When changes in wafer fabrication added more links to Texas Instruments' supply chain, the semiconductor maker responded by streamlining its operations.
James Cooke is a principal analyst with Nucleus Research in Boston, covering supply chain planning software. He was previously the editor of CSCMP?s Supply Chain Quarterly and a staff writer for DC Velocity.
Over the years, its supply chain has expanded to include additional steps and players. Yet Texas Instruments hasn't allowed that to slow down the process. James Cooke tells the story in this article, which first appeared in the Quarter 1/2008 edition of CSCMP's Supply Chain Quarterly.
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You might think that a product made from silicon would flow through a supply chain like sand through an hourglass. But that's hardly the case for Texas Instruments Inc. (TI), one of the world's largest makers of silicon chips. Though its products may not present handling challenges, the Dallas-based company still faces the same difficulties that confront any business trying to coordinate the movement of materials through a far-flung global supply chain. And for TI, those challenges have only been magnified as the company's manufacturing process has become increasingly complex.
Those changes in Texas Instruments' manufacturing process over the years are largely a reflection of marketplace developments. Since TI introduced the first integrated circuit to the world in the middle of the last century, the market has exploded into a multibillion dollar global business. The company, which once concentrated on making chips for use in computers, now produces 55,000 different semiconductor products that are incorporated into a wide variety of electronic devices, including mobile phones, modems, and DVD players. Today, the computer industry accounts for only about 30 percent of TI's semiconductor sales, while customers in the communications industry consume at least half of the 10 billion-plus chips TI makes each year.
Not surprisingly, these changes have also had repercussions for TI's supply chain. Compared to a few decades ago, there are now more steps in the manufacturing process and, because TI has contracted with third parties for some of its manufacturing and distribution needs, more players in the chain. The conventional wisdom holds that the more links in the chain, the greater the potential for delays and other disruptions to the flow of materials and information among the various parties. Yet that hasn't been the case at TI. In the face of added challenges, the semiconductor maker has actually responded by streamlining its operations.
Complicating factors
Semiconductors—also called integrated circuits or chips— are big business for TI, which makes both analog and digital versions. In 2006, the most recent year for which financial figures are available, $13.7 billion of the company's $14.2 billion in revenue (96.5 percent) came from its semiconductor business. Asia and Europe each accounted for 25 percent of the company's semiconductor sales; the United States accounted for another 20 percent.
The chips themselves are made from silicon wafers in highly specialized factories known as fabrication plants, or "fabs." From the fabs, they move to assembly and test (A/T) facilities, where the wafers are cut into individual chips, which are then assembled into packages and tested.
Not so long ago, back when most of TI's chips were sold for use in personal computers (PCs), chip manufacturing was a relatively straightforward business. "The world used to be fairly simple," says Jan De Meulder, TI's director of supply chain logistics. "You were building chips for one PC application in one fab, sending them to one assembly and test site for completion, and your end customer was IBM, who was doing everything else. That was back in the '70s."
These days, it's no longer so simple. "Today, we have some processes [that] start in a first fab and then go to a second fab to complete the wafer's fabrication," explains De Meulder. "Then, they could be packaged in an assembly plant, followed by burn-in (tests in which the devices are subjected to high temperatures to assure quality) and final test processes in yet another site. Quite often, we then have to send those to an electronic manufacturing corporation that builds subassembly boards." From there, the units might be shipped directly to the customer's factory, where end products such as cell phones are assembled.
At the same time, more players have been introduced into the process. Three decades ago, Texas Instruments owned most of its chip-making facilities. But over the years, the company has outsourced part of its production to thirdparty foundries. At present, Texas Instruments uses more than 30 fabs and foundries around the globe. (Fabs make product strictly for TI's customers; foundries take orders from multiple customers, including TI's competitors.)
Delivering the goods
TI's process for moving semiconductors out to its customers, which now number more than 3,000 worldwide, is no less complicated. About 75 percent of the company's semiconductor products move through its distribution network, which includes four big regional distribution centers and more than 70 smaller hubs (see Figure 1). The company uses a regional DC in Singapore to serve customers in Asia; one in Dallas to serve North America; one in Utrecht, the Netherlands, to serve Europe; and one in Tsukuba, Japan, to serve markets in that country. But Texas Instruments doesn't manage these facilities itself; it uses third-party logistics service providers (3PLs) to handle the day-to-day operations of those warehouses.
