A recent report by AMR Research recommends a unified system of joint risk management to address collaborative inventory problems among the original equipment manufacturers (OEMs), electronic manufacturing service (EMS) providers, and semiconductor component manufacturers.
In its June Manufacturing Report, “Semiconductor Inventory Imbalance Requires Joint Risk Management,” AMR proposes a new structural framework in which company member’s roles are defined, financial responsibilities are clear, and all risks are shared equally — all necessary pieces needed to solve the previously unfinished collaborative inventory puzzle.
“We looked at the extended supply chain at semiconductor manufacturers, EMS, and OEMs and essentially tried to understand what happened in the inventory supply channels,” Vinay Asgekar, analyst at AMR Research, Boston, MA, told WaferNews. “On the OEM level, inventories grew, but during the inventory escalation phase, it increased much more rapidly for semiconductor manufacturers and EMS folks, but not at the OEM level. That points out that there is an inventory imbalance across the OEM supply chain.”
The report states that collaborative inventory management reduces inventory exposure by as much as 30% while reducing downtime related to shortages by more than 75%, as illustrated in the automotive industry.
“[Use that as] an example and see how they have improved,” Asgekar challenged companies. “You don’t have to jump in with all your product lines.”
The study went on to say that the current slowdown in the semiconductor industry is an opportunity to “build in this process efficiency” so that when the demand upswing comes, companies are in a position to maximize the profit potential.
AMR interviewed prominent players across the extended supply chain in order to discuss customer-requested inventory programs and inventory ownership issues. The research firm also surveyed software vendors with a presence in the semiconductor industry to evaluate technology support. AMR reported that there are supply chain disconnects which are an indication of the failure of collaborative inventory management.
“We realized that for IP critical components, the relation between OEMs, EMS and semiconductor manufacturers is a triangular relationship. The product flows through the guide, so there is a disconnect in the channel and at an execution level because of that,” Asgekar said.
The study also found that participation by semiconductor manufacturers is “sporadic.” AMR cited the rapid growth of the semiconductor industry in the past as a reason that the lack of collaborative inventory management practices were “masked.”
Asgekar said that collaborative inventory programs within the semiconductor industry have failed in the past because collaboration between companies is minimal and because there is no clear visibility.
“Collaboration in these kind of inventory programs is minimal. There is no clear visibility. If they can’t see a risk they are not going to sign up for it. Visibility is one of the main issues,” he said.
Semiconductor manufacturers of “IP-rich non-custom components” have not participated in programs like vendor-managed inventory (VMI) or supplier-owned inventory (SOI) and consigned inventory with enthusiasm, the study said. In most cases, when such programs were implemented, they were limited to only a few customers and the scope was restricted to only a few component lines, AMR reported.
Additionally, complex business relationships between OEMs, EMS providers, and semiconductor manufacturers make managing expensive components difficult.
But parties that are open to joint risk management are able to put the pieces together and bridge the relationship gaps. Closing the structural gaps in the relationship is possible through a bipartisan risk-sharing agreement with a risk management process.
– Christina Bruns, Associate Editor, WaferNews