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Security, Economics, Technology and the Sustainability Paradox
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Security, Economics, Technology and the Sustainability Paradox

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Security, Economics, Technology and the Sustainability Paradox: How worldwide security, economic, and technology trends, combined with the global shift to environmental compliance and sustainability, …

Security, Economics, Technology and the Sustainability Paradox: How worldwide security, economic, and technology trends, combined with the global shift to environmental compliance and sustainability, impose obsolescence, counterfeit, price/availability, DMSMS, and supply chain disruptions that must be managed. IHS discusses these issues and illustrate market intelligence tools, techniques, and best practices in managing the paradoxical risks and rewards heightened in the new generation we have entered.

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  • 1. Security, Economics, Technologyand the Sustainability ParadoxRory KingDirector, Design & Supply Chain,IHS Inc.Scott WilsonContent Strategist, Design & Supply Chain,IHS Inc.Day 2 – 29 June 2011 Copyright © 2011 IHS Inc. All Rights Reserved. 1
  • 2. IHS – A leading information provider • Founded in 1959: To provide product • Tens of thousands of customers and hundreds catalogs for aerospace engineers of thousands end-users in 180+ countries • Today: Leading global source of critical • Customers include nearly 70% of US information and insight dedicated to Fortune1000; 80% of Global Fortune 500 providing the most complete and trusted information and expertise Strong, Growing Products and Financials: • Public, NYSE: IHS (2005) • Employs 5,100 people in 30 countries • Revenue: $1.1B (2010) Areas of Expertise & Content Energy & Design & Defense, Risk & EHS & Country & Industry Commodities, Power Supply Chain Security Sustainability Forecasts Pricing & Cost2 Copyright © 2011 IHS Inc. All Rights Reserved. 2
  • 3. About Us: IHS Design & Supply Chain Core capabilities we’ll leverage in our discussions today… PCN & EOLPart Search EOL / PCN Counterfeit Compliance Product Electronics Macro& Research Alerting and Part Risk and Regulation Supply Economic Mgmt. Mgmt. Lifecycle Tracking Chain Analysis tracking for Analysis CommodityBOM parts outsideAnalysis Supply Supplier Specs and • Teardown Price reference• Lifecycle Chain Risk Mgmt. databases Standards • Comp. Forecasting• Availability Teamwork Price• Compliance Tracker• Counterfeits • Inventory• Alternate Tracking Parts • Forecast EIATRACKParts Universe& BOM ERAI Content Standards IHS GlobalManager PCNAlert Counterfeits Services Expert IHS iSuppli Insight Copyright © 2011 IHS Inc. All Rights Reserved. 3
  • 4. Paradox: Stakes Higher Than Ever Belief that meeting client requirements is possible using traditional methods CONTINUITY RISKS REQUIREMENTS • Constrained RISK DRIVERS Supply &• Sustainability • Economy & Markets Availability• Customer • Workforce Churn • Obsolescence Requirements • Environmental • No longer• Supplier Regulations compliant with Requirements client’s • Conflicts• Extended Product requirements • Counterfeiting Lifetimes • Counterfeits • Acts of Nature• Through-Life • Excess & Performance Obsolete • Competitive• Security & Safety Inventories • Export Controls Copyright © 2011 IHS Inc. All Rights Reserved. 4
