Demand Driven Supply NetworkTM :
Turning Risk Management Into a
Positive Message
John Mallon
Director Supply Chain Solutions
ON Semiconductor
Author Name • 11-Apr-02
Agenda
•
•
•
•
•
2
About ON Semiconductor
Phase 1 2000 - 2003
Phase 2 2004 – 2006
Phase 3 2007 – 2010
Summary
Tactical Planning Optimization
Flexibility and Scenario Management
Collaborative Risk Management
Stanford John Mallon JM2
Focus Segments and Customers
It is ON Semiconductor’s stated goal to be the leading supplier of
premier power solutions worldwide
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Stanford John Mallon JM2
ON Supply Chain Solutions
2000
2003
PHASE 1
2005
Internal optimization

Inventory buffer management

Tactical
Planning
Real
time order
scheduling
Flexibility
and
Scenario
 Sell-Through
planning
Management

Synchronized corporate and
factory planning

Two-tier optimization (lean
projects)

Arms distance contracts

Scenario management

Flexibility contracts
2009
PHASE 3
PHASE 2

Optimization
2007

Shared demand scenarios and
risk profiles
and
risk profiles
(real(real
demand
demand
collaboration)
Collaborative Risk
Management

Network optimized supply
plans

Event driven management

Fulfillment contracts, shared
risks/benefits
The risk of a Supply Chain disaster occurs annually, or seldom.
The risk of not serving an opportunity with your customer is daily.
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Stanford John Mallon JM2
Agenda
•
•
•
•
5
About ON Semiconductor
Phase 1 2000 - 2003
Phase 2 2004 – 2006 Flexibility and Scenario Management
Phase 3 2007 - 2010
Stanford John Mallon JM2
PHASE 2 – Minimize Revenue Risk from
Demand Obfuscation
ON has uniquely combined principles of
Advanced Planning, Lean Manufacturing, and
Stochastic Methods to create
The ON
•
•
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OSCARSM ,
Scenario Planner
Supply Chain ARchitecture
Evaluate options for
possible futures
Inventory Optimizer
Corporate Planner
Optimize inventory
in Supply Chain
Capacity alignment
by business
Master Planner
Demand Fulfillment
Demand Planner
Semi-weekly
supply-demand match
Accurate real-time
order promising
Best available
demand information
Investment in i2 Inventory Optimizer in 2004/05
Investment in i2 Scenario Planner in 2006
VMI Manager
EDI Driven Replenishment
Stanford John Mallon JM2
Synchronization and closing the loop
Continuous management to manage variability
Inventory is the risk shock absorber
between execution and tactical planning…..
Capacity is the risk shock absorber
between tactical and strategic planning
Strategy  Business Planning  S&OP
Tactical Planning
Execution
Financial
Capacity
Inventory
Product
Scenario
Planning
Inventory
Optimization
Demand
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Stanford John Mallon JM2
Primary benefits
Manage inventory & delinquent revenue
•
•
•
Internal Inventories
Measure inventory and days of supply
Days of outstanding delinquency
Maintain best-in class service
14%
Reduction
DOS
$205
87
Days
$193
85
Days
$176
78
Days
Q3'04
Q4'04
Q1'05
$172
77
Days
Q2'05
$173
75
Days
Q3'05
Days of
Delinquent Revenue
Direct OTD %
92%
91%
91%
92%
1%
Increase
25%
Reduction
6.0
5.0
5.2
93%
4.4
4.0
3.9
3.6
3.0
3.3
2.0
1.0
Q3'04
Q4'04
Q1'05
Q2'05
Q3'05
0.0
Q3'04
8
Q4'04
Q1'05
Q2'05
Q3'05
Stanford John Mallon JM2
Agenda
• About ON Semiconductor
• Phase 1
2000 - 2003
• Phase 2
2004 - 2006
• Phase 3
2007 – 2010 Collaborative Risk Management
– The Risks and Costs Ahead
– Scenario Planning Saves The (Supply Chain) World
• Summary
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Stanford John Mallon JM2
Collaboration Maturity
The DDSN Capability Model
Level 1
Level 2
Level 3
Level 4
Reacting
Anticipating
Collaborating
Orchestrating
Business Process
Organization
Measurement
Continuous
Improvement
Supply Chain
