Semiconductor SC - Contracts Cathal Heavey Enterprise Research - - PowerPoint PPT Presentation

Schloss Dagstuhl, February 8-12 2016

Semiconductor SC - Contracts

Cathal Heavey Enterprise Research Centre, University of Limerick Ireland Contributions from: Konstanze Knoblich and Peter Williams

Schloss Dagstuhl, February 8-12 2016

Overview

• Introduce contracts, present classifications
• Then present semi-conductor characteristic

with regard to contracts

• Present three topics on contracts applied to

semiconductors:

• Implementation of contracts in companies
• Examination of RHF contracts
• Work on option contracts

2

Schloss Dagstuhl, February 8-12 2016

Why contracts in SC

• Centralized or integrated supply chain - a single decision

maker

• Decentralized supply chain - multiple decision makers
• Decentralized SC increasing due to globalization and
• utsourcing
• Contracts aim to align incentives so optimal SC efficiency

can be achieved

• Share risk due to uncertainty, mainly demand
• Can promote long-term partnerships
• Makes legally explicit expectation of each party

3

Schloss Dagstuhl, February 8-12 2016

SC Contracts

• A supply chain contract is a coordination mechanism in decentralized

supply chains to motivate the supply chain partners to behave like an integrated supply chain and to benefit therefore from improved

• perational performance
• Contracts capture three types of flow: material, information and financial

Material Funds Information

Schloss Dagstuhl, February 8-12 2016

Zhao, Y., Meng, X., Wang, S., & Cheng, T. E. (2015)

• Zhao, Y., Meng, X., Wang, S., & Cheng, T. E. (2015). Contract Analysis and

Design for Supply Chains with Stochastic Demand (Vol. 234). Springer.

• Lots of literature “no commonly accepted taxonomy is available” on operational

aspects

5

Economics Inventory SC Contracts

• Chapter 1: Categorizes based on the newsvendor model: Price-Dependent,

Effort Dependent, Competition, Information Asymmetry, Flexibility, Risk Aversion, Empirical Research

Schloss Dagstuhl, February 8-12 2016

Tsay, Andy A., Steven Nahmias, and Narendra Agrawal 1999

• Review by Tsay, Andy A., Steven Nahmias, and Narendra
• Agrawal. "Modeling supply chain contracts: A review."

Quantitative models for supply chain management. Springer US, 1999. 299-336.

• Classification proposed was:
• Specification of decision rights
• Pricing
• Minimum purchase commitments
• Quantity flexibility
• Buybacks or return policies
• Allocation rules
• Lead times
• Quality
• 4 chapters devoted to contracts

6

Schloss Dagstuhl, February 8-12 2016

Anupindi, Ravi. and Bassok, Yehuda 1999

• Review by Anupindi, Ravi. and Bassok, Yehuda. “Supply

Contracts with Quantity Commitments and Stochastic Demand" Quantitative models for supply chain

• management. Springer US, 1999. 299-336.
• SCM contracts classified into:
• Horizon Length – duration of contract
• Pricing – financial flows
• Periodicity of ordering – how often a buyer can place orders
• Quantity commitment:
• Total minimum commitment – commits to purchase a certain quantity
• Periodical commitment – purchase a certain quantity every period
• Flexibility – specifies the magnitude and frequency of adjustments
• Delivery Commitment – service level agreement on delivery
• Quality
• Information sharing

7

Schloss Dagstuhl, February 8-12 2016

Semiconductor SC Contracts

• Publications on Semiconductor SC Contracts
• Mallik, S., & Harker, P. T. (2004). Coordinating supply chains

with competition: Capacity allocation in semiconductor

• manufacturing. European Journal of Operational Research,

159(2), 330–347. – incentives for capacity allocation among managers

• Terwiesch, C., Ren, J. Z., Ho, T. H., & Cohen, M. A. (2003).

