Magazine Article | June 1, 2002

One Good Turn...

Source: Field Technologies Magazine

Seeing customers like Dell Computer benefit from vendor-managed inventory, $2.1 billion National Semiconductor expects the same service from its suppliers.

Integrated Solutions, June 2002

"When you look at it from a high level, it's a pretty straightforward process," claims National Semiconductor Senior VP and CIO Ulrich Seif after quickly running through the semiconductor manufacturer's supply chain. Come down from the 30,000-foot view, and Seif knows that things get real complicated, real fast. National's customers expect JIT (just-in-time) replenishment, while National's accountants want the $2.1 billion company to carry as little inventory as possible. Testing large volumes of the same product at one time reduces National's labor costs, but customers order in smaller quantities with different product mixes. And, while the steps in National's supply chain may be similar to those of any manufacturer, there are differing views on how to optimize those steps - even within National. "I talk to our planning people, and my head starts spinning. They can talk all day about different optimization issues and conflicts," adds Seif.

Focus in on maintenance - an oft overlooked cost issue in manufacturing - and the optimization opportunities in this area. National's customers were demanding JIT replenishment, but the company was not holding itself or its suppliers to the same standard when it came to maintenance part inventory and replenishment at its three manufacturing facilities (Maine, Texas, United Kingdom). National customer Dell Computer, for instance, optimizes its supply chain by requiring its suppliers to manage Dell's inventory. While National was supporting Dell with vendor-managed inventory, the semiconductor manufacturer realized it could also leverage vendor-managed inventory with some of its suppliers. "We are doing the same thing to our suppliers of spare parts and maintenance materials that Dell is doing to us. We pass some of the inventory burden onto those suppliers," explains Seif.

This is just one way that National optimized its maintenance processes. The 10,000-employee company also replaced a handful of disparate legacy systems with an integrated suite that manages maintenance operations at National and can be expanded to other areas of the company. Minimally, vendor-managed inventory and maintenance optimization strategies will save hundreds of thousands of dollars annually at each of National's production facilities. And, as production increases at the plants, the savings will as well.

Standard Protocols Allow Machine-To-Machine Communication
Whether it's National's equipment for submicron manufacturing or a storeroom light bulb, there are typically three different approaches to maintenance. The light bulb can be replaced when it burns out. It can be replaced in regular intervals. Or - and this is National's goal - it can be replaced just minutes before it burns out. For National, this type of clairvoyance came only after it implemented several modules of the IFS Applications suite from IFS (Chicago). The software communicates with National's manufacturing equipment and uses several performance metrics to schedule maintenance. In the case of the equipment that lays a thin oxide film over a semiconductor substrate, for instance, the thickness and uniformity of the oxide film is reported to the IFS Maintenance software. The software calculates when certain tolerances will be exceeded and schedules maintenance before this occurs. "All of our equipment is GEM (generic equipment model)- and SECS (semiconductor equipment control system)-compliant," explains Mohammed Ibrahim, director of manufacturing systems in National's MIS department. "These are standard protocols that allow manufacturing equipment to talk to host computers."

While communication between equipment and host computers is handled by standard protocols, National's IT folks still had to translate the conversation. The process is not dissimilar from EDI (electronic data interchange), which requires companies to set standards that define a purchase order or invoice, for example. "In terms of customization, this was the toughest part. We needed to look at each piece of data and determine what it meant in terms of equipment performance, maintenance scheduling, and inventory management," adds Seif.

Manage The Supply Chain Within The Supply Chain
Knowing when to schedule maintenance is not the end of National's strategy. It does, however, enable the company to manage the mini-supply chain within to its maintenance operations - ordering, managing, and paying for replacement parts and materials. Not only do technicians show up at equipment sites at appropriate times, they are now greeted by the parts and materials needed to perform a maintenance project. This wasn't always the case as maintenance was scheduled inefficiently and National kept excessive amounts of inventory on-hand.

Remember the equipment that lays down a thin layer of oxide film? IFS software takes data generated from that piece of equipment and schedules a preventive maintenance call in 18 days, for instance. The software also identifies the parts and materials needed for the call and checks those items against current inventory levels. If the parts aren't in stock, the system generates a purchase order and notifies suppliers by EDI, e-mail, or fax. "The suppliers range in size from large enterprises with EDI capabilities to five-man shops with a fax machine. Our communication with suppliers couldn't just be advanced technology. We also had to address the lowest common denominator," recalls Mahmood Hasan, IS manager at National. This meant integrating a direct-fax solution from RightFax with IFS' software.

In terms of National's inventory, procurement, and maintenance personnel, 200 to 300 employees at each of the three manufacturing sites are affected by the IFS application. The new maintenance scheduling and procurement system also impacts 700 of National's more than 6,000 total suppliers. These are the suppliers that must now manage National's inventory a la Dell's model. The impact of automation and vendor-managed inventory is a healthier bottom line for National. In calculating its ROI - a task that is not yet complete - the company tracks OEE (overall equipment efficiency), inventory costs, material tracking costs, and labor efficiency. "If we can improve OEE at one site by 10% (a realistic goal, according to Seif), we can save hundreds of thousands of dollars in maintenance costs in just one year," says Hasan. "And, that is just one index in the ROI calculation."

Portal Opens A Window Of Opportunity
Like all applications at National, the IFS application is served up to users via a company portal developed by iPlanet (a division of Sun Microsystems). This architecture, implemented about one year ago at National, allows employees to access apps on an anytime, anywhere basis. The company's 1,200 engineers can track experiments and simulation tests from their homes after hours and on weekends. Product drawings and specs, managed by Documentum's document management system, are accessible from off-site. And, when National moved its SAP application from its own data center to an ASP (application service provider), the company had to change one IP (Internet Protocol) address on the server instead of changing the server location at each of its 600 users' desktops.

The thin client architecture at National also allows the company to explore ASP possibilities with relative ease. The aforementioned SAP application is hosted by Qwest Cyber Solutions. Peregrine Systems hosts National's EDI transactions, and UPS Logistics Group hosts warehousing and distribution apps. The company's biggest ASP relationship - with Qwest Cyber Solutions - offered a payback in less than six months and a projected five-year ROI of 1,736%.

Exploring these opportunities requires coming down from a 30,000-foot perch and jumping headlong into the details. National routinely enlists the help of analyst groups to benchmark itself against other semiconductor manufacturers. "This industry is a little inbred. You change jobs and the people at your new company are the same faces you saw at your previous company," quips Seif. "That's why I insist that these benchmark studies include one or two companies that are not in our industry. This forces us to look at new processes and concepts."

With worldwide semiconductor revenue declining 33% to $152 billion in 2001 (Gartner Dataquest), companies like National will need to explore new processes and concepts. Implementing these strategies will improve the bottom line while the industry waits for semiconductor sales to pick up.