The effect of demand and supply swings on inventory holdings, and the inability of semiconductor vendors to keep pace with market signals is too well-known – sky high inventory and huge inventory write offs post 2000 meltdown are recent reminders of the need for a closer collaboration in the semiconductor industry supply chain processes. The significant questions are: How can a semiconductor vendor collaborate with its suppliers, customers and service providers? How can the company seamlessly connect back office operational systems to partner facing business processes? How can IT scale up to these challenges?
Various components of SAP NetWeaver stack provide an enabling infrastructure for intra-company and inter-company collaborative business processes. SAP Exchange Infrastructure (SAP XI) is the process integration layer that provides capabilities for application-to-application (A2A) integration, business-to-business (B2B) integration and business process management (BPM) across the extended enterprise. Other SAP NetWeaver components complement the SAP XI enabled process integration: SAP Enterprise Portal (SAP EP) provides the human interaction layer for manual intervention and processing. SAP Master Data Management (SAP MDM) is the layer to relate, synchronize and maintain master data across the enterprise.
EDI and RosettaNet
Most large semiconductor vendors use Electronic Data Interchange (EDI) to exchange business data with their trading partners. However, the business data that is exchanged is limited to transactional data such as purchase orders, invoices and shipping notifications, and master data such as updated material information. Though EDI standards incorporate collaborative transactions such as forecasts, few companies use it. The reason is both historical and the inability of technology to keep pace with changing business relationships – EDI implementations were executed during a time when trading partners were treated as “adversaries”. Business models have now changed where trading partners such as suppliers are treated as business partners, many companies have recently begun realizing the importance of exchanging information with upstream and downstream trading partners for better planning purposes. Unfortunately, companies have struggled to extend collaborative relationships through EDI due to its inherent cost and complexity.
Semiconductor industry standards such as RosettaNet have strong focus on collaborative business processes that go beyond traditional transactional exchanges prevalent in the industry. SAP XI supports RosettaNet – semiconductor vendors running SAP for core business operations can seamlessly exchange master data, transactional data and planning data through RosettaNet using SAP XI. For smaller trading partners that are incapable of supporting RosettaNet for exchanging business data with the vendor, SAP XI provides a lightweight version called the Partner Connectivity Kit (PCK). The PCK allows the smaller trading partner to connect with the major trading partner and exchange business data directly. A semiconductor vendor can collaborate with the contract manufacturer and downstream distributors using PCK without a full-blown RosettaNet implementation across the Supply Chain.
Self-service and real time
On similar lines, SAP Enterprise Portal provides capability for a partner self-service solution tailored to the semiconductor business. A Distributor Management Solution on SAP EP will allow the downstream distributors to login into the semiconductor vendor’s hosted portal, and provide ability to check on order status, shipping status and inventory related information. It would provide information useful for planning such as forecasts, new product introduction (NPI) and end-of-lifecycle products.
With the advent of RFID tags, it is possible to rapidly capture in-transit status of inventory such as semi-finished assemblies moving within the supply chain. Enhanced material tracking and reduced delays in goods-receiving, identification and warehouse routing can dramatically reduce time-to-market in a semiconductor supply chain characterized by successive stages of material movement between trading partners. SAP XI is the integration middleware that can provide the integration backbone to move the potentially large amount of business event information between the contract manufacturers, semiconductor vendor and market facing distributors. Automated communication of inventory information across the supply chain has significant potential of reducing overall inventory levels in the supply chain.
Processes and business models
Many semiconductor vendors such as Philips and Texas Instruments run their core business operations on SAP. However, due to mergers and acquisitions witnessed in the industry, the business operations tend to get distributed over legacy and nonSAP business systems. Additionally, with change in business models towards outsourced manufacturing through contract manufacturers, many of the core business processes are now spanning nonSAP and external systems. Interestingly, many of the major contract manufacturers such as Solectron, Flextronics, Celestica and Jabil have significant business operations running on SAP. Semiconductor and High Tech manufacturers are moving towards technology and design innovation, and outsourcing non-core operations to contract manufacturers.
Claims form an integral and important part of the Semiconductor Distribution business. A distributor can send several types of claim requests to the vendor to deal with the fluctuating prices of semiconductor components. For example, a price protection claim may be sent when the price for a product is reduced by the vendor but the distributor had purchased the product at a higher price from the vendor. Integration with the Inventory application is required to estimate the distributor’s inventory while processing price protection claims.
Key business processes should be considered. They span functional systems such as finance, procurement, contract management, inventory management, production planning, manufacturing execution system, warehousing and distribution management. Each of these functional processes may be implemented by SAP or nonSAP business systems. Current integrations may exist between these business systems through rudimentary methods such as flat files. Adoption of SAP XI would bind the relevant business systems within the context of a business process. For example the Available-to-Promise (ATP) process that is part of a larger Purchase Order business process. An ATP process could vary in complexity based on replenishment from stock, in-house production or outsourced manufacturing.
SAP XI’s BPM capability can be leveraged to handle complex business process demanding integration with SAP solutions, nonSAP and partner applications. The SAP XI adoption will enable collaborative business processes within the enterprise and with external trading partners.