An Empirical Analysis of Forecast Sharing in the Semiconductor Equipment Supply Chain. Management Science, 51(2), 208-220 – sharing between set of equipment suppliers

• Contracts to suppliers of tools to semiconductor

manufacturers

Schloss Dagstuhl, February 8-12 2016

Implementation of Contract

• Process for Contract

 Contract Request  Internal Alignment and Contract Creation  Contract Negotiation  Contract Approval & Signature Procedure  Archiving  Distribution and Execution of Contract

• Implementation of contract within company

9

Schloss Dagstuhl, February 8-12 2016

Semiconductor SC Characteristics  Long cycle times  Capital intensive and long investment cycles  Utilization of tools needs to be high  High velocity low flow factors  Typically short product life-cycles  High product variety  Highly volatile  Low forecast accuracy

Schloss Dagstuhl, February 8-12 2016

A Study of Semiconductor SC RHF Contracts

Schloss Dagstuhl, February 8-12 2016

Literature Review

• Tsay (1999) quantity flexibility in RHF – examined

incentives for buyer and seller

• Bassok and Anupindi (2008) studied heuristics

and examined flexibility, showing order variability decreases

• Walsh et al (2008) examined fill rate and bullwhip
• Wang (2008) added delivery lead time flexibility
• Kim (2011) examined flexibility for customer and

supplier, benefit constant as flexibility increases

12

Schloss Dagstuhl, February 8-12 2016

Focus of Work

• Capture production and delivery lead time in case

study company

• Incorporate forecast error – linear regression
• Unbiased
• Over-planning
• Under-planning
• Model incorporates long-term forecasting 12

months in advance

• Assume capacity provider has unlimited capacity

13

Schloss Dagstuhl, February 8-12 2016

Customer Forecast Accuracy

Use SMAPE3 (Symmetric Mean Absolute Percentage Error)

Schloss Dagstuhl, February 8-12 2016

Over Planning Demand

Schloss Dagstuhl, February 8-12 2016

Demand Generator

Schloss Dagstuhl, February 8-12 2016

Analyzed Using Simulation

17

Schloss Dagstuhl, February 8-12 2016

Performance Measures

• Delivery Performance (DP)

Performance index of customer satisfaction

• Delivery Reliability

Noting that:

• Provides insights into a supplier’s capability to meet delivery schedules

promised to the customer

18

Schloss Dagstuhl, February 8-12 2016

Results

Schloss Dagstuhl, February 8-12 2016

Quantitative Values

Schloss Dagstuhl, February 8-12 2016

Comparison of Standard with Options Contract

• Compare against RHF contract (standard contract)
• Purchase options for window o at price po
• pe to exercise within window o
• Two sources available:

 Contract market (po+pe)  Spot market, cost ps  po= a third pstd=po+pe; ps=pstd+pd+i (estimated from case

study company)

 Non exercised options transferred to spot market

• If pe=0, then po is the wholesaler price
• if po=0 - standard contract with non binding forecast
• Analyzed using simulation

Schloss Dagstuhl, February 8-12 2016

Description Options Contact

Buys options po

• Assuming window o=1 week

Spot Market pe=0 ps

Schloss Dagstuhl, February 8-12 2016

Preliminary Results Options versus Standard Contract

• Profit for case study company, based on unbiased demand
• Risk moving from buyer to seller

Schloss Dagstuhl, February 8-12 2016

Conclusions

• A lot of literature on operational contracts –

applicable to semiconductor?

• Few results on semiconductor SC, some on

semiconductor equipment

• Important topic to examine
• Embedding operational contracts is important
• Examined RHF and option contracts, other types
• f contracts also possible

24

Schloss Dagstuhl, February 8-12 2016

References

• Knoblich, Konstanze, Cathal Heavey, and Peter Williams. "Quantitative

analysis of semiconductor supply chain contracts with order flexibility under demand uncertainty: A case study." Computers & Industrial Engineering 87 (2015): 394-406.

• Knoblich, Konstanze, Cathal Heavey, and Prince Williams. "An evaluation of an
• ption contract in semiconductor supply chains." Simulation Conference

(WSC), Proceedings of the 2012 Winter. IEEE, 2012.

25