A lack of visibility across the supply chain, coupled with inaccurate supply/demand forecasting, is hurting the semiconductor industry's ability to deliver products promptly, efficiently spend capital, and properly manage inventory, according to a recently published PricewaterhouseCoopers (PWC) report.
The problem is evident, industry analysts have pointed out, in the number of recent fourth-quarter pre-earnings announcements in which supply-chain glitches are being blamed for weaker-than-expected sales and profits.
What many are hoping will help flatten out some of the semiconductor industry's cyclical highs and lows is the expected greater use in 2001 of Internet-based information sharing between partners.
Top executives said that this year, they plan to use the Internet to pass on a greater amount of data concerning capacity, demand history, forecasts, order status, and product design, according to the PWC report, "Millennium Semiconductor Best Practices Survey in Supply Chain Management."
What's making it even more difficult to share information is what PWC calls the "disintegration of the value Web," which increases the number of companies providing goods and services across the supply chain. This has produced added pressure on companies to link their systems to a greater number of first-, second-, and third-tier customers.
"The value Web has [broken up] into brand-owning companies and service providers. Companies have gone back to their core competencies and you no longer have vertical integration," said Krish Dharma, PWC's director of high-technology practice in Irvine, Calif. "This is a fundamental issue because the number of links in the supply chain has increased exponentially and the quantity of data being exchanged is also being increased significantly."
The report, published last month, notes that a major push to share Internet-based information among supply-chain partners will occur this year. Seventy-six percent of respondents said they will share inventory and capacity information, up from 50% in 2000. And 72% said that information concerning demand history and forecasts will be shared, compared with 30% last year.
But while companies say they will share more information, questions linger over how much and with what degree of specificity.
"Many OEMs talk about integration with their suppliers and distributors, but actually what they mean is not real system-to-system communication," said Navi Radjou, an analyst at Forrester Research Inc., Boston, which contributed data to the PWC report. "What OEMs have in mind is actually a portal, basically an extranet where they can publish their production schedule and [their customers] can log into the portal and view that information."
System-to-system integration hasn't moved forward, according to Radjou, because there is a lack of standards across the supply chain as well as a high degree of reticence to share information.
"There's a lack of trust. Companies are afraid that by doing real-time integration, somehow the supplier is going to sneak into their systems and find out about their pricing strategy or something like that," he said. "Both OEMs and suppliers are leery of opening up their systems to customers."
Although companies talk about the improvements that will come from information sharing, the PWC report notes that many semiconductor companies are still using spreadsheet analysis and manually linked legacy applications to organize data used in decision-making.
The PWC study also noted that EDI, which supports point-to-point connectivity between two partners, is still a dominant process for exchanging forecast information, as opposed to the Internet, which has the flexibility to exchange information with multiple trading partners rather than just two.
As the industry moves forward, the report said, the focus will shift from supply to demand forecasting, and companies will adopt collaboration tools that manage design and process management. Companies will also move toward implementing standards that are expected to enable a smoother flow of communication between partners.