In order to have an efficient, well run supply chain within your organization, there are a few key elements that are necessary for ensuring you are getting the most out of your people and machines. Resources need to be properly staffed, machines maintained, and WIP (Work in Progress) needs to continue to move and not get backed up a certain operation or link in the process flow. An efficient supply chain can be a work of art if properly managed. Ensuring your supply chain operations are on track, you have to start from the top – even before anything gets moving!
Semiconductor manufacturing is a prime example of an industry where truth in planning is essential for hitting lead times, improving variability, and avoiding delays that ultimately expose deliverables to the end client. Semiconductors (computer chips) have extremely long lead times compared to most manufactured consumable items. With an average lead time of six-to-seven months from order receipt to delivered goods (silicon wafer, chip, module), one would think that it would be easy to plan for the various material and capacity needs throughout the supply chain. However, in a world that is becoming more and more metric focused, supply chain leaders are finding more of their manufacturing facilities are sandbagging their production lead times, and over shipping to meet internal organizational metrics or exceed them depending on which metric they want to satisfy.
The Real Truth in Planning
What manufacturing teams fail to realize is that these inaccurate projections – while looking good on paper – cripple the downstream stages of the supply chain, and can cause massive churn. Semiconductors that are built into computer modules require several key components that make up their respective bill of material (BOM) including capacitors, lids, and laminates. Lead time for these materials can take up to six weeks, and MRP systems rely on pitched completion dates to generate purchase orders within lead time. These systems are designed to order components at lead time to avoid having too much inventory on hand prior to the rest of the materials arriving. If a wafer (manufactured silicon) arrives at a testing machine three or four weeks ahead of schedule, there is a high probability that something else is already scheduled to be run on that tester, so, the wafers will have to sit, consequently wasting the energy and time spent to move the WIP to that point. As WIP piles up at various operations, keen supply chain managers should inquire to understand why the WIP is sitting there instead of moving forward. Supply chain analysts will then highlight that components, and/or capacity is not available since the WIP arrived earlier than planned, with no advanced notice. It wasn’t supposed to be there yet…so naturally they’re not ready!
A Weak Chain
This is where inaccurate planning can break a supply chain. Whenever parts sit in queue longer than planned cycle time WIP begins to build up. MRP systems see WIP build ups and project them to close in time for quarter and year end which is actually not feasible. Other components also end up being affected. When parts arrive early, pressure mounts on missing components that are needed to continue to move WIP forward. Expedited shipping requests, expedite fees, personalized handlers, and additional unnecessary churn on all parties ends up costing time and money.
Supply chain managers and executives are then forced to prioritize this WIP over regularly scheduled deliverables in hopes of achieving revenue targets. While some additional parts may get expedited through the supply chain and additional revenue achieved, the hidden costs of that expedited energy (missed deliveries, WIP buildup, MRP ordering) sometimes prove more costly than initially thought.
Just because certain areas of your supply chain are operating more efficiently than others, does not necessarily mean the overall chain is performing well. In order to make your supply chain efficient, make sure you plan accordingly! There is something to be said when you hear “truth in planning.” Don’t be the one to get stuck in neutral when you could be moving forward with fundamental, accurate planning!