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International Rectifier: a linear approach

Posted: 09 Aug 2005 ?? ?Print Version ?Bookmark and Share

Keywords:wafer fab?

A chip company that owns production plants owns more business risk than a fabless chip maker and therefore uses a different approach to managing inventory. International Rectifier Corp. owns wafer fabs and assembly and test sites in North America, Europe, China and India. In fact, it outsources less than 10 percent of its chip production.

"My cycle time is dramatically different than my customer's cycle time," said Walter Lifsey, executive vice president of operations for International Rectifier.

"You can't run a wafer fab in such a way that it's an absolute build-to-order because the actual cycle time is just too long," he said. "A fab process can be 21 to 35 days. So we've got to work with our customers to help them understand our ability to respond."

IR addresses the variations in cycle times by building a coordinated, two-level demand forecast, one for finished goods and one for wafers.

The company's forecast team gives numbers for finished goods, which it translates into a wafer production schedule. The wafer schedule must be right, or everyone loses. Excess capacity in a wafer fab or assembly site is extraordinarily expensive. Therefore, the optimum situation is to set resources to run in a linear fashion-to build to what was forecast.

What that means in practical terms is aligning all resources-inventory coming from the supply base, staffing levels, indirect support-to the exact number derived from the demand forecast. Running linear means avoiding excess capacity and then scrambling to build the highest probable mix at the last moment.

Getting it right
How does IR ensure that the demand forecasts are accurate? First, the sales team knows the customer well. IR builds about 70 percent proprietary products for a limited set of customers. Second, IR runs the forecast through advanced-planning system software that crunches production details from all factories and outputs a model.

"Here's the exact number of wafers [and] the exact number of packages we have to produce," Lifsey explained. "We have all of our capacity constraints modeled in there so we have something we know is an achievable plan. It also kicks out for us any exceptions that might be there."

Third, IR conducts postmortems with customers and shares performance scorecards. At the end of every quarter, Lifsey said, IR asks its sales team: "What did you ask for? What did we build? What did you sell?"

Finally, IR uses incentives to encourage superior forecasts. IR offers customers different types of inventory programs that are directly related to the customer's ability to deliver accurate forecasts. For example, a "zero time fix" where customer liability never actually accrues for inventory, requires a forecast accuracy score above 90 percent. An accuracy of 70 percent might get an inventory program with a time fix of two to three weeks.

The whole point behind honing the forecasts is to make a predictable process. "We have accuracies above 90 percent in our forecasts," Lifsey said. "If you get that highly accurate, then things become quite predictable and we can run the operation in a linear fashion."

Every week, IR's planning team adjusts part numbers and updates backlog. If the forecast still hasn't consumed the capacity for which IR is aligned, it will either load some high-probability forecast that the demand-planning team has said it needed, or it will step capacity down.

Back end is critical
In the back end, IR's assembly-and-test plants also work in a relatively linear way. The company assembles and tests about 40 percent of all products in-house. Assembly and test takes the least time in chip making, typically four to seven days.

IR builds unfinished die and sends them to a die bank because almost every part it makes can explode into multiple packages. "From packages you get all of the end-customer delivery variations where they want it reeled left, reeled right, so we try to commit all of that variation to the last minute," Lifsey said.

The die bank is the cheapest inventory to hold and allows the shortest lead time in responding to customer demand shifts, he said. "Two hundred [unfinished] die might turn into 3,000 finished-good part numbers, so you're always better off storing it in the 200 die."

IR's die banks are located near company operations in Asia and Mexico instead of a centralized bank that would require air freighting worldwide. "Assembly-and-test lead time is [essentially] your variability and that's measured in a couple of weeks, maximum," Lifsey added. "We've also been very careful to ensure that our test platforms are extremely broad in their capability."

As the freshest update of the finished-goods demand forecast comes in, IR sends wafers, sometimes individual wafers, for assembly and test.

At any point, IR has a storehouse of wafers and any customer can come in and order any finished goods. IR keeps some finished-goods inventory to address the semiconductor spot market, but is constantly replenishing that from the die bank stock that is flowing through the assembly and test organization.

IR management knows worldwide inventory within 15 minutes of accuracy, Lifsey said. "You could be in our Singapore warehouse, ship something out and inventory records worldwide would be fully synched 15 minutes later," Lifsey said. The quarter is run very precisely, he said. "The team ensures from an operational standpoint that we have very good visibility into what we should be building."

- Drew Wilson
My-ESM




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