Another 10 percent of TI's chips move directly from its factories to customers. The other 15 percent are sent to warehouses near key customers' factories. TI maintains inventories for those customers at the sites on a consignment basis.
To move its products, Texas Instruments relies heavily on air carriers, although the company has begun experimenting with ocean shipments for products with long lead times. Given its global reach, TI must keep track of rates on more than 1,000 different shipping routes.
All in all, the process is a lengthy one. On average, it takes eight months to source material, build the various semiconductor components, and deliver them into the end customers' hands. Texas Instruments keeps about 90 days' worth of inventory on hand to meet demand.
All together now!
As for how TI has managed to streamline its supply chain despite the additional steps, the explanation lies partly in its effective use of electronic communications. For starters, TI has standardized its information technology platform, deploying a common global IT system to handle all orders and shipments. The company now uses a single version of SAP's enterprise resource planning (ERP) system across all business units around the globe. The SAP system allows Texas Instruments to take an order from any customer anywhere on the planet and check whether it can meet the order. "People can look at orders and inventory anywhere around the world," says De Meulder. "It allows us to track changes in real time."
At the same time, the company has set up a global connectivity platform to exchange information with its external partners. It uses a variety of methods, ranging from electronic data interchange (EDI) to XML-messaging on the Internet, to connect with those external players. "When you have so many touch points with suppliers, you have to be connected by IT to your partners," De Meulder says.
TI's efforts to standardize its information base have extended to other areas of the operation as well. For example, the company uses a single version of i2's production planning software and has adopted a sales and operations planning (S&OP) process that has pushed everyone in the organization to use a standard set of data. "Everybody is aligned on what the company will aim for, what revenues we're looking for, and what the factories will build to," De Meulder says. "And everybody will execute the same plan."
As part of that process, Texas Instruments conducts a monthly review to spot potential gaps between supply and demand, so that it can act swiftly to resolve disparities. That monthly plan drives the weekly production plan for the factories, which must be kept running in order to be cost effective. "We can't afford to have the factory idle," De Meulder explains.
Fast-moving parts
Along with its IT and planning initiatives, Texas Instruments has also introduced several innovative transportation programs. To coordinate inbound parts shipments from offshore suppliers to its North American production plants, for example, the company has set up an Inbound Routing Center in Dallas. As it did with its regional distribution centers, TI has contracted with a 3PL to run the Inbound Routing Center. Among other functions, the 3PL is responsible for determining the most cost-efficient manner of shipping.
To help ensure a steady flow of parts and components needed for production, the Dallas chipmaker has also contracted with suppliers to set up vendor-managed inventory hubs near its fabs and A/T factories in Asia and Mexico. "We are asking suppliers to put key components right in front of our factories," says De Meulder, who notes that these programs are similar to the ones TI operates for its own customers.
Initiatives aimed at streamlining the company's outbound transportation include what TI calls the "shippacked-to-sales-order" program. Under this program, which is designed to expedite order shipping, a factory in, say, Malaysia will consolidate individual orders for Japanese customers into one container for shipment to TI's Tsukuba distribution center. Before it leaves the factory, each package is labeled with the final customer's name and other delivery details. When the shipment arrives at Tsukuba, workers at the DC break down the load into individual orders for final delivery.
Texas Instruments has also begun deploying transportation management software (TMS) to help it move shipments to customers swiftly at the lowest possible cost as well as to obtain better visibility of shipments in transit. Although it now uses the software only at its distribution centers, the company has plans to deploy the same TMS applications at all of its assembly and test facilities, which will allow those sites to take over tasks like filling out customs and shipping documents. "We want the factory to be able to do the same thing the DC can do," says De Meulder. The company has also developed contingency plans to keep the network running in case of supply chain disruptions. It has re-examined its shipping patterns and routes to ensure that it has an alternative carrier to move products and supplies on every key inbound and outbound lane. "If something happens, we have a backup plan with another strong provider," De Meulder reports.
