Best Planning

Practices to Model
APO for the High Tech
Industry
Saroj Tripathi
Bristlecone
2009 Wellesley Information Services. All rights reserved.

In This Session

What Well Cover

This session will show planners in the high tech industry an

undocumented approach that uses planning logic to derive a
forecast to a postponement point, as opposed to a finished
goods level
See how this process allows you to side-step inventory
obsolescence caused by dynamic demand fluctuation, and get
closer to customer demand by making the right product mix
View the steps to model SAP Advanced Planning and Optimization
(SCM) Demand Planning to achieve a consensus forecast that is
then released to SCM Supply Network Planning (SNP) simulation
version
See how to derive the forecast from the finished goods and execute
planning to the Die Bank level
Look at the common decoupling points that allow manufacturers to
build generically up to the point of exception and see how the
demand changes stay close to the completion of the build cycle
Get tips to manage the postponement strategy to ensure contract
manufacturers understand the process
2

Bristlecone Corporate Fact Sheet

Founded

1998

Number of employees

1,200

Headquarters

Areas of expertise

Key industries

Introduction
High Tech Industry
Postponement Strategy
Challenges in postponement strategy
SAP SCM Modeling Approaches
Pros and Cons
Wrap-up

Bristlecone Extended Supply Chain Capabilities

SAP SCM

SAP ERP

SAP SRM

SAP
NetWeaver

Custom
Dev.

SAP
Solution
Expertise

Milpitas, CA
SAP Supply Chain Management (SCM), SAP ERP, LES, WM, SAP Supplier
Relationship Management (SAP SRM), Application Management,
Customization & Development

Business Process Consulting Services

High Tech, Semiconductor, Process Manufacturing, Apparel

and Footwear, Industrial, Oil & Gas, CPG, Automotive

Key Partnerships

SAP AG Core Development and Implementation Partner

Global presence

North America, Germany, UK, Singapore, India

Business offices

Milpitas, Houston, London, Walldorf, Mumbai, Bangalore, Pune

Services
Implementation and Integration Services

Application Management and Development

What Well Cover

Industry Overview High Tech

Introduction
High Tech Industry
Postponement Strategy
Challenges in postponement strategy
SAP SCM Modeling Approaches
Pros and Cons
Wrap-up

Definition
Semiconductor industry group comprises establishments
primarily engaged in manufacturing semiconductors and other
electronic components
In addition, this industry group includes companies that
undertake production of laminate material, manufacturing of
bare (rigid or flexible) printed circuit boards without mounted
electronic components, and the loading of electronic
components onto the boards

High Tech Ecosystem

Chip Manufacturing Processes

Foundry
Foundry
Semiconductor
Semiconductor
Manufacturer
Manufacturer

EMS Provider
EMS Provider

Engineering
Engineering
Partner
Partner

Electronic
Electronic
Distributor
Distributor

OEM
OEM

End
End
Customer
Customer

Component
Component
Manufacturer
Manufacturer

Software
Software
Provider
Provider

Distributor/
Distributor/
Retailer
Retailer

Service
Service
Provider
Provider

All these stages can be outsourced independently

Typical Supply Chain

DC
Finished Chip

Test
Assembled Chip

Assembly
Die

Sort

Wafer
Silicon

Fabless Supply Chain

Customer

Suppliers

Chip manufacturing has the following main processes:

Fabrication
f Silicon is converted into wafers
f This usually has the longest lead time of 12-13 weeks
f Adding capacity in this stage usually requires huge capital
investments
Sorting
f Wafers are sorted and dies come out
f This takes about 2-3 weeks of lead time
Assembly
f Dies are cut out and assembled
f 1 week of lead time
Testing
f Tested for speed
f 1 week lead time

Fabless supply chain has the following characteristics:

Short product life cycles
Long manufacturing lead times
New product introductions
Variable customer demand
Outsourced manufacturing
Maximum utilization of Contract Manufacturers (CM) capacities
Fluctuating yields at different stages of manufacturing
High rate of obsolescence
All above factors will lead to higher inventory levels in the overall
supply chain, unless managed

Fab
High Tech Industry is transforming into Consumer Packaged Goods (CPG) industry!
10

11

What Well Cover

Postponement Strategy

Introduction
High Tech Industry
Postponement Strategy
Challenges in postponement strategy
SAP SCM Modeling Approaches
Pros and Cons
Wrap-up

Need for postponement

Demand volatility
Value add to the product
Optimal product mix
Long manufacturing lead times
Component commonality
Customer fulfillment

Sales

Profit

12

Postponement Points in Chip Manufacturing

13

What Does It Mean?

Customer

DC
Finished Chip

Pre-packaging

What does postponement strategy mean on a day-to-day basis?

From solution perspective
From planners perspective

Test

Assembly

Assemble To
Order

Assembled Chip

Die Bank
Bu
ild

Die

to

rd
er

Sort
Wafer

Suppliers

Silicon

Metallization Stage

Build to Forecast

These are main postponement points in this supply chain. Others are being attempted.

14

What Well Cover

Clear To Build

Fab

15

Challenges in Postponement Strategy

Introduction
High Tech Industry
Postponement Strategy
Challenges in postponement strategy
SAP SCM Modeling Approaches
Pros and Cons
Wrap-up

16

Business challenges in defining these points:

New points are being attempted
f E.g., rapid slice
Dependency on contract manufacturers
