Plants

SlabsBuilding AdaptabilityMarket IntelligenceArchitect Supply Chain for Right Product, Market & TimeFlexible Network RelationshipsPeople-ready Change MgmtProduct PLC NeedsTechnology EvolutionStrategies To WinChallengesImplicationsIncreasing demand and supply uncertaintiesUncertainty drives need for flexibilityShortening product and technology cyclesDynamic instead of static supply chainsMultiple outsourced supply chain partnersDifferential interests of multiple playersAgilityAdaptabilityAlignmentSupply Chain PrinciplesThe weakest link of the supply chain defines the supply chain.Instead of company to company competition, we are now in an era of supply chain to supply chain competition.Win-win relationship is the cornerstone of supply chain success.Toyota DistributionDealersInventoryInventory risk

Facility Investment

Traditional Demand Chain For PriusToyota DistributionDealersInventoryFacility Investment

Inventor Risk

Incentive Alignment For PriusExtended Performance MeasuresSingleEnterpriseCross-EnterpriseOrganizational BoundarySingleDimensionalMulti-DimensionalDimensionExtended Performance Measures

Time from landing to departureTransit timeWhat about time from landing to destination?

Supply Chain AlignmentDimensionAlignmentDecisions, roles, responsibilitiesRe-assignment and empowermentRisks, costs, rewardsAdjusted for incentives with win-win interestsPerformance measuresExtended, joint, stretched to reflect alignmentSome Keys For AlignmentEmpowerment of decisions and responsibilities requires provision of capabilitiesAlignment ultimately demands behavioral changeSuccessful alignment across organizations is based on building trust in a supply chainImpacts of B2B OutsourcingAverage Percent ImprovementBased on a Stanford study on Driving Business Value through B2B Outsourcing, supported by GXS, 2007TSMC Sales TrendUS$M2005 sales: US$8.2B (7.5% YoY G.R.)1995 2005 CAGR: 22.4%Source: TSMCThe Collaboration FoundryWorlds largest foundry (contract semiconductor fabrication manufacturer)Emphasizes customer relationship as First and Last LookInvests in E-SCM to help internal and customers supply chain processeFoundryDesign collaborationEngineering collaborationLogistics collaboration

AllocationManagementCapacityModeling

AllocationPlanning

Output Planning

OrderManagementAvailable-To-Promise

DemandPlanning

E-SCM ArchitectureCyberShuttleIterative design verification and improvement processSharing common mask set with different chipsDiamond lane treatmentGreat cost and time savings for customersHelps customers NPIWin for both TSMC and customers

Service-Oriented MindsetTSMC Solution1987 2000Manufacturing Focus 1997Schedule ahead of ITRS

Complete SoC portfolio

World-class quality

Customer-centric total solution

Web-based design engineering and logistic service

Comprehensive design service

Integrated backend service Capacity Leadership

Production Excellence Technology FocusService Focus

AAA Supply ChainFab expansion based on technology and market changesEvolution to service-focus businessOptimized product/fab assignmentAdaptabilityInformation sharing across supply chainCollaborative relationships with customersTight connectivity with assembly and testTrust-based, people-oriented organizationAlignmentExtensive information integrationOptimization-based applicationsHighly efficient manufacturing processesCentralized command, decentralized controlAgilityBuilding AgilityIntegrated Information Systems Centralized CommandLocal EmpowermentDecentralized ControlDeep IntelligenceEfficient ExecutionSensible SenseResponsive ResponseBuilding AdaptabilityMarket IntelligenceArchitect Supply Chain for Right Product, Market & TimeFlexible Network RelationshipsPeople-ready Change MgmtProduct PLC NeedsTechnology EvolutionSupply Chain AlignmentDimensionAlignmentDecisions, roles, responsibilitiesAssignment to best run overall supply chainRisks, costs, rewardsAdjusted for incentives with win-win interestsPerformance measuresExtended, joint, stretched to reflect alignmentSummary

World class supply chains require capabilities in agility, adaptability and alignmentSensible Sense and Responsive Response to gain agilityRight supply chain for the right product and right timeWinning with the whole supply chainAAA supply chain management is the key for super-AAA performance and values

2007 Microsoft Corporation. All rights reserved. Microsoft, Windows, Windows Vista and other product names are or may be registered trademarks and/or trademarks in the U.S. and/or other countries.The information herein is for informational purposes only and represents the current view of Microsoft Corporation as of the date of this presentation. Because Microsoft must respond to changing market conditions, it should not be interpreted to be a commitment on the part of Microsoft, and Microsoft cannot guarantee the accuracy of any information provided after the date of this presentation. MICROSOFT MAKES NO WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, AS TO THE INFORMATION IN THIS PRESENTATION.10/25/2007 3:46 PM 2007 Microsoft Corporation. All rights reserved. Microsoft, Windows, Windows Vista and other product names are or may be registered trademarks and/or trademarks in the U.S. and/or other countries.The information herein is for informational purposes only and represents the current view of Microsoft Corporation as of the date of this presentation. Because Microsoft must respond to changing market conditions, it should not be interpreted to be a commitment on the part of Microsoft, and Microsoft cannot guarantee the accuracy of any information provided after the date of this presentation. MICROSOFT MAKES NO WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, AS TO THE INFORMATION IN THIS PRESENTATION.

4410/25/2007 3:46 PM 2007 Microsoft Corporation. All rights reserved. Microsoft, Windows, Windows Vista and other product names are or may be registered trademarks and/or trademarks in the U.S. and/or other countries.The information herein is for informational purposes only and represents the current view of Microsoft Corporation as of the date of this presentation. Because Microsoft must respond to changing market conditions, it should not be interpreted to be a commitment on the part of Microsoft, and Microsoft cannot guarantee the accuracy of any information provided after the date of this presentation. MICROSOFT MAKES NO WARRANTIES, EXPRESS, IMPLIED OR STATUTORY, AS TO THE INFORMATION IN THIS PRESENTATION.

45