  • 5. Paradox: Stakes Higher Than Ever Belief that meeting client requirements is possible using traditional methods PCN increase of 40% CAGR Military / Aero < 2% of Market 7.3% 1.9% Data Processing 7.5% Wired Comms. 38.0% Wireless Comms. 19.1% Consumer Elec. Automotive Elec. 19.8% Industrial Elec. 6.3% Military / Aero EOL increase of 40% CAGR Shortage and Allocation IssuesREQUIREMENTS RISK DRIVERS Capacitors Disclaimer of Warranty and Limitation of Liability Aluminum Ceramic Tantalum Lead Global Lead Global Lead Global Flexibility Time Pricing Flexibility Time Pricing Flexibility Time Pricing (Weeks) Trend (Weeks) Trend (Weeks) Trend Q4 2011 18 0.9% 14 -0.4% 20 -0.7% Forecast Q3 2011 18 1.9% 14 1.3% 20 1.0% Jun-11 18 14 20 May-11 18 1.1% 14 0.8% 20 0.4% Apr-11 18 1.2% 14 1.1% 20 0.7% Counterfeits increase Steeply Component Price Volatility Copyright © 2011 IHS Inc. All Rights Reserved. 5
  • 6. Today: Dynamic Supply Chain Context is Vitalof Client Requirements and External Forces Regulations Part Trends Product Trends Application Markets • RoHS • Technology • Technology Unique Trends & Pressures • REACH • Demand • Features • Computing • Conflict • Supply • Cost • A&D Minerals • Obsolescence • Energy Efficiency • Consumer • Export Controls • PCNs • Competitive • Medical Dev. Material Component Mfrs. Demand Product Mfrs. End Users Mfrs. (OEMs and EMS) Supply Materials Products ComponentsProduct Stewardship & Economy Supply Supply CostsExtended Producer • Market volatility • Counterfeit Parts • Natural Disasters • SupplyResponsibilities • Product • Raw Materials • Energy and Shipping• Client requirements demand • Regulated Materials costs Copyright © 2011 IHS Inc. All Rights Reserved. 6
  • 7. Dynamic Context: Inherent in EOL TrendsCited reasons for manufacturer obsolescence of parts100%90%80% Economic Impact ~90% of EOL (2009)70% Unspecified / Administrative60% Supply Side RoHS Tech < 25% Organizational (Company, Manufacturing,50% Product Consolidation/Rationalization) Innovation, Technology, and Manufacturing40% Environmental Compliance RoHS30% Demand-Side RoHS20% RoHS10% 0% RoHS 2004 2005 2006 2007 2008 2009 2010Copyright © 2011 IHS Inc. All Rights Reserved. 7
  • 8. Correlation: Economics and EOLDemand drives Obsolescence: Track MSI production volume and EOLs 2,600 2,500 2,400 2,300 Semiconductor MSI (Right Scale) 2,200 End of Life Parts % of Total Parts 2,100 2,000 1,900.80 1,800.75 1,700.70 1,600 1,500.65 1,400.60 1,300.55 1,200.50 1,100.45 1,000.40 900.35 800 6 mos.30.25 IHS EOL insight found “demand side” primary reason for 90% of EOL.20 actions in 2009, vs. more typical 15-20% citations during 2004-2008.15.10 Millions Square Inches Silicon Processed - Semi Parts: IHS Electronics Database.05.00 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013Copyright © 2011 IHS Inc. All Rights Reserved. 8
  • 9. Correlation: EOL and CounterfeitsObsolescence and constraints/allocation pose significant risk Source: IHS Inc. 2011Copyright © 2011 IHS Inc. All Rights Reserved. 9
  • 10. Back to Basics: PCN & EOL Management Supply chain continuity between manufacturer and customer are critical JEDEC: Standards for the Worldwide Semiconductor Industry Notification of such Product, Process, and End of Life notifications between Semiconductor Suppliers and their customers.Product or Process Change Notice (PCN) Product Discontinuance or End-of-Life Notice (PDN/EOL)JEDEC Standard No. 46C JEDEC Standard No. 48B• “A document sent to customers describing • Standard applicable to suppliers and product or process changes, the reasons affected customers of electronic for the change, and the projected impact of components. the change.” • “Establishes the requirements for timely• “Establishes procedures to notify customer notification of planned product customers of semiconductor product and discontinuance, which will assist customers process changes.” in managing end-of-life supply, or to transition ongoing requirements to alternate products. This is to ensure continuity of supply to customers.” Source: JEDEC Copyright © 2011 IHS Inc. All Rights Reserved. 10