A perfect delivery network
For all of its successful improvement initiatives, Texas Instruments still considers its supply chain to be a work in progress. It recently engaged an outside research firm to model its distribution network to determine the optimum locations for its distribution centers. "We will use that model to project the future," De Meulder says. He adds that he expects TI to relocate more DC operations to Asia in an effort to get closer to Asian customers, increase its presence in that part of world, and reduce its operating costs.
"We are busy working on developing a truly optimized network that can handle any shipment to any customer anywhere," says De Meulder. "Customers are not ... forgivng today; they want a perfect delivery network."
States across the Southeast woke up today to find that the immediate weather impacts from Hurricane Helene are done, but the impacts to people, businesses, and the supply chain continue to be a major headache, according to Everstream Analytics.
The primary problem is the collection of massive power outages caused by the storm’s punishing winds and rainfall, now affecting some 2 million customers across the Southeast region of the U.S.
One organization working to rush help to affected regions since the storm hit Florida’s western coast on Thursday night is the American Logistics Aid Network (ALAN). As it does after most serious storms, the group continues to marshal donated resources from supply chain service providers in order to store, stage, and deliver help where it’s needed.
Support for recovery efforts is coming from a massive injection of federal aid, since the White House declared states of emergency last week for Alabama, Florida, Georgia, North Carolina, and South Carolina. Affected states are also supporting the rush of materials to needed zones by suspending transportation requirement such as certain licensing agreements, fuel taxes, weight restrictions, and hours of service caps, ALAN said.
E-commerce activity remains robust, but a growing number of consumers are reintegrating physical stores into their shopping journeys in 2024, emphasizing the need for retailers to focus on omnichannel business strategies. That’s according to an e-commerce study from Ryder System, Inc., released this week.
Ryder surveyed more than 1,300 consumers for its 2024 E-Commerce Consumer Study and found that 61% of consumers shop in-store “because they enjoy the experience,” a 21% increase compared to results from Ryder’s 2023 survey on the same subject. The current survey also found that 35% shop in-store because they don’t want to wait for online orders in the mail (up 4% from last year), and 15% say they shop in-store to avoid package theft (up 8% from last year).
“Retail and e-commerce continue to evolve,” Jeff Wolpov, Ryder’s senior vice president of e-commerce, said in a statement announcing the survey’s findings. “The emergence of e-commerce and growth of omnichannel fulfillment, particularly over the past four years, has altered consumer expectations and behavior dramatically and will continue to do so as time and technology allow.
“This latest study demonstrates that, while consumers maintain a robust
appetite for e-commerce, they are simultaneously embracing in-person shopping, presenting an impetus for merchants to refine their omnichannel strategies.”
Other findings include:
• Apparel and cosmetics shoppers show growing attraction to buying in-store. When purchasing apparel and cosmetics, shoppers are more inclined to make purchases in a physical location than they were last year, according to Ryder. Forty-one percent of shoppers who buy cosmetics said they prefer to do so either in a brand’s physical retail location or a department/convenience store (+9%). As for apparel shoppers, 54% said they prefer to buy clothing in those same brick-and-mortar locations (+9%).
• More customers prefer returning online purchases in physical stores. Fifty-five percent of shoppers (+15%) now say they would rather return online purchases in-store–the first time since early 2020 the preference to Buy Online Return In-Store (BORIS) has outweighed returning via mail, according to the survey. Forty percent of shoppers said they often make additional purchases when picking up or returning online purchases in-store (+2%).
• Consumers are extremely reliant on mobile devices when shopping in-store. This year’s survey reveals that 77% of consumers search for items on their mobile devices while in a store, Ryder said. Sixty-nine percent said they compare prices with items in nearby stores, 58% check availability at other stores, 31% want to learn more about a product, and 17% want to see other items frequently purchased with a product they’re considering.
Ryder said the findings also underscore the importance of investing in technology solutions that allow companies to provide customers with flexible purchasing options.
