ST- Turning supply chain disruptions into a competitive advantage

Turning Supply Chain Disruptions
into a Competitive Advantage
Alberto Della Chiesa
Group Vice President
Company Supply Chain Management

Who we are
Supply Chain Excellence Award APICS Feb 2015

• A global semiconductor leader
• The largest European semiconductor company
• 2014 revenues of $7.40B
• Approximately 43,600 employees worldwide
• Approximately 8,700 people working in R&D
• 11 manufacturing sites
• Listed on New York Stock Exchange, Euronext Paris
and Borsa Italiana, Milano
Who we are
As of December 31, 2014
3

Where you find us
Our MEMS & Sensors
are augmenting
the consumer experience
Our automotive products
are making driving safer,
greener and more
entertaining
Our smart power products
are allowing our mobile products to operate longer
and making more of our energy resources
Our Microcontrollers
are everywhere
making everything smarter
and more secure
Our digital consumer products
are powering the augmented
digital lifestyle
4

Global Presence
Americas
15%
29%
EMEA
26%
37%
Asia
59%
34%
2014 revenue by geography
% by location of order shipment
% by customer origin
5

Semi Supply Chain
and Challenges

Unprecedented Stress Test
Recovery from dramatic declines have taken multiple years in the past
5 years
1 year
7

Technology Adoption Rates Acceleration
Source: Charlie Catlett, Argonne Nat'l Laboratory
8

Variability increases moving up the supply chain…
Flexibility
The BULLWHIP Effect
Consumption Customers Retailers Wholesalers Manufacturers Suppliers
9

Supply Chain Dual Mandate
Market Share
RONA improvement
Meet demand (CD=RD)
On time delivery (JIT)
Inventory
turns
Asset
utilization
Profitable Growth
Minimize costs while
maximizing the flexibility
needed to grow market share
10

Supply Chain at ST

ST Supply Chain Foundations
• Supply Chain visibility: Global and synchronized daily visibility of demand /
supply enabling proactive planning & early warning
• Extended supply chain optimization in collaborative projects with our
partners
• Flexible manufacturing
• Efficient and fast logistics models
• Network of over 2000 supply chain actors
DIFFUSION - EWS ASSEMBLY – T&F
SUPPLIERS CUSTOMERS END-CUSTOMERSST SUPPLY CHAIN with SUB-CONTRACTORS
WAREHOUSES
12

Manufacturing Model
Flexible and
independent
manufacturing
13

Flexible and Independent Manufacturing
Front-End
Back-End
Morocco
France
(Crolles, Rousset, Tours)
Italy
(Agrate, Catania)
Malaysia
Singapore
Philippines
China
(Shenzhen)
Malta
14

Work Force,
Technology &
Financial Roadmaps
Key Investments
decisions
Detailed Investment
decisions
Detailed Investment
decisions & Allocation of
existing capacity
Consumption of
Allocated Capacity
Usage of Existing
Capacity
Planning Exercises & Cycles
to Guarantee Consistency
Detailed Material &
Capacity planning
Short term Plan
(up to 1 Year)
Medium & Long term plan
(up to 5 years)
Sales &
Marketing
Forecast
Execution
Critical resources
requirement
Strategic & Financial Guidelines
Rough-cut
capacity planning
Customer
Backlog
Management
Management at
Equipment level
PLANNING
EXERCICES
RESOURCE
MANAGEMENT
5 Years Plan
2 Years Plan
Budget
Sales &
Operation Plan
Order Scheduling
Master Production
Scheduling
Shop Floor Scheduling
15

Maintaining a Competitive Supply Chain
Demand
• Demand management
Planning
• Planning process
• Inventory
management
Supply
• Cycle time
• Supply visibility and
predictability
• Supply strategy
Governance and Change management
provide the mandatory framework to address Demand, Planning and Supply
16

Disruptions into Competitive
Advantage

Volcanic Ash Cloud Over Europe…
The dense volcanic dust caused air traffic to STOP and left hundreds of
thousand stranded in Europe and throughout the world.
18

European Airports Go Quiet
As in Praha, many airports throughout Europe cancelled all flights
impacting worldwide airfreight.
Planes stayed on the ground for more than a week due to the danger of
volcanic ash damaging aircraft engines.
19

What happened to ST Business?

2 Main Transportation Routes
Were Directly Affected
Asia to
Europe
21

Team Behavior and Effectiveness
• Company Infrastructures & Services  Formal announcement to ST
Stakeholders & Partners
• Global Logistics & Warehousing  War Room briefings
• Conf calls held twice daily at 09:00am & 03:00pm daily
• Global Logistics & Warehousing  Daily bulletin
• Bulletins issued twice daily to the ST management stakeholders after each War
Room briefing
• Global Logistics & Warehousing  Help desk
• Setup helpdesk in Singapore and Geneva to acknowledge and address customer
inquiries and requests in addition to the daily bulletins
• Global Logistics & Warehousing  Crisis management
• Speed, agility & quick thinking of the logistics team
Full control to overcome the many unknown variables. Quickly transformed into
solutions & advantages for ST.
22

Diversion Processes as a Standard Feature
Leveraging
local skills and
people
empowerment
23

Tools and Methodologies to Map Risks
• Global events
1. Flood and water based
events
2. Large natural Fires & smoke
residues
3. Hurricanes, Tornadoes,
Monsoons
4. Volcanic Eruptions, ash fall
out
5. Snow & winter storms
6. Freezing conditions
7. Pandemics
8. Lighting & electrical storms
24