Excellence
DDSN
Excellence
ON Semi has mastered Supply
Chain Excellence, and the AMR
DDSN model shows the way for
the next generation of
improvements
Technology
The ESC Maturity Model
Culture
The ESC Maturity Model
provides detailed insight into
opportunities for improvement
in business collaboration
10
ePM
Level 1 Implicit
Level 2 Explicit
Level 3 Synchroni
zed
Level 4 External
Integration
Business and
Supply Chain
Objectives &
Metrics
Reactive
Documented/E
xplicit
Internally
Aligned
Partner
Aligned
Risk & Contract
Management
Limited
Management
Shared
Mitigation
Design-in
Mitigation
Process &
Controls
Independent
Cascading
Process
Synchronized
Process
Concurrent
Process
People,
Organization &
Culture
Silos
Internal
Cooperation
Information &
Data Management
Ad Hoc
Asynchronous
Continuous
Improvement
Firefighting
Internal/Unilat
eral
Unilateral
Limitation
External
Network
Collaboration
Cooperation
Narrow
Visibility
Mutual
Network
Visibility
Embedded or
Early/Mutual
Stanford John Mallon JM2
The Risk of Satisfying Opportunities at
Your Customer
 Technology Platforms
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Stanford John Mallon JM2
The Risk of Satisfying Opportunities at
Your Customer
FLEXIBILITY MODELS
Due to the Cycle Times of Production
within Semiconductor, Flexibility
models require the use of inventory
and capacity buffers
Flex Buffer Capacity
Flex Buffer Inventory
Target
FLEXIBILITY COST
20%
ON Semi models indicate that a
broad brush approach to a flex
model can cost between 2% - 4% of
margin for every 5% of Flex Model
A targeted approach using Demand
Scenarios can drastically reduce the
potential cost to both partners.
15%
% Margin 10%
Impact
5%
% Flexibility
12
5%
10%
15%
20%
25%
30%
Stanford John Mallon JM2
Agenda
• About ON Semiconductor
• Phase 1
2000 - 2003
• Phase 2
2004 - 2006
• Phase 3
2007 – 2010
– The Risks Ahead
– Scenario Planning Saves The (Supply Chain) World
• Summary
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Stanford John Mallon JM2
Using Scenarios To Enable
Collaborative Risk Management
Supply
Scenarios
Constrain/Unconstrain Resources
Phase 1
Capacity Edits: Base, Min, Flex capacity
Swap Capacity
Down time – Holiday or Planned
Editing cycle times/yields
Phase 2
Busines
Scenarios
Demand
Scenarios
Structural Changes to BOM
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Consensus Forecast
Customer High Confidence Forecast
Phase3
Customer Scenario Forecast
Enter-Prise
Intra-Prise
Phase4
Stanford John Mallon JM2
Leading OEMs are:
“Grabbing the Bull-Whip By The Horns”
Leading Semi Suppliers are committing
to the Drum Beat PLUS Flex Models
Successful OEM’s are “Re-engaging”
to manage the Drum Beat
SEMI
3PL
Leader’s Become excellent
at Demand Consolidation
and Stratified Forecasting
SEMI
Leaders are supplying Tier
1,2,3 visibility of Stratified
Forecasts
3PL
Some OEM’s have exited the “Demand
Partner Relationships
Synchronization”
responsibility
Collaborate on Flexibility
Models:
ODM
3PL
ODM
1) Flexibility Terms and
Liabilities
Disty
3PL
2)
A,B,C Classification
Models Aligned
3) Demand Ranges and
Confidence Levels
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Retail
OEM
Retail
Retail
ODM
ODM
EMSI
EMSI
Disty
Data
Exchanges
Retail
Retail
Design
Material Flow
Design
Information Flow
Leading Component Suppliers
OEM
are implementing
processes
and systems to manage
flexibility models.
EMSI
EMSI
Leadership OEM’s audit suppliers to
assure they have capability to
comply and not just signing
agreements.
Stanford John Mallon JM2
Collaborative Scenario Planning: A Major Supply
Chain Breakthrough to Manage Synchronization
OEM (Original Equipment Marketer)
Procurement
Planning
S & OP
Marketing
&
Business
Plans
Scenario
Planning
Retail
Point Of Sale
Todays B2B
Single Number
Forecast
Promotion
Plans
Tomorrows B2B
->
