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AWARD for EXCELLENCE 2010

The Global Supply Chain is our new Fab: Using the SCOR principles to achieve an Agile and Adaptable Semiconductor Supply Chain

Infineon Technologies AG

Executive Summary
Diminishing trade barriers make global resource sharing attractive, as well as enhanced information technologies allow supply chains to be efficiently managed and controlled. Today flexible global supply chains are a must for survival in the IT, electronics, and semiconductor businesses. Infineon Technologies AG (IFX) has proven that this theoretical approach from the late 90s is practically possible and could transform a struggling company into success. Infineon provides semiconductor and system solutions, focusing on three central needs of our modern society: energy efficiency, communications, and security (respectively, 60%, 30%, and 10% of company revenue). Infineon reaches the first place worldwide on power, industrial, and chip card markets. It also holds significant market shares for automotive and wireless applications. With some 25,000 employees worldwide (as of January 2010) Infineon generated revenue in Fiscal Year 2009 (ending in September) of 3,027 billion EUR. Infineon has a strong technology portfolio with about 22,900 patents and patent applications and more than 30 major R&D locations. In addition to cutting-edge chip design, mastering the supply chains complex mix of Infineonowned factories and partner factories (i.e. wafer foundries and assembly/test subcontractors) has become the differentiating factor of the company. Infineons flexible supply chain, taking full benefit of globalization and supply chain innovations, had a major impact to the recent achievements of the company. And the project The global supply chain is our new fab had a significant contribution to this success story. Infineon had started to face these new challenges by implementing a corporate supply chain organization with all key functionalities in a matrix and regional setup. Two strong indicators of a companys success are the development of its inventory value and the confidence of the capital markets. Not alone but also due to its superior supply chain design and its flexibility, during the recent worldwide financial crisis Infineon, although the demand collapsed, was able to reduce its stock to healthy levels within few months. This and other business achievements increased the confidence of shareholders and lead to a surge of the Infineon share price from below half a Euro to over 5 Euro within few months and a re-entrance into the DAX (stock index of German technology companies).

Infineon Technologies AG

AWARD for EXCELLENCE 2010

General Information and Project Complexity


(1) Provide the name of the submitting organization Infineon Technologies AG (IFX) (2) Identify the name of the organizational unit Corporate Supply Chain / Innovation

Fig.1: shows Infineons central supply chain organization, which enables efficient management of the entire supply chain Infineon has a strong technology portfolio with about 22,900 patents and patent applications and more than 30 major R&D locations. In addition to cutting-edge chip design, mastering the supply chains complex mix of Infineon-owned factories and partner factories (i.e. wafer foundries and assembly/test subcontractors) has become the differentiating factor of the company. Infineon had started to face these new challenges by implementing a corporate supply chain organization with all key functionalities in a matrix and regional setup. To do this Infineon followed whenever possible the international supply chain standard, SCOR (Supply Chain Operations Reference Model), from the Supply Chain Council (SCC). (3) Mission statement of the organization We operate and proactively manage the Infineon supply chain to increase turnover and decrease costs: We increase the turnover and we enable the business of our customers by offering delivery performance, delivery reliability, time-to market ramps, and supply chain services. We decrease costs and we optimize Infineon financial performance by reducing inventory levels, scraps, underutilization costs, and supply chain operation costs. (4) Indicate the award category of submission Global Award for Supply Chain Excellence (5) Scope: Provide a brief description of the supply chain and the processes the submission spans The Infineon supply chain includes raw material suppliers, a global network of internal and external production sites (i.e. own production sites, silicon foundries, and subcontractors) and the customers (i.e. end customers, distributors). The submission encompasses all processes of the SCOR model: Source, Make, Deliver, Plan, and Return.

Infineon Technologies AG

AWARD for EXCELLENCE 2010

Fig.2: shows Infineons supply chain and the linkage with the SCOR model processes with one responsibility to manage the whole supply chain. Key focus is to overcome the gap between operational requirements and market requirements. (6) External: Provide the names and number of people involved from each supply chain partner organization in the project All customers were involved in the project More than 400 customers, All suppliers and mainly our production partners (i.e. subcontractors and silicon foundries) were involved in the project More than 20 partners. (7) Internal: Provide names and the number of people involved from each functional organization and category of each organization The main partners in the supply chain are the Global Logistics Planners (GLP) at the business divisions and the Production Logistics Partners (PLP) at the production sites. Many other functions such as Customer Logistics Manager (CLM), Volume Planning (VP), Business services (BS), Production Partner Management (PPM), and SC Strategy, as well as the classical Logistics (i.e. Warehouse and Transit) are centralized in the Corporate Supply Chain (CSC). The number of employees can be grouped into: Global Logistics Planners (GLP) and Ramp-up Mangers at the business divisions, Production Logistics Planners (PLP) at the production sites, and Corporate Supply Chain (CSC) organization, globally. More than 500 Infineon employees in total. (8) Provide a point of contact for each supply chain partner Main contact: Hans Ehm, Principal Logistics Systems Tel.: + 49 (0) 89 234 22200 hans.ehm@infineon.com

