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Sply Chain ModManf&Ware

by: Maryse Thiel

Sply Chain ModManf&Ware ISYE 3104

Maryse Thiel

GPA 3.82

Pinar Keskinocak

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Pinar Keskinocak
Class Notes
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This 0 page Class Notes was uploaded by Maryse Thiel on Monday November 2, 2015. The Class Notes belongs to ISYE 3104 at Georgia Institute of Technology - Main Campus taught by Pinar Keskinocak in Fall. Since its upload, it has received 25 views. For similar materials see /class/234192/isye-3104-georgia-institute-of-technology-main-campus in Industrial Engineering at Georgia Institute of Technology - Main Campus.


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Date Created: 11/02/15
HP is helping to d e lne global RFlD standards Ll See the video Integration IT infrastructure Support senices DMmurcing services Search Tips in W ofSCMR llllfil illlll News Articles Newsletter Subscribe 1 Under ri39ut subsca39i lion Printfriendh version Email this stor r to a friend Home to Supplyquot Ehai39l Management Current Issue ksts Service Parts Management A Reallife Success Story Abg t SCMR From the September 2004 issue of Supply Chain Management Review JOSEPH J CHAMBERLAIN and JOHN NUNES Professnonal Development Supply Chain Management Review September 1 2004 Print amp Web Resources SCM Perspective Webcasts Conference Calendar White Papers Case Studies In many capital equipment sectors management of the service parts supply chain has become a key requirement to business success But it is easy to overspend on parts inventory in an effort to satisfy customers This article tells how KLATencor found the right balance The semiconductorequipment maker applied a four step process to service parts management that improved fill rates by as high as 21 percent while cutting supply chain costs by 6 percent Associations Author Guidelines Media Kits Reprints amp PDFs Subscriptions More and more businesses are experiencing a shift in revenue from product based sales to servicebased sales Competitive pressures are driving down product prices which increases the importance of revenue over the life of the product Companies that differentiate themselves in aftersale service and support can create a significant source of revenue and profitability for existing products and a steady flow of investment dollars for new products This pattern is well established in many business ADVERTISEMENT sectors most notably in high technology While e an early market leaders can focus on innovation technology leaders are forced to find ways to differentiate their products as their industry matures and competition increases When technology offerings approach parity aftersale service increases in importance as a criterion for supplier and product selection And it s here that a practice known as service supply chain management SSCM nNW that my supply Ghain becomes critical is mobile how can i keep It from Nowhere is service and support more crucial than in g mg away fram mequot capital equipment From network servers to large construction equipment to commercial aircraft extended downtime can have a significant impact on the user39s financial health As capital equipment lifecycles grow longer and each sale becomes more competitive EQUiPment Suppliers are nding that FREE Mobility Managmant lift for 23415 Lanrn m aftersale service can drive customer loyalty and marm mm mum m mlw whim mm mg SCHEME jlra nn become a Significant source of revenue and profitability Additionally in a weak economy the service part of an equipment business plays a more visible role in terms of revenue and profit contribution It is not surprising that businesses such as IBM and HP have shifted their focus and investment strategies from improving product delivery to improving service delivery However this transition can be difficult if not impossible Emu when the right capabilities are not in place In the high 39 tech sector for example benchmark data from AMR 39II39hE Aftermarket Dppurtunrtr Research suggest that most companies have traditionally must underinvested in service particularly when it comes to the q a critical enabling information technology see Exhibit 1 e But while some may look at investment in IT and an infrastructure as the magic bullet it is dangerously easy Tm to overspend in these areas The challenge lies in Emit investing in and developing the necessary infrastructure 51 and capabilities while sustaining historical profitability mag levels The sidebar below suggests some questions to ask 33 when making this transition 1 V Em m was lute As the aftermarket opportunity increases we believe that ma l the right degree of investment backed by a coherent gamma prams fll ll39lExpgmli tumE overall strategy for SSCM is critical to maintaining or i Y improving financial performance Service can be a I 5M F m differentiator but it must be an affordable differentiator To make this case we lay out the experiences of our company KLATencor a leader in yield management and processcontrol solutions for semiconductor manufacturing and related industries While our discussion will focus on semiconductor equipment and the high technology sector the general lessons discussed are applicable to any manufacturer of capital equipment E urieml39 Research Inside