10 %
Single Number Fcst - > Range Forecast, Risk Stratified
50 %
Poor Accuracy
90 %
Updated As Needed - > Execution Daily, Planning
Semi- Weekly, Scenario
Monthly, Events Inbetween
->
Poor Accuracy
Updated Weekly
Simple Contracts
Simple Contracts ->
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Event driven capability
Accuracy mitigated through
Scenario data and Flex Models
Flex Contracts Sharing Risk on
Scenario’s
Stanford John Mallon JM2
Consensus Plan Generation
Quarter Forecasted (Q):
Probability
Curve
Revenue
Likelihood
Q2 2004
1
Q(-3)
0.9 Sell Through Revenue
0.8 Sell Through Revenue
Q(-2)
0.7 Sell Through Revenue (Current Projection)
Q(-1)
0.6
Baseline CDP for Q (From DP)
0.5
0.4
0.3
0.2
0.1
0
10
11
13
14
PTI2 :
P?
10
11
13
14
14.6
11
12
13
14
0
10
11
13
14
15
0
16
0
17
0
18
0.55
10.0
11.0
13.0
as of
14.0
as of
as of
Unlikely
Causes of revenue delta between Q(-1) and Q Downside
"Probability"
10
11
13
14
16.7
Q(-3) Sell Through Revenue
Q(-2) Sell Through Revenue
Q(-1) Sell Through Revenue (Current Projection)
Baseline CDP for Q (From DP)
Current Forecast (from sales)
Final Sell Through Revenue Forecast Consensus:
Possible
Downside
Base
Assumption
as of
3/15/2004
Potential
Upside
Unlikely
Upside
5%
20%
50%
20%
5%
0.00
0.00
(0.20)
(0.10)
0.70
(0.30)
0.00
(0.50)
0.50
0.00
0.00
(0.10)
0.70
(0.30)
0.20
(0.40)
0.50
0.00
0.50
(0.05)
0.70
(0.30)
0.50
(0.30)
0.80
1.00
0.80
0.00
0.90
(0.30)
0.60
(0.10)
1.00
1.00
1.00
0.05
1.20
(0.30)
0.70
0.00
14.55
14.55
14.55
14.55
14.55
12.6
13.6
14.6
16.7
17.7
% Delta from Nominal
-13%
-7%
0%
15%
21%
Delta from Nominal
(1.95)
(0.95)
0.00
25%
75%
2.15
75%
5%
3.10
95%
0%
Prod1 Design Win at CTM1 (almost certain)
Prod2 Design Win at CTM2 (low probability)
Recover market Share at CTM3 on prod3
ASP Degradation
Seasonal Volumes at CTM4
CTM5 end of production on Appli1
Miscellaneous Design Wins on Family1
Quality Issue on Prod4 at CTM5
Q Sell through Revenue Forecast (Nominal)
Forecast Profile
0%
100%
17
10
11
13
14
13.6
10
Discrete Revenue
Events
Fcst Date 3/15/2004
5%
95%
Stanford John Mallon JM2
Leveraging the CPFR Model
(Collaborative Planning, Forecast and Replenishment)
CPFR
Model
Business
Planning
Sales
Planning
Order
Planning
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ON
Account
Planning
OEM
Bus Plan/ Contract
Supplier
Planning
Semi-Annual, Quarterly
NPI, Capacity
and Inventory
Planning
(Scenario’s)
Internal Supply
Chain Planning
and Execution
Program Forecast - Monthly
Allocated Capacity- Monthly
Demand Scenario
Demand Pull
DIST
EMSI
Weekly, Daily
NPI, Capacity
and Inventory
Planning
(Scenario’s)
Internal Supply
Chain Planning
and Execution
Stanford John Mallon JM2
Challenges to Collaborative Risk Management
•
Trust
– Can we Agree on the Benefits of separating the whip from the “bull” ?
– Can we get over the lack of trust in sharing business scenario data ?
– What types of T’s and C’s will be set for different Demand Strata ?
•
Definition of Processes
– Need supply chain communities to keep working it
– Need standards bodies to drive approach
•
Systems to Communicate
– How will the strata and risk levels be identified in the data sets ?
– Need standards work around the multiple “demand scenarios” and “demand
strata and confidence levels”
•
Systems to Create the Visibility
– APS type solutions - pegging of demand types
– Management of Demand Strata within corporations – visible to partners
– Formal modeling of business scenarios, with risk sharing strategies to assure
supplier readiness.
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Stanford John Mallon JM2
In skating over thin ice, our
safety is in our speed.
—Ralph Waldo Emerson
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Stanford John Mallon JM2
Thank You
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Stanford John Mallon JM2