Supply Chain Design in the Volatile Semiconductor Capital Equipment Industry

As companies outsource more manufacturing and design responsibilities to external vendors and therefore become less vertically integrated, the role of supply chain management becomes increasingly complex. Its role is particularly difficult when product generation follows a serial process flow, with the supply chain function residing at the end and where it inherits poorly defined supplier relationships. A more integrated approach that seeks to proactively design the supply chain during product generation is required. Central to this integrated approach is the timely exchange of information both within the company, between R&D and procurement, and external to the company, between procurement and its suppliers. The timing of the information flow is crucial. It needs to occur before the company is locked into a single supplier and when its bargaining power is the highest. It also needs to occur in a manner that does not slow down the product development process. In practice, that means that specific information needs to be exchanged and committed to prior to supplier selection. Ultimately, the information exchange described in this thesis leads to improved supplier relations that enable the company to shift its procurement practices from the tactical approach of buying materials to the strategic approach of buying supply services. The research for this thesis was conducted at a partner company of the Leaders for Manufacturing (LFM) program. The company manufactures test equipment used in the semiconductor industry. Due to the highly cyclical and unpredictable nature of this industry, supply chains that can guarantee responsiveness and availability are desirable. The supply chain design recommendations proposed in this thesis are based on an analysis of a recent product generation program at the company. By continuing to implement these recommendations, the company should benefit from shorter product development cycle times, smoother production ramps, improved customer service levels and lower sourcing costs. Thesis Advisors: Charles H. Fine, Chrysler LFM Professor of Management, Sloan School of Management Daniel E. Whitney, Senior Research Scientist, Center for Technology, Policy and Industrial Development