How to Use Digital to Boost Supply Chain Resilience in the Semiconductor Industry

Sep 21, 2021
High-Tech | 7 min READ
Semiconductor Supply Chain Model
Semiconductors are the foundation of advanced technology products across all major industries: consumer appliances, personal health & hygiene, transportation, manufacturing, life sciences, telecommunication, media & entertainment, etc. They have penetrated every walk of human life. It is one of the most complex industries when it comes to managing the supply chain.
Ajit Singh Chawla
Ajit Singh Chawla

SVP & Global Head

Digital Business Unit


Nitesh Mirchandani
Nitesh Mirchandani

VP and Global Head

Communications, Media & Technology (CMT) Vertical


The complexity gets exacerbated with the needs of modern product giants such as Apple and Samsung, whose dependencies for every product launch lies solely on semiconductor suppliers; one can imagine the amount of stress a supply chain needs to deal with.
Supply-chain performance is critical in the semiconductor industry for customer retention. McKinsey's analysis of one semiconductor company revealed the outcomes of delayed deliveries on its revenues fluctuations. The company's revenue dropped by 28% for customers whose on-time delivery (OTD) rate was between 0% and 40%, whereas it dropped only by 2% when the OTD was 80% or higher.
The analysis emphasizes the direct correlation between supply chain inefficiencies and customer retention. The theory of Right Product, Right Time, and Right Location is what the semiconductor supply chain aims to imbibe and improve customer satisfaction.
Semiconductor Supply Chain Issues
Semiconductor manufacturing is a complex global intertwined ecosystem, making its supply chain vulnerable to macroeconomics, geopolitics, and natural disruptions, which we saw during the onset of the COVID-19 pandemic. Semiconductor companies are spread across the length & breadth of the global geography, having country-specific and international laws corresponding to health and environmental regulations.
An HBR study highlighted that the chip shortage had been a ticking time bomb due to a few (unrelated) supply-chain disruptions. Then came the challenge of global transportation, the onset of the pandemic resulted in severe shortages of shipping containers which ultimately moved customers to air freight. This resulted in cost escalation due to premium pricing by air cargo operators, who were also few in numbers due to global restrictions in place.
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The Effect of Pandemic on the Semiconductor Supply Chain
Kearney's study highlighted that despite projections of a downturn at the beginning of the COVID-19 pandemic, the semiconductor market witnessed growth by 7% in 2020. The trend seems to continue with the estimated growth of 11% in 2021. Reflecting the positive sentiments, the market is expected to grow for the next five years, with the industry expected to generate $650 billion in revenue by 2025.
Production lines independent industries such as automotive and computing hardware are still under the clutches of the pandemic, which is stretching the supply side. Though overwhelmed to strike a balance between the demand and the supply, the fabrication equipment industry is profiteering from the situation by increasing prices by 30%.
The Growing Need for Digitalizing and Modernizing Semiconductor Supply Chain
The advent of Cloud, 5G deployment, connected vehicles, and digitalization have collectively created a never-seen-before demand for high-performance computing, and the most sought-after semiconductor market is also in the race to join the digitalization bandwagon.
According to the 16th annual KPMG global semiconductor industry outlook, 50% of industry leaders say COVID-19 has accelerated their digital transformation. Yet this pace lags the tech sector overall (89%) and other industries (81%). Data insights are a critical component of enhanced supply chain resiliency. Using technology and applications to collect granular data and metrics at all supply chain points enables semiconductor companies to make faster, data-driven decisions.
Going ahead, digitalization in the supply chain will also help companies define micro supply chains and apply accurate segmentation to deliver greater value versus a 'one size fits all' supply chain strategy. The digitalization journey would also assist companies in determining if the inventory strategy should be 'just in time' vs. heavier assets-on-hand, as highlighted by the KPMG study.
Top Technology Imperatives to Revamp the Semiconductor Supply Chain
Collaborative Planning Using Cloud
The semiconductor industry is a significant global business and enhancing supply chain collaboration with leading customers is paramount in improving the overall supply network performance. In line with this, collaborative planning using the Cloud helps develop and deploy a multi-enterprise supply chain system that synchronizes material flows of individual components throughout the extended supply network and reduces uncertainty, strengthens customer satisfaction, and maximizes revenue.
By dynamically optimizing the supply network, companies can better manage customer demand, resulting in reduced inventory levels, enhanced customer service, and maximized revenue and profits. Next-gen technology solutions offer companies unprecedented levels of security and real-time global visibility into inventory and actual demand across the supply network, thereby aggregating demand, offsetting order variability, accelerating time-to-market, and enhancing customer service levels.
Advanced Planning and Signal Tracking Using Predictive Analytics