“Omnichannel strength is not a fad; it is a strategic necessity for e-commerce and retail businesses to stay competitive and achieve sustainable success in 2024 and beyond,” Wolpov also said. “The findings from this year’s study underscore what we know our customers are experiencing, which is the positive impact of integrating supply chain technology solutions across their sales channels, enabling them to provide their customers with flexible, convenient options to personalize their experience and heighten customer satisfaction.”
Transportation industry veteran Anne Reinke will become president & CEO of trade group the Intermodal Association of North America (IANA) at the end of the year, stepping into the position from her previous post leading third party logistics (3PL) trade group the Transportation Intermediaries Association (TIA), both organizations said today.
Meanwhile, TIA today announced that insider Christopher Burroughs would fill Reinke’s shoes as president & CEO. Burroughs has been with TIA for 13 years, most recently as its vice president of Government Affairs for the past six years, during which time he oversaw all legislative and regulatory efforts before Congress and the federal agencies.
Before her four years leading TIA, Reinke spent two years as Deputy Assistant Secretary with the U.S. Department of Transportation and 16 years with CSX Corporation.
As the hours tick down toward a “seemingly imminent” strike by East Coast and Gulf Coast dockworkers, experts are warning that the impacts of that move would mushroom well-beyond the actual strike locations, causing prevalent shipping delays, container ship congestion, port congestion on West coast ports, and stranded freight.
However, a strike now seems “nearly unavoidable,” as no bargaining sessions are scheduled prior to the September 30 contract expiration between the International Longshoremen’s Association (ILA) and the U.S. Maritime Alliance (USMX) in their negotiations over wages and automation, according to the transportation law firm Scopelitis, Garvin, Light, Hanson & Feary.
The facilities affected would include some 45,000 port workers at 36 locations, including high-volume U.S. ports from Boston, New York / New Jersey, and Norfolk, to Savannah and Charleston, and down to New Orleans and Houston. With such widespread geography, a strike would likely lead to congestion from diverted traffic, as well as knock-on effects include the potential risk of increased freight rates and costly charges such as demurrage, detention, per diem, and dwell time fees on containers that may be slowed due to the congestion, according to an analysis by another transportation and logistics sector law firm, Benesch.
The weight of those combined blows means that many companies are already planning ways to minimize damage and recover quickly from the event. According to Scopelitis’ advice, mitigation measures could include: preparing for congestion on West coast ports, taking advantage of intermodal ground transportation where possible, looking for alternatives including air transport when necessary for urgent delivery, delaying shipping from East and Gulf coast ports until after the strike, and budgeting for increased freight and container fees.
Additional advice on softening the blow of a potential coastwide strike came from John Donigian, senior director of supply chain strategy at Moody’s. In a statement, he named six supply chain strategies for companies to consider: expedite certain shipments, reallocate existing inventory strategically, lock in alternative capacity with trucking and rail providers , communicate transparently with stakeholders to set realistic expectations for delivery timelines, shift sourcing to regional suppliers if possible, and utilize drop shipping to maintain sales.
National nonprofit Wreaths Across America (WAA) kicked off its 2024 season this week with a call for volunteers. The group, which honors U.S. military veterans through a range of civic outreach programs, is seeking trucking companies and professional drivers to help deliver wreaths to cemeteries across the country for its annual wreath-laying ceremony, December 14.
“Wreaths Across America relies on the transportation industry to move the mission. The Honor Fleet, composed of dedicated carriers, professional drivers, and other transportation partners, guarantees the delivery of millions of sponsored veterans’ wreaths to their destination each year,” Courtney George, WAA’s director of trucking and industry relations, said in a statement Tuesday. “Transportation partners benefit from driver retention and recruitment, employee engagement, positive brand exposure, and the opportunity to give back to their community’s veterans and military families.”
WAA delivers wreaths to more than 4,500 locations nationwide, and as of this week had added more than 20 loads to be delivered this season. The wreaths are donated by sponsors from across the country, delivered by truckers, and laid at the graves of veterans by WAA volunteers.
Wreaths Across America
Transportation companies interested in joining the Honor Fleet can visit the WAA website to find an open lane or contact the WAA transportation team at trucking@wreathsacrossamerica.org for more information.