'Flying blind' in the semiconductor industry

Scott Grant, managing director with Accenture’s Semiconductor Business

USA: The fallout from the global recession, massive fragmenting of the value chain, the rise of a more diverse world economy and new sales and distribution models have created tough challenges for semiconductor companies when it comes to understanding and predicting demand for their chips and managing their supply chains. This lack of understanding is a dangerous liability in a world characterized by unprecedented volatility and competition.

Without clear insight into true demand and an accurate picture of capacity, semi conductor companies find themselves essentially flying blind. Without the ability to know what to produce and in what quantities, as well as whether there is sufficient capacity to handle this production, these firms are finding it difficult to meet customers’ needs, especially as the economic recovery begins.

To address this challenge, semiconductor companies should focus on three priorities: sales force effectiveness, supply chain integration and optimizing their collaborative planning and fulfillment capabilities. This focus will help improve supply and demand visibility, bridge critical gaps in the management of value chain/partner dynamics, generate greater value for customers and ultimately help companies achieve high performance.


Integrating supply chain partners
Semiconductor companies must focus on integrating their external supply chain partners by developing and deploying strong eXtended Relationship Management (XRM) capabilities.

Through XRM, a semiconductor company triangulates key systems to facilitate integration of important and accurate data from design partners and suppliers on the manufacturing side, and customer and channel partner data on the demand side.

This triangulation helps improve demand forecasts, production plans and the acquisition of manufacturing capacity, allowing chip companies to make better decisions and improve customer service and profit.

Sales force effectiveness
An effective sales force is critical for making the most of every customer relationship. A robust customer relationship management (CRM) system that provides an accurate picture of the sales pipeline is essential.

The CRM system should also be integrated with the company’s Product Lifecycle Management (PLM) and Enterprise Resource Planning (ERP) systems to achieve a tighter connection with relevant stakeholders and processes from across the organization.

Another important connection takes place among regional sales forces. Most successful organizations focus on creating a more coupled sales force that shares information, resources and best practices across regions. They also train their sales forces to inculcate the behaviors necessary to reduce the time from stage one to stage two in the sales process, ultimately improving the conversion rate.

A final success factor in improving sales force effectiveness is creating new metrics and reward structures. These should make sales people accountable for pure sales (driven by commissions), the health of the pipeline, the accuracy of forecasts, the time between sales stages and conversion rates.

Companies must be mindful of the profitability, opportunity cost and strategic value of each deal, not just its size. They also have to take steps to ensure that the potential value of each deal is depicted accurately.

Planning and fulfillment
To expand visibility and use all available information, it is best to consolidate all disparate planning assets and processes across the organization into a single, unified system. Evaluating and resetting planning algorithms to optimize results, and deploying comprehensive training to get all planning resources up to speed on the new system, is vital.

Another network simplification is to consolidate all warehouse management systems, integrating them with the XRM systems. Companies should also consider integrating data from third-party logistics providers (3PLs) into their fulfillment capabilities. Doing so can provide semiconductor companies with singular, cross-enterprise visibility into the location and status of all finished goods.

Data quality is important for optimizing fulfillment throughout the supply side. Total data quality management (TDQM) programs that train employees to improve their order entry, planning and reporting, while standardizing the system, are keys to success in this area. TDQM programs help reduce errors, reduce the number of human touches on a given order and enable better decision making. This results in more realistic and meaningful capacity planning and demand forecasts.

Inventory management also plays a role in optimizing fulfillment. Companies must strive to supply their global distribution centers in accordance with their latest demand projections, using integrated data and common processes. Like with improved planning, the ultimate payoff of optimized fulfillment is the ability to provide customers with the products they need as quickly and consistently as possible.

Final thoughts
The landscape of the semiconductor industry has changed dramatically over the past decade, with significant shifts in the scope and nature of the semiconductor business.

By increasing sales force effectiveness, boosting integration with external value chain partners, and optimizing planning and fulfillment, semiconductor companies can derive significant value from the heightened globalization and more fragmented value chains they face. They can also gain the visibility, responsiveness and control they need to make the most of the economic recovery and quickly respond to changes in global demand and supply.

In short, the firms that improve the most and fastest in these areas will be best positioned to accelerate towards high performance.