Logic and logistics
Semiconductor supply chains are complex, dynamic and demanding. That calls for an increasingly integrated approach.
The digital world is built on silicon foundations. The fundamental enabling technology for today’s smart products, connected businesses and advanced services is the transmission of signals through countless nanometer-scale transistors etched into the surface of silicon wafers.
It is testament to the success of the global semiconductor industry that end users rarely give a thought to the complexity and sophistication of the manufacturing processes and supply chains used to create its products.
Yet semiconductor production requires a carefully orchestrated sequence of processes that stretches from mines in some of the most remote regions of the world to the heart of its largest cities.
Every link in that chain comes with its own demands. The materials, chemicals and intermediate products used in semiconductor production are costly and often fragile. The finished products are highly valuable and sensitive to shock, extremes of temperature and electrostatic discharge. That calls for extremely careful handling during transportation and storage, with logistics and supply chain processes that support the industry’s goal of zero defects and relentless quality improvement.
There’s volatility, too. Rapid technological development, unpredictable markets and short product life cycles mean semiconductor supply chains need to be highly agile, with volumes, product mix and end customer location changing all the time. And the increasing use of e-commerce and other digital procurement tools is making it ever easier for customers to switch supplier at short notice.
Product supply chains are only part of the story, however. Semiconductor manufacturing is a tremendously capital-intensive business. Capital depreciation accounts for around half the cost of a finished silicon wafer, for example. And as manufacturers continually adjust and reconfigure their manufacturing footprints to accommodate new products and changes in demand, that high-value manufacturing equipment must be moved from place to place.
That’s an activity that comes with its own formidable logistics challenges. Semiconductor machinery must operate with an accuracy that can be counted in atoms. It is large, extremely delicate and eye-wateringly expensive. The cost of a machine for a single process step in a wafer fabrication plant can run into the tens of millions of dollars, and a complete plant can cost $10 billion to build and equip.
Diversity adds complexity
As if managing their existing supply chains wasn’t difficult enough, semiconductor players are now facing a host of additional complexities. While communication and data processing applications remain the largest segments of the overall market, automotive applications, which currently account for 16 percent of total semiconductor sales, are expected to grow more than twice as fast over the next few years.
Growth in industrial applications, meanwhile, is expected to be three or four times faster, at 8 percent a year. And between 2015 and 2018, the value of products based on internet of things technologies is expected to reach more than $470 billion, an annual growth rate of around 18 percent.
Today’s fastest-growing product categories, from wearable consumer devices to the networks of sensors and distributed controllers embedded in cars or industrial machinery, require new generations of simpler, cheaper but more specialized chips. For an industry more familiar with the supply of high volumes of standardized components, this new world is highly disruptive.
Semiconductor players are having to revisit the way they design their products and engage with their customers. And they are reconfiguring their manufacturing and supply networks.
The search for the right capabilities, technologies and production footprint has also driven significant structural changes in the industry. Semiconductor companies spent around $100 billion a year on mergers and acquisitions (M&A) in 2015 and 2016, for example. The average level of M&A expenditure in the previous five years, by contrast, was just under $13 billion.
New specialized services
As growing number of semiconductor companies are responding to the industry’s pressures by driving a revaluation of logistics processes. Developed in response to this demand, DHL Semiconductor Logistics is a new suite of solutions designed to improve the control of material and equipment flows through the industry’s supply chains.
A lighthouse example of a DHL semiconductor logistics solution is a new Global Capital Support Center (GCSC) in Shannon, Ireland, with regional support centers in Tokyo and Atlanta, developed in partnership with one of the world’s leading semiconductor players. The center is designed to centralize, simplify and improve the performance of the logistics operations required to move semiconductor production and test equipment around the world.
Staffed by a dedicated DHL team with extensive experience of complex capital equipment logistics, the GCSC serves as a 24/7 center of excellence and a single point of contact for semiconductor plants and facilities as they plan, schedule and execute equipment transportation. It has responsibility for the procurement of transport services, including supplier and carrier selection, qualification and performance management.
To drive quality and process standardization, the unit has developed a comprehensive set of standard operating procedures, along with detailed training materials to facilitate their application.
The GCSC brings all the data related to customers’ planned and ongoing equipment logistics activities together in a single platform. That greatly improves visibility across the supply chain, aiding the coordination of complex moves involving multiple sites, and allows the earlier identification of issues or improvement opportunities. The center’s dynamic routing capabilities, for example, allow the right transport routes and modes to be chosen for each move, optimizing logistics costs and allowing shipments to be consolidated where possible.
The center also works as a real-life demonstration of the application of advanced technologies in the supply chain. Internet of things technologies will deliver track-and-trace capabilities as shipments move around the world. And DHL’s Resilience360 supply chain risk management platform provides real-time alerts about emerging issues that could affect planned or ongoing operations, from transport disruption to severe weather events.
For the semiconductor industry, rising supply chain complexity is a fact of life. For the industry’s strongest players, mastering that complexity is increasingly seen as a significant source of competitive advantage. — Jonathan Ward
For more information on DHL‘s Semiconductor logistics, please contact Doug.Whaley@dhl.com
Published: May 2017