The semiconductor value chain encompasses multiple tiers, and any decline or increase in demand at each tier may result in supply disruptions. Given the long cycle times - more than 90 days for high-volume manufacturing (HVM) end-to-end process and higher for product development), any sudden disruption in the local supply chain can disrupt months of planning and result in substantial cost implications.
Advanced planning approach across the semiconductor product design, manufacturing, and test value chain greatly help the industry manage such unforeseen demand-supply shocks. It also empowers players to gain visibility into all three roadmaps: technology development, product development, and engineering/ production capacity roadmap. This facilitates identifying abnormalities and enables players to collaboratively balance supply across products and markets in both up-and-down cycles.
How is Industry 4.0 Transforming the Semiconductor Industry: Applications and Benefits
Robust Supplier Risk Management Using AI
The semiconductor value chain is dependent on a large number of materials and equipment suppliers spread across the globe. While the industry has adopted supplier relationship management (SRM) practices, these programs don't prove beneficial to a greater extent owing to a broad expanse.
Gaining visibility into such an extended hierarchy has been challenging for most industries, and it's especially a nightmare for semiconductor companies. Innovative digital and machine learning solutions (for example, multi-tier, multi-factor supplier sensing) improve visibility into their supplier base, drive real-time decision-making for optimized capacity, and proactively manage supply chain risk and resilience. These practices aid the industry address the business cycles well.
How to Use Digital to Boost Supply Chain Resilience in the Semiconductor Industry
How to Use Digital to Boost Supply Chain Resilience in the Semiconductor Industry
Faster Time to Market Using Automation, IIoT, and Immersive Technologies
"Cycle Time Drives Everything." The commitment to product delivery on time is paramount in any industry. It is imperative in the ruthlessly fast-paced semiconductor manufacturing industry due to tremendous competition in the market. Automation was a boon and a necessity when the wafer size increases from 200 mm to 300 mm.
Recent research published in IEEE stated that an optimized strategy for batch preparation and dispatch showed an overall 30% reduction in total dispatch time. A significant part of these changes revolved around the filler wafer management, which can be sub-divided based on filler wafer process counts and their thickness accumulation.
As per a McKinsey study, companies lose only 3.5% PAT when they overspend 50% on product development compared to 33% when their shipments are delayed by six months. Faster time to market is a facet that assumes critical importance in the success or failure of a company.
Data Democratization for Quicker Product Development and Regulatory Compliance
Collecting and analyzing all the data sets across a semiconductor company's global supply chain empowers employees from operations, engineering, and executive management to develop a broad number of metrics to achieve the semiconductor company's manufacturing goals, which ultimately aid in improving yield, quality, and productivity.
To successfully implement a big data solution into a company's semiconductor test and manufacturing environment, one must understand the true value and benefits of collecting, detecting, and acting on the timely data generated about every chip. With each chip having its test DNA, big data solutions can analyze that DNA and determine its actual value to the semiconductor manufacturer and, ultimately, its customers.
Improved Supply Chain Visibility Using IoT, Mobility, and AI
For the entire semiconductor fraternity, the whole of the year 2020 probably went into defining the right logistics nodes to serve the burgeoning demand of semiconductors across the globe. Considering this learning, semiconductor companies need to identify different ways of moving parts to assembly in the shortest possible time.
To happen, they need enhanced visibility into their integrated supply chain networks which can identify, react and control the disruptions. By deploying advanced visibility tools such as IoT, mobility, and AI, companies are better positioned to gain visibility into the supply chain and determine the critical components, supply origin, and alternate sources.
Benefits of Executing Digital Supply Chain Strategies for the Semiconductor Industry
As per the PWC report, the market for AI-related semiconductors will grow in revenue to more than $30 billion by 2022 at an annual growth rate of nearly 50%. With a market size of US$452.2 billion in 2021 expected to expand to USD 803.1 bn in 2028, the semiconductor industry is set to register a CAGR of 8.6% annually for the next seven years as the digital economy has been accelerated and reinforced by the contactless economy during the pandemic.
The fast-paced growth of semiconductors can only be possible if the semiconductor industry and its entwined supply chain are truly supported and augmented by connectivity (5G/6G), blockchains, IoT (internet of things), AI (artificial intelligence), and machine learning (ML). The time has come for the semiconductor players to plan their supply chain digital strategies, which will only enhance visibility and transparency into the system, which would eventually aid in striking the tight supply-demand balance.
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