  • 11. Compliance: Pressures Continue to SoarRegardless of exemptions these have a ripple effect on materials used Bisphenol-A “BPA Free” China RoHS Customer RFP Full Material Disclosure EU RoHS Recast Energy Priority Declarable Substances List (ASD PDSL) Toxic Substances Control Act (TSCA) Waste Greenpeace Health Canada / Canada’s Chemical SIN List - Substitute It Now! Management Plan EU REACH & SVHC Security US California Proposition 65Hazardous ISO 14064 GHG Standards DEHP-Free Norway PoHS UN Stockholm Persistent Substances Organic Pollutants (POPS) Air Safety Argentina RoHS Product Content Disclosure EU RoHS and WEEE Thailand’s “RoHS” EU Battery Directive Directives Japan Green ENERGY STAR Carbon Disclosure Project (CDP) Volatile Organic Compounds US FDA Electronic Product Environmental Natural Resources Regional Greenhouse Gas Initiative (RGGI) Assessment Tool (EPEAT) Health PCF - Product Carbon Footprint Conflict Minerals Water Lifecycle Assessment (LCA) EU Medical Device Directive Environmentally Preferred Products (EPP) US EPA Executive OrdersCopyright © 2011 IHS Inc. All Rights Reserved. 11
  • 12. Not Just RoHS: EU-REACH and others Will lead to more supply chain disruptions; accelerate DMSMS REACH timeline showing anticipated obsolescence of substances and associated supply disruptions Obsolete Substances (not pre-registered; can not take advantage of phase-in registration) Registration: Obsolete Substances > 1t/yr. Registration: Pre-registrationSubstances Registered Registration: Substances > 100t/yr. Obsolete Substances (not registered by phase-in deadline) CMR > 1t/yr. Very Toxic to Aquatic > 1t/yr. Substances > 1,000t/yr. Obsolete Substances (not registered by phase-in deadline) SVHCs (Annex XIV) Substances not requiring registration (naturally occuring such as minerals, ores; basic elemental such as hydrogen, oxygen, noble gases...) Obsolete Substances / Restrictions on Dangerous Substances (Annex XVII) Dec 2008 Dec 2010 Dec 2013 Dec 2018 time Represents a supply chain disruption Copyright © 2011 IHS Inc. All Rights Reserved. 12
  • 13. Security & Safety: A Greater PriorityU.S. congress investigates counterfeit parts in DOD supply chain “The presence of counterfeit electronic parts in the Defense Department’s supply chain is a growing problem that government and industry share a common interest in solving.” Carl Levin, D-Michigan, and Sen. John McCain, R-Arizona March 2011Copyright © 2011 IHS Inc. All Rights Reserved. 13
  • 14. BOM Benchmark: 0.5 – 5% of Parts at RiskTypical BOM has roughly 0.5 to 5% match to ERAI reported incidents Shown: IHS-ERAICopyright © 2011 IHS Inc. All Rights Reserved. 14
  • 15. Suppliers: No One Immune from RiskLack of accountability and traceability allows counterfeits to enter “It is not uncommon, however, for authorized distributors to purchase parts outside of the OCM supply chain in order to fulfill customer requirements – 58 percent purchase parts from other sources. Specifically, 47 percent of authorized distributors procure parts from independent distributors, 29 percent procure from brokers, and 27 percent procure from Internet-exclusive sources.” Source: U.S. Department of Commerce, Office of Technology Evaluation, Counterfeit Electronics Survey, November 2009.Copyright © 2011 IHS Inc. All Rights Reserved. 15