the Semiconductor Business The semiconductor capitalequipment business provides a unique perspective from which to analyze SSCM39s importance and complexity To begin with the semiconductor industry is on the leading edge of technology The latest generations of materials processes and equipment technology permit production of integrated circuits with critical dimensions of less than 90 nanometers that39s significantly less than the diameter of a human hair A more important factor is the classic boomandbust cycle that is the semiconductor sector39s trademark In an upturn manufacturers build capacity in an attempt to capture market share In a downturn many find themselves saddled with excess capacity equipment orders drop as manufacturers wait for demand to catch up and the cycle begins again During a downturn revenues may shift dramatically from being productbased to being servicebased The financial community however has the same expectations for gross margins and overall profitability These expectations put significant pressure on the service organization to deliver strong financial performance Furthermore these boomandbust cycles may be even more dramatic in the future because many A 4 300mm h A whrch A fabrrcated A 300mm wafer has more than twroe the area of the pfevrousrgenefatron 200mm wafer so the potentrar for excess capacrtv rs much greater FrfraHv semrconductor manufacturrng rs extremerv caprtarrrntensrve A staterotrtberaft 300mm wafer fabncatron facrrrtv can easrrv cost rn excess of 3 brrrron and downtrme on a bottreneck madnrne can mean mrrrrons of dorrars o t venue N surprs n ond t u e erv ce and expensrve to provrde the krnd of avarrabrrrtv that customers expect gurpment makers face the dnarrenge of posrtronrng rnventorv crose to customers whrre assumrng the rrsks assocrated wrth tednnorogv thats arwavs susceptrbre to obsorescence rn h t nd rtserf stuck wrth mrrrrons of dorrars of obsorete or excess spafenpaft rnventorv quotGet Parts off the Agendaquot ere manv caprtarrequrpment manufacturers KLArTencor Questions to Ask Up Front operates rn a verv comprex servrce envrronment That oomprexrtv rs dn v a m e Co a res that have be un transfor rn therr geographrc drversrtv product varretv and extremerv row 5636 chem mugst rst MW Ems farrure rates for servrce parts Pars oonsumptron worrdwrde quest ons D V e er c e svstems w rre a tvprcar wafer fa mav have a rarge 0 what are the cntrcar rssues facrng vour number of LArTefrcof svstems the average number of customers rn the current busrness cvcre7 svstems per product or pratform famrrv rs reratrverv smarr what do thev care about todav and how wrrr an scare from a th t h b e Unrrke actuar cbrprmakrng process egurpment KLArTefrcof o How can vou transrate what the customer svstems use few rf anv consumabre parts and most partsn cares about rnto ke measu es of sucoess erated servroe event rnvorve verv hrghrvarue hrg a that must drrve vour overarr stra egv7 oomprexrtv frerd repraceabre unrts PRU such as rarge pc 0 WM those measures aHoW vou to compare boards and modures rn practrce arr of thrs oeates a verv vour performance to competrtors and h rn ustrres rn equrvarent toug ow o vou werr wrthout rnvestrng a fortune rn a prperrne of costrv terms7 parts7 0 what rs bestrrnrcrass performance and what rs goodrefrougb performance7 vou derrver bestrrfrrdass 7 How do performance KLA Tencor had struggred wrth thrs probrem Earrrer Wm mamtmng and mpmvmg pro tabmw rnvestments n rnventorv and supprv dnarn rmprovements had farred to achreve sustarned resurts rnventorv growth had begun to outpace rnstarred base growth and overarr rnventorv revers were gurte a rot hrgher than bestrrnrdass performance Judgrfrg bv the resurts of a servrce supprv charn benchmarkrng studv othrghrtech manufacturers The cost of poor operatronar performance was creatrng a srgnrfrcant drarn on servrce profrtabrrrtv At the same trme customers who were workrng to get more out of the same equrpment were begrnnrng to vorce manv more comprarnts It became crear that poor parts avarrabrrrtv threatened to rmpact future svstem sares Comprrcatrng matters further when needed arts were not avarrabre customefrsefvrce engrneers courdn t be as productrve as thev needed to be The rssue qurckrv e me a prrorrtv for the senror management team herr message to us Get parts off the customer s agenda w re abre to prnpornt severar root causes of poor overarr performance rn parts avarrabrrrtv and servrce supprv dnarn management At the most basrc rever KLArTefrcof had tradrtronarrv rerred on a prannrng and executron svstem that was not desrgned to be effectrve rn an extremerv owrusage envrronment Apprvrng rrnear forecastrng methods rn srtuatrons where hnear moder assumptrons are not met red to poor H rates and excess rnventor The erdrstockrng moder that the companv used rn earrv 2001 drd not consrder cost as a major decrsron vanabre so rt drd frot acbreve the best barafrce between parts avarrabrhtv and rnvefrtof rnvestment To make matters worse poor svstems rnterfaces created data rntegntv rssues that further affected the guarrt ofdeosron makrng And naHv past rmprovement efforts had arwavs rerred on s oftrtefm actrons that pnorrtrzed matenar bv rocatron customer or product Sboftrtefm rmprovements rn one area srmprv courd not be sustarned when other prrorrtres arose Our Transformation Process to