Infineon Technologies AG

AWARD for EXCELLENCE 2010

Implementation
(1) Describe the reason that the supply chain project was undertaken and how it was selected Diminishing trade barriers make global resource sharing attractive, as well as enhanced information technologies allow supply chains to be efficiently managed and controlled. Nowadays, flexible global supply chains are a must for survival in the IT, electronics, and semiconductor businesses. Infineon has proven that this theoretical approach from the late 90s is practically possible and that it can transform a struggling company into a success. Besides cutting-edge chip design, mastering the supply chains complex mix of Infineon-owned factories and partner factories (i.e. wafer foundries and assembly/test subcontractors) has become the differentiating factor of the company. Infineon had started to face these new challenges by implementing a corporate supply chain organization with all key functionalities in a matrix and regional setup. In parallel, a sustained effort has been made to implement the international supply chain standard, SCOR (Supply Chain Operations Reference Model), from the Supply Chain Council (SCC). It resulted in the so-called Demand-to-Cash (DtC) process.

Fig. 3: Infineon follows with its internal DtC (Demand-to-Cash) process the international Standard SCOR from the Supply Chain Council; Infineons 1st and 2nd levels of the process model are identical to the SCOR Model.

Fig. 4: shows an example of the DtC-second level for the Plan sub-process; the main processes are equivalent to the SCOR processes with an abbreviated wording, e.g. Demand Planning = Identify, Prioritize and Aggregate Supply Chain Requirements; Capacity Planning = Identify, Assess and Aggregate Supply Chain Resources; Supply Planning = Balance Supply Chain Resources with Supply Chain Requirements; Order Management = Establish and Communicate Supply Chain Plans; Production Management = Establish and Communicate Supply Chain Plans.
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These initiatives have enabled Infineon to actively manage one of the most complex supply chains to be found. It spans external from hundreds of suppliers to hundreds of customers in the automotive, industrial and communication business. Further parts of the supply chain are Infineon-owned Frontend factories (i.e. wafer fabrication), supplemented by wafer foundries and of Infineon-owed Backend factories (i.e. assembly and test), supplemented by subcontractors. The fast introduction of changes for more cost efficient and higher functionality components (Moores Law, 30% cost reduction per year) is the reason why the semiconductor industry supply and value chain faces challenges higher than in most other industries. (2) Indicate the duration of the project. Note if the project was a pilot that is being rolled out. Note if the project is ongoing / still in process The project had a duration of 18 months. It started right after the implementation of a new organization in October 2008 and it ended with the announcement of a Diploma in Supply Chain Management in March 2010. (3) Describe, in detail, the process used to complete the project The project milestones have been the following: Introduction of a new Corporate Supply Chain organization (October 2008), which considers the global supply chain as a fab was considered in the past. Detailed documentation of the global supply chain (not only of regional fabs) based on the SCOR model in ARIS (i.e. ARchitecture of integrated Information Systems). It replaces older tools like Visio combined with WinWord and orchestrates former regional and local views of the supply chain. The standard way to (re)-view a process is by using ARIS process model within the intranet of the Infineon. Introduction of weekly global Supply Chain Calls. These meetings bring production and supply chain communities together in order to identify hot topics and to discuss alternates and solutions. This enables early recognition of supply issues, high flexibility in the face of short-term disruptions, better usage of production and supply chain capacities, as well as higher customer demand fulfillment. It also serves as risk management tool. Introduction of a Supply Chain Academy, a worldwide training platform based on e-learning modules and classroom workshops (see more details in part Knowledge Transfer). Creation of a Diploma in Supply Chain Management (Bachelor, level 7) in collaboration with the University of Limerick, Ireland. The goal is to offer the possibility to Infineon employees to get to know state-of-the-art processes and challenges of supply chain management after a one-year part-time study program. The focus is on global processes based on the SCOR process model. (4) Identify significant challenges encountered, the process for resolution, and the solutions. Identify best practices As a semiconductor manufacturer, Infineon has to deal with three different challenges: 1) Steep product ramps, as well as short product life cycles, 2) Long production lead times (usually 3 to 4 months), positioned early in the Value Chain, 3) The differentiation between booming products and those with slower ramping than forecasted is a key challenge