Route Diversions
Singapore  Barcelona  St Genis
Hong Kong  Singapore  Barcelona  St Genis
Singapore  Roma  St Genis
Singapore  Milan  St Genis
Singapore  Doha  St Genis
During the 10 day crisis, the team put in place several route diversions
to protect customer deliveries
France  Casablanca  Singapore & Hong Kong
Italy  Malta  Singapore & Hong Kong
Saint-Genis  Barcelona  Los Angeles
Asia
to
Europe
25

Customer Focus as Key Priority
During this period, Global Logistics & Warehousing (GLWO)
diverted 132 tons of freight, while limiting the cost of
diversion to below 1M$
During those 10 days, this effort protected 50M$ of business
26

…Turning into a Competitive Advantage
Moreover, ST extended its logistics services for the benefit
of Key Customers and Suppliers who did not have such
capabilities.
27

Japan Earthquake and Nuclear Disaster
Northeastern part of Japan suffered
serious devastation and destruction
• The biggest earthquake in history,
magnitude 9.0
• The biggest tsunami hit the long
coastal area across Japan on the
Pacific Ocean
• The Fukushima nuclear plant was
destroyed and affected a large area
of Japan with radiation pollution.
IMPACT
28

Japan is a Key Materials Supply Source
Japan represents:
• 60% on the Raw Wafers global supply
• 50% on the Fab Chemicals global supply
• 90% on the BT* Core Substrates global supply
• 70% on the Raw Copper for leadframe global supply
* BT Bismaleimide-Triazine
29

Consequences for the Longer Term
• Change in business model: move from ASIC/semicustom to standard
Ics
• Current shortage finally enabling Japanese ICs companies to push standard parts
at domestic OEMs instead of usual semicustom chips
• Seen as an opportunity for Japan IC makers:
• to produce in larger volumes at lower cost
• to lower the number of employees needed to support custom designs
• to enter foreign / emerging markets
• But also an opportunity for non Japanese players to sell standard ICs to Japanese
OEMs
• Change in the OEM supply chain: purchasing components from local
and neighboring countries (Nissan Motor)
30

Speed to React
Global Purchasing Office Crisis Involvement
• Immediate intervention in the field (Taiwan/Korea) on Tuesday 15th
March to secure BT Core / Substrates (ST 1st IDM to visit substrate
suppliers after the tragedy)
• Immediate work with Global Purchasing / Corporate Packaging to
identify and set qualification of alternative cores and secure the supply
• Daily conference call with Operations/Groups/Suppliers to monitor
crisis with excellent team work within ST
• Top Management weekly consolidation conference call
• Continuous presence of Global Purchasing and Management in
Taiwan and Korea since 15th March, with intensification on the next 2
critical months of April and May, including visits to Japan.
31

Running the Clock
with Daily Systemic Approach (PDCA)
• Supplier / Critical subject specific sub-teams (both cross-functional):
monitoring action plan execution and collecting updated information
• Global Purchasing: Synthesizing and dispatching information
• Operations /Global Purchasing: Prioritizing actions
• Running according to “Crisis center scheme” reported above starting Monday
March 14th constantly until more than 8 weeks after the event.
Starting from Raw materials tables and Supply Chain mapping with
Supplier Performance Evaluation (SPE) already in place
32

Understand Russian Dolls
Downstream Impact
CIS / CSM APR 2011 ST Confidential
The substrates chain is much complex and longer
16
ST Substrate
makers
BT core
materials
copper
foils
glass
cloth
Dry
film
Solder
mask
glass
fiber
power
outage
fillers
Our supplier’s supplier’s supplier’s supply
till Feb 2011= US$23.4 million
The Substrates Chain is Much Complex and Longer
33

Visibility as Key Prerequisite
Standard reporting for daily updates Company wide
34

Differentiated Approach
• ST has promoted - as much as possible - loyal approach towards
Japanese suppliers as outcome of joint programs and regular
communication by
• increasing confidence and assessment on the recovery plan
• anticipating competition
• One example - Nikko Metals feedback:
“Thank you so much for the good discussion and positive remarks during our last
conference call on Friday, April 29. We are glad that you trust our production
capability again.” (Nikko Metals May 2nd, 2011)
35

…But Leveraging Flexible and
Multisource Supply Chain
0
1
2
3
4
5
MOLECULAR/PRODUCT NAME
RAW MATERIAL MANAGEMENT
FOR ST
# Sources On qualification # Sources Qualified # ST Sources Qualified
Flexible and
independent
manufacturing
And multiple
material
source
36

Wins/Upsides Effect of the Japan Crisis
• We increased our supply to different key markets:
• Automotive +300k/week for different product lines
• HDD +8M/week components
• Printer +100k/week products
• In addition to the important revenue increase, emphasis on
addressing supply chain disruption prevented those market from
sustaining severe cost of missed volumes (Cars, PCs, Printers…)
37

Conclusions
38

Conclusions
• People: Strategically position key functions for the supply chain and its Executive
Management in the geographical areas to drive decisions.
• Core Competencies: Internal knowledge & Competencies of the Company Supply
Chain & Operations is fundamental. Be in direct control of the key enablers, operational
monitoring (KPI) & decisional controls embedded in the internal structure.
• Infrastructure: Integration of the all Company logistics activities & the optimization of
the transportation network, execution processes & operational enablers.
• Operational Agility & Flexibility: Rely on partnerships and the contribution of
suppliers (risk & benefit sharing) to respond to Customers’ supply chain request for
aggressive trade-off between efficiency and responsiveness--so called flexibility.
• Visibility and Speed: System integration. from planning to supply, from long term to
short term, with daily refresh from material to end products that allow to timely tactical
decision-making and to propagate them around the whole supply chain.
39

Thank you!
40

ST- Turning supply chain disruptions into a competitive advantage

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