overhaur rts servrce supprv charn rn mrdr2001Wrth the stratech objectrve of rmprovrng frrr r b as muc as 30 percent rn some regrons whrre oontarnrng the raprd growth rn servroe rnventorv That effort contrnues todav wrth the re nement and rmprementatron of a servrce supprv charn strategv ongorng performance measurement and change management A changermanagement process rs one of the most ortrcar suocess factors rn anv busrness transformatron wrthout rt KLA n wourd not have been suocessfur So that s where we beng thrs storv In rethrnkrn u approach to parts avarrabrhtv we antrcrpated srgnr cant dnanges to the wav the servrce supprv dnarn operated as werr as to the rmportance of the measures of success For these changes to be understood and aocepted there 0 be oofrstafrt com munrcatron Wrtbrfr KLATTSHCO at EU reversitof two reasons Frfst we had to garn acceptanoe that the strategv was gorng to derrver resurts And we had to use hard data to set expectatrons about when the resurts wourd appear We derrvered our message rn everv avarrabre forum executrve revrews servrce drrector meetrngs customer meetrngs operatrons revrews and mofeiand we kept repeatrng the message It was crucrar to communrcate crearrv the trmrng of expected resurts so that we drdn t have to drvert resources to sboftrtefm actrons to sausfv rndrvrduar expectatrons or needs We rearrzed that rf Hrrw rrr rr r rr t H t quotofrfwe b Wourd be forced to respond urtrmaterv deravrng the rmprementauon of sustarnabre sorutrons Second we had t get buvrrfr from the peopre most affected bv the dnange prooess Because organrzatrons wrrr arwavs feer a stra durrng a transrtron emprovees and supprrers most rnvorved wrth the changes must have furr vrsrbrhtv h t ese hange h su a s orttrme mav resurt rn sboftrtefm rfret crefro and temporarv drops rn productrvrtv The best wav to ensure buvrrfr rs to exprarn h and ensure h the organrzatron Wrth a dnange management framework rn prace we were abre to move forward on the forrowrng fo frpbase transformatron whrch we berreve can be usefur to caprtarnequrpment companres rn a wrde r ge of rndustnes o rn u an phase 17Contain the problem The frrst pnorrtv was to drsabre the hfreafrtofecastrfrg methods used to pran nerd rnventorv regurrements rn therr p ace we rmpremente n rnterrm methodorogv that wourd begrn to drrve rmprovemene rn nrr rate basrng our decrsrons on cost opumrzatron Thrs was necessarv to prevent further erosron rn H rate and to hmrt growth rn excess rnventorv Wrth no offrthersherf svstem avarrabre to optrmrze nerd rnventorv rnvestment KLArTefroof deveroped a srmpre optrmrzatron argorrthm based on contrrbutron to servrce Parts are categofrzed rnto materrarrcrass groups based c 0 e e we our be posrtroned rn a rocar depot Actuar stock revers for each w mponent at eadn rocatron wourd be determrned based on rocar popuratron and demand hrstorv whrre farrrv srmprrstrc our mar costa t d h drd or a an r h And bv srmprv demonstratrng the traderottbetweefr cost and servrce rt arrowed us to map out future rmprovements creating an environment that helped us explore longer term more sophisticated solutions At this early stage we were content to broadly identify which parts should be held locally which regionally and so on Later we applied specialized software to derive much more detail on the tradeoffs That software allowed us to finetune our stocking model such that for example a part might be quotlocalquot in Europe but quotregionalquot in Japan The key lesson from this first phase is the importance of establishing executivelevel credibility via shortterm wins and by delivering on commitments Had we failed to do so our top management team all too aware of the customer dissatisfaction levels would have shown little interest in pursuing more sophisticated approaches to service supply chain management Phase II Establish Meaningful Improvement Targets While fill rate is a widely used measure of parts availability KLATencor faced a unique challenge in establishing a benchmark for fill rate improvement Service supply chain strategies practices and metrics are not standardized across or within industries which limits the development of a common framework for comparing performance Crossindustry benchmarks provide limited insight because there is such a wide range of customer requirements and performance metrics In short fill rate is simply too broad a measure to support meaningful crossindustry comparison To establish a fillrate improvement target that would be Ema meaningful for our company we turned to part wait time 39 g quot r 39 39 39 39 n a Our overall objective was to devise a part wait time The Impatt if Fart Wail Tiiiiriiie benchmark that could be translated into a fillrate V lt a Jim FEW Iii iquotli1i Tllll Elumltunu improvement goal In the semiconductor industry a w typical target for equipment availability is less than 5 J 7 Ragimii riirig b percent unscheduled downtime Part wait time is one of 39 several factors that can contribute to total unscheduled f E F i T Hui39giiiiii39 539 ELquotL mquot downtime Exhibit 2 shows how and where part wait time Mm film fits In the unscheduled downtime picture Rm m mis t Parlmmamm my 1 Diagnosis Diiji iiui ilti T L39Ji39ll39Eill ES SHIP 39li1 While fill rate may be the primary measure of part mm m 1 mquot Rm availability what the customer cares about is minimizing