Infineon Technologies AG

AWARD for EXCELLENCE 2010

Fig. 5a): Semiconductor manufacturers like Infineon are facing 3 distinct challenges: 1) Steep product ramps; short product life cycles; 2) Long production lead times; early position in the Value Chain

Fig. 5b): Semiconductor manufacturers like Infineon are facing 3 distinct challenges: 3) Difficult forecasting of product ramp-ups. To address these challenges, Infineon has implemented an agile and adaptable global supply chain. Beyond a global supply chain organization, a structured data model has been introduced, which enables heightened flexibility and reduced complexity to due aggregation of information. As an example for bringing agility and flexibility into Infineon supply chain processes, we show on Figure 6 the data model that is used by the different processes: Plan, Source, Make, Delivery, and Return. The picture shows how 10,000 stock keeping units (SKUs) are aggregated up to 1,000 planning items. This allows planning production, confirming orders, reserving supply, adjusting capacities, tracking distribution (among others) on appropriate level of detail, also called data granularities. It also shows how a divergent data structure can involved both production and Sales and Operations (S&OP) views.

Infineon Technologies AG

AWARD for EXCELLENCE 2010

Fig. 6: Data model used by Infineon supply chain processes: Plan, Source, Make, Delivery, and Return, which allows flexibility and agility. As a best practice we would like to highlight the case of an innovative chip developed by Infineon for entry level mobile phones. This chip had an extremely steep demand ramp-up. In only few months, customer requirements tremendously increased. In order to gain more production capacities, Infineon took advantage of its global agile and adaptable supply chain to re-shape the production routings for this product between own manufacturing sites and partners facilities (i.e. silicon foundries and subcontractors). In one single year, more than 50 new routes / supply chains have been successively defined and used (see Figure 7). As more chips could be built, it resulted in increased revenues in detriment of other competitors. Rapid adaptation to the market demand was and is still the only way to survive in a dynamic environment.

Fig. 7: shows the successive production routings for an innovative chip developed by Infineon for entry level mobile phones. The only way to satisfy the extremely steep demand ramp-up was to constantly re-shape the supply chain. Rapid adaptation to market has been the success factor.
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(5) Indicate the metrics used to measure (a) progress and (b) success We describe two metrics: the forecast accuracy and the delivery reliability. Metric 1: Forecast Accuracy One important metric to improve the input into the supply chain is the forecast accuracy. Customer and supplier collaboration works best when there is clear visibility over the whole supply chain. The semiconductor industry itself is very volatile due to its speed of innovation coupled with periodic expansions and contractions, allowing only the fittest to survive. This volatile situation produces a bullwhip effect (amplification of demand fluctuations along the supply chain).

Fig. 8: The semiconductor market has a high volatility, which is a burden but also fuels innovations for those surviving downturns In this environment, a near-perfect demand forecast will never be reached; the goal is to have cost effective benchmark forecast accuracy. The rest of the deviations between forecast and actual must be buffered by capacity flexibility. With the introduction of a forecast accuracy measurement (e.g. for the Sales Forecast) at Infineon using the SMAPE formula, Infineon was able to improve its collaboration with key customers. This yielded better demand forecasts on the one hand and higher attentions to flexibility to meet the customers needs on the other hand.

Fig. 9: The SMAPE formula and the process to calculate forecast accuracy
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Metric 2: Delivery Reliability Another important key performance indicator that is used at Infineon is the Delivery Reliability (DR). It compares the confirmation date with the actual delivery date of a line item. Indeed, it measures how well we meet our commitment to the customer.

Fig. 10: shows the measure of the Delivery Reliability which is close but not equal to the SCOR definition. It fits the needs of Infineon. By means of a DR tracking tool we are able to automatically categorize all unreliable line items regarding the root cause of unreliability. The automatic categorization is partially improved by post manual adjustments. It has been used for 6-Sigma initiatives in order to better understand discrepancies and loopholes.

Fig. 11: shows an example of the DR tracking tool that enable root cause analysis for continuous improvement (6) Document and quantify cost and performance improvement benefits The forecast inaccuracy has impact on product mixes in short-term (i.e. higher stocks, scrap costs, and missed opportunities), on Backend capacity utilization in mid-term (i.e. underutilization, additional subcontractor costs), and on Frontend capacity utilization in long-term (underutilization and additional foundries costs). The forecast accuracy improved by nearly 10% within 18 months; this leads to savings of several millions Euros per year.