  • 16. Natural Disasters Affect Global Supplies Japan produces over 50% of silicon wafers globally Semiconductor FabsSilicon Wafer Production 3 1 Aizu Wakamatsu, FukushimaA Shin-Etsu Kamisu, Ibaraki  ON Semiconductor (Logic)  Fujitsu (Analog, Discrete, Memory)B Shin-Etsu Nishigo, Fukushima  Texas Instruments (Analog, Optical) 2 Atsugi, KanagawaC MEMC Utsunomiya, Tochigi 6  Mitsumi (Analog, Logic)D SUMCO Yonezawa, Yamagata 3 Goshogawara, Aomori  Renesas (Logic) 13 10 9 4 Gunma 11Display Manufacturing D  ON Semiconductor (Discrete, Logic) Hitachi Displays 1 Epicenter  Renesas (Analog, Discrete) Panasonic LCD B 5 Hitachinaka, Ibaraki Tohoku Pioneer  Renesas (Logic, Micro, Memory) 6 Iwate 4 14 Fukushima  Fujitsu (Micro, Memory)Resins, Films, Chemicals, 12 C  Toshiba (Discrete)Copper Clad Laminate… 5 8 A 7 Kofu, Yamanashi 7  Renesas (Analog, Logic, Micro) 2 Tokyo 8 Miho, Ibaraki  Texas Instruments (Analog, Optical) 9 Miyagi  Fujitsu (Logic, Micro)  Rohm (Discrete, Micro) 10 Sendai, Miyagi  Freescale (Logic) 11 Shiroishi, Miyagi  Sony Semiconductor (Logic) 12 Tsukuba, Ibaraki  Rohm (Discrete) 13 Tsuruoka, Yamagata  Renesas (Logic) 14 Utsunomiya, Tochigi Source: IHS iSuppli 2011  Matushita (Discrete) Copyright © 2011 IHS Inc. All Rights Reserved. 16
  • 17. Japan Disaster Impacts: EOL / PCNShown: Damaged tooling in the earthquake leads to obsolescence Source: IHS Inc. 2011Copyright © 2011 IHS Inc. All Rights Reserved. 17
  • 18. Conclusion: Anticipate supply chain events to maximize time to react before program impact Program Impact Supply Chain Availability Supply Chain Event Supply Chain Economic Trend EventOther Events:• Natural Disasters ! Time• Export Policy / Supply• Environmental• Conflict Time before Track Supplier program impact Inventories and Track Forecasts EOL/PDN Track Supplier Inventories and Track Economic Forecasts Events Copyright © 2011 IHS Inc. All Rights Reserved. 18
  • 19. Approaches: Economic Forces/ImpactsAcknowledge and monitor entire global value chain dynamicsCopyright © 2011 IHS Inc. All Rights Reserved. 19
  • 20. Approaches: BOM ManagementAllow for the ability to move from risk identification to risk mitigationFrom Manufacturer & Commodity To End Units Impacted • Identifying Components In My Business • Linking Down To BOMS & End Devices • Prioritize Key Components/BOMS/Devices • Identify Component Risk • Identifying Sources Of Inventory • Leverage Alternate Sourcing Tools • Identify Mitigation Plan Working With Suppliers • Develop Counterfeit Mitigation Plan • Longer Term ImpactsCopyright © 2011 IHS Inc. All Rights Reserved. 20
  • 21. Approaches: Performance MeasuresEnsure alerts and performance indicators updated for today’s risks Challenge Economic downturn… …shortage… …fake parts… Environmental Compliance …mission failure! Establish Workflow Qualify Manage Validate Report Redesign + Approve + Avoid + Detect + Resolve + Resupply Establish infrastructure to Update processes, tools, and Validate, sample and test Procedures to notify Maintain controlled mitigate risk through qualified information to avoid components for authenticity. stakeholders, report design/redesign cycles of and approved designs, counterfeit and high risk Quarantine suspected occurrences, and resolve products. Optimize parts, suppliers, & parts. parts. counterfeits. incidents. inventory, and suppliers. Performance Management Obsolescence PCN/EOL to Detect Issues Price/Lead Time Counterfeit Incidents End of Life (EOL) Specific to RoHS/Pb-free Environmental Compliance Maturity Decline Growth Phase-Out Introduction Obsolete 2003 2004 2005 2006 2007 2008 2009Copyright © 2011 IHS Inc. All Rights Reserved. 21
  • 22. Thank YouRory King,Director Design & Supply Chain, IHS Inc.RORY.KING@IHS.COMScott Wilson,Content Strategist, Design & Supply Chain, IHS Inc.SCOTT.WILSON@IHS.COM Copyright © 2011 IHS Inc. All Rights Reserved. 22