mum mm unscheduled downtime attributable to parts A commonly tails llfl l39 E used metric for part wait in the semiconductor industry is Mam FEE Arrim FEE Mm mm m mean down awaiting part MDAP which measures Fang 1M 5mm Mn li m Pam EmumElml average lost production time attributable to parts across fir All fi j Ii ammun liiazliiiie is Llii all equipment in a fab as a percentage of total available Ream Pm machine time For more on this metric see sidebar on F55 Fill39l l39jiir39llif igiiigiiriiyi right In an informal survey of the members of International SEMATECH a global consortium of leading semiconductor manufacturers the benchmark for MDAP was defined as less than 1 percent of total available machine time With a baseline goal for MDAP we were able to translate part wait time into a meaningful number for quotmultiechelonquot fill rate the fill rate at local regional and global levels We used the materialclass groups to begin the conversation with customers about service expectations It was important for us to agree that a 95percent local fill rate was an unreasonable goal for KLATencor as a supplier of processcontrol solutions That level of performance is more appropriate for process equipment operating in a high partsusage environment MDAP allowed us to demonstrate that difference Once we agreed on acceptable downtime levels given the cost tradeoffs we were able to translate those numbers into the right combination of local regional and global fill rates The key to success here was working with the appropriate managers at each customer ideally the fab manager The fab manager39s understanding of uptime could then be translated into requirements for the customer39s procurement team which is typically focused on cost and availability Phase III Develop and Implement a Service Supply Chain Strategy The third phase of the transformation was the development and implementation of a service supply chain strategy With improvement goals tied to meaningful customer benchmarks we set out to develop a strategy that would allow us to improve the targeted fill rate while reducing service inventory and service supply chain related costs The strategy consists of five major components 1 Service Planning and Optimization 39 g gt EiiiiiiiIT I A gt t V The core SSCM problem is the tradeoff between cost and 7 I 7 I customer service Exhibit 3 clearly illustrates this tradeoff ThE39 WWW E t39s ewme Trad39 and shows that the relationship is exponential rather than H linear That means there are some areas on the curve where service can be improved dramatically with minimal 1 SLIIIDI39ii39 Bimini inventory investment and other areas where a small H39HF39F39EVEWEM 2riiyti1393 improvement in service level can be extremely costly lil39u eiimi f iriiiniiaitimi iia 5 The materialclass planning approach discussed in the first section allowed KLATencor to move onto the curve action 1 in the exhibit and begin moving in the direction liiiiienIzry 3i Suitnim of improved service action 2 in the exhibit But it was amen clear that a more sophisticated sciencebased approach Fila iii was necessary to help us pinpoint the sweet spot where h inventory costs would be wellbalanced without either Mum 39 underserving or overserving customers and inline with the MDAP goal of less than 1 percent In the fall of 2001 after an extensive search and evaluation process KLA Tencor procured a stateoftheart decisionsupport tool for serviceparts planning This enabled action 3 This system is critical to our ability to execute the service supply chain strategy 2 Multiecheon Fulfillment Process Given the very low parts usage environment in which KLATencor operates providing a MDAP of far less than 1 percent with local fill rates above 70 percent can be extremely costly With a new service planning and optimization system KLATencor was able to target specific levels of availability at local 24 hour response regional 24hour response and global less than 72hour response levels achieving an optimal balance between service and inventory investment while delivering a MDAP at 1 percent or less Most orders are fulfilled by local depots But when those demands cannot be fulfilled the designated regional depot along with other local depots in the region is expected to provide the next tier of support If the request still cannot be fulfilled the global distribution center and all other depots in the network become potential sources of supply 3 Global Demand and Inventory Visibility A successful service supply chain management strategy calls for the ability to see and share inventory across the entire distribution network and to source parts globally and continuously seven days a week around the clock In turn that requires seamless enterprise resource planning ERP integration across regions and with thirdparty logistics providers 4 Knowledge of Installed Base If we have detailed knowledge of the local installed base down to the component level we can make stocking decisions based on expected failure rates and anticipated firsttime failures The result higher overall system availability Because we can39t use traditional linearforecasting methods we use combinations of component populations and demand to establish a probability of failure for each part at each location Then we can use sophisticated


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