Fig. 12: Savings of several millions Euros due to improved forecast accuracy
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As a result of implementing agile and adaptable supply chain, Infineon was also able to significantly reduce the finished goods inventory level also during a downturn phase.

Fig. 13: Its innovative supply chain enabled Infineon during the recent crisis to reduce stocks within few months to healthy levels. (7) Outline how the success of this effort supports organizational objectives described in Section 1, Item 3 Two strong indicators of a companys success are the development of its inventory value and the confidence of the capital markets. Due to the superior supply chain design and its flexibility, during the recent worldwide financial crisis Infineon, although the demand collapsed, was able to reduce its stocks to healthy levels within few months. This and other business achievements increased the confidence of shareholders and lead to a surge of the Infineon share price from below half a Euro to over 5 Euros within few months and a re-entrance into the DAX (stock index of German technology companies). Infineons flexible supply chain, taking full benefit of globalization and supply chain innovations, has had a major impact to the recent success of the company.

Start of Project

Fig. 14: Evolution of Infineon stock price shows how the company quickly recovered after the financial crisis in 2008-2009 by taking advantage of its Agile and Adaptable global supply chain.

Knowledge Transfer
(1) Describe the efforts to share lessons from this effort with other internal organizations For the knowledge transfer, Infineon introduced in 2009 a Supply Chain Academy. This is a worldwide training platform for supply chain and Sales and Operations communities based on elearning modules and classrooms workshops that allows sharing the same view of supply chain management concepts and processes.
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We excel in SC management and reach a competitive advantage via differentiation in know-how because: We have verified globally identical always up to date knowledge on (IFX) SC We enable each employee everywhere to gain Supply Chain Know How for their direct need and beyond, We keep & attract the best talents because we offer superior SC knowledge @ best training conditions. Hence, we are faster than competition in adapting ourselves to changing SC conditions. We are part of the IFX HR LD (Learning & Development) and eLearning training landscape. We use internal and external networks to continuously improve.

Fig. 15: Infineon introduced in 2009 a Supply Chain Academy, a worldwide training platform based on e-learning modules and classrooms workshops, which allows sharing the same view of supply chain management concepts and processes. The highest level structure is according to Demand to Cash process. We have specific modules realized by supply chain experts that describe Plan, Source, Make, Deliver, Return and Enablers processes in general and in detail at Infineon.

Fig. 16: shows some of the web-based e-learning trainings offered by the Supply Chain Academy

Fig. 17: This graph shows some statistics of the supply chain academy usage: Number of users who started eLearning modules; Number of eLearning modules available; Number of modules that have been started; Number of modules that have been finished.
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In addition to the education topic, we also gained more visibility and transparency on Key Performance Indicators (KPIs) by introducing across the Corporate Supply Chain organization a socalled Supply Chain Cockpit. This is an intranet-based reporting framework that displays graphs and figures on-demand.

Fig. 18: Screenshot of the Supply Chain Cockpit that helps to gain more visibility and transparency on KPIs across the Corporate Supply Chain organization. (2) Indicate how these results can be transferred to other organizations, and specify the likely candidates for transference It is Infineons policy to promote continuous learning and to promote a highly skilled workforce by providing an educational assistance program to eligible employees. Therefore, we cooperate with the University of Limerick, Ireland to offer diplomas in supply chain management for High Tech industry. These diploma programs offer: A broad theoretical knowledge of the supply chain with a special focus on the fast changing global supply chain in the high technology industry, Knowledge concerning interface from development to production, information systems and information technology needed for the supply chain, Knowledge concerning typical humans factors in an organisation, Practical training by working on case studies and a project. This program is open to any Infineon employee with more than 3 years experience. It is based on a part-time study. It encompasses following topics: Introduction to Supply Chain Management, Introduction to Plan within Supply Chains, Introduction to Make within Supply Chains, Introduction to Source within Supply Chains, Introduction to Deliver and Return within Supply Chains, Integrating Development to Production within Supply Chains, Information Systems and Decisions Making, Lean Sigma, Improvement Methodologies, Team Work, Change and Cultural diversity, Industry Project.

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Source: http://www.idaireland.com/news-media/press-releases/infineon-and-the-universi/index.xml Fig. 19: Excerpt from the press release related to the collaboration between Infineon Technologies and the University of Limerick for a Diploma of Supply Chain (Bachelor, Level 7)

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