Mastering Supply Chain Strategies by Driving Flexibility

Chris Armbruster

DirectorSupply Chain StrategyAgere Systems

Today’s business environment can drive waste.

Especially to the Inflexible.

or

Our Choice

“The quest for certainty blocks the search for meaning. Uncertainty is the

very condition to impel man to unfold his

powers.”

--Erich Fromm

It’s also the driving force behind flexibility.

Chip MakerFoundry EMSUltimate Customer

Phenomenon 2(Amplification)

Changes in demand can become exaggerated.

Phenomenon 1(Latency)

Demand can become out of phase or shift in time.

Phenomenon 3(Interference)

Noise can superimpose onto the demand signal.

+ + =

Net Effect

Uncertain Demand

Also Need Visibility & Collaboration

Flexibility Can’t Do It All

Intelligence Speed Strategy

+ +

= Flexibility

Business Intelligence

Notwithstanding its fickle nature, uncertainty can be understood, characterized, bounded and modeled.

The data exists, but must be mined for meaningful information.

Business intelligence is a key input to developing a relevant fulfillment strategy.

SpeedAll About Aligning Windows

Time

Certainty Window

Execution Window

Risk Risk

Speed of operations shrinks execution window

Speed of info stretches certainty window

Strategy

Strategy

CustomerRequirements

Product & Supply ChainArchitecture

Process & SystemBlueprint

Business Intelligence

Speed

Identify Key Flexibility Points

Where to buffer inventory & capacity (& how much)

Where to focus on speed, how often to plan & how to trigger execution

What to insource & what to outsource

Agere’s Approach to Flexibility

About Agere

Employees: 5500 Central Campus: Allentown, Pa.Regional Offices:

Santa Clara, CAShanghai, China

Assembly & Test Sites: Thailand & Singapore

Ascot, UKHong Kong

$1.7B FY05 Revenue• No. 1 in SoC chips for desktop hard drives

• No. 1 in chips for wired communications

• No. 1 in DSP chips for wireless infrastructure

• Over 5,800 U.S. patents and applications

About Our Supply Chain

Wafer Fabrication

Package Assembly

& Test

Circuit Assembly

4-10 Wks Hours2 Days

Propagation Error

As demand propagates up the supply chain, the demand signal

degrades.

+Error

Market Error

Forecasts are often based

on uncertain markets.

-Error

Using Business Intelligence To Manage Uncertainty

FlexibilityVisibility &

Collaboration

Downsides Upsides

Pro

bab

ilit

y

Demand Certainty

Short Horizon Volatility• How certain demand is over a

short horizon• Finished goods inventory policy

Long Horizon Volatility• How certain demand is over a

long horizon• Semi-finished inventory policy

Profiling Uncertain Demand

Our customers are somewhat certain about their demand over a quarter, but beyond the current week they are not sure when in the quarter it will materialize.

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HS1224A3-DB Statistics: Volume Weighted Fit

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cyMS455B4-61T10-DB Statistics: Volume Weighted Fit

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MS455B4-61T10-DB Statistics: Volume Weighted Fit

Telcom Code Telcom Code

PC Industry Code PC Industry Code

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HS1224A3-DB Statistics: Volume Weighted Fit

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HS1224A3-DB Statistics: Volume Weighted Fit

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cyMS455B4-61T10-DB Statistics: Volume Weighted Fit

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MS455B4-61T10-DB Statistics: Volume Weighted Fit

Telcom Code Telcom Code

PC Industry Code PC Industry Code

Long Horizon Short Horizon

Typical Telcom Industry

Typical PC

Industry

Lag=2 months , Correlation =0.81

0.0

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CLUSTER

Lag= 6 months, Correlation=0.91

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Lag= 7 months, Correlation=0.64

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Cluster- 8

Lag=3 months, Correlation=0.85

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1079570110

CLUSTER

Cluster- 7

Leading Indicators for Clusters

Time(Weeks)

Certainty Window

Lean Manufacturing

Shrink Execution Window for Package

Assembly & Test Operations to Fit Inside

Certainty Window

0

50

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1998 1999 2000 2001 2002 2003 2004

Hou

rs

Package Assembly & Test Cycle Time

Speed

More Than Just Fast Manufacturing

24 Hour Planning Cycle

Order Fulfillment & Delivery

Strategic Finished Goods Buffer

Statistically Sized.

CustomerDistributor

Forecast

Strategic Semi-finished Buffer

Statistically Sized.

Agere

OrderOrder

Shipment

Part 1 2 wks

Part 2 1 wks

Part 3 1.5 wks

Part 4 2 wks

Part 1 3 wks

Part 2 3 wks

Part 3 1.5 wks

Part 4 1 wks

Diebank and Finished Goods Buffers Sized and Located

Based on Statistical Demand Profiling and Monthly Forecast

Collaboration Meeting

EXAMPL

EEXAMPL

E

Collaboration Model: Customer, Distributor & Agere

Shipment

Customer

Subcon Loc #1Pull

Pull

PullStrategic BufferStatistically Sized

& Located.

Agere Subcon Loc #2

Subcon Loc #3

Collaboration Model: Customer, Subcon & Agere

Shipment

Shipment

Shipment

Forecast

Shipment

Shipment

Shipment

Order

Order

Order

Agere’s Flexibility Strategy

Strategy

Customer RequirementsFlexibility

ResponsivenessSecurity

Supply ChainArchitecture

Insource Assembly & TestOutsource Wafer Fabrication

Process & System BlueprintDaily Planning

Custom Built APS

Business IntelligenceDemand ProfilingLeading Indicators

SpeedLean Manufacturing

Logistics

Key Flexibility Point is just before Package Assembly & Test

Statistically size and locate buffers

Align Package Assembly & Test execution time w/ Certainty Window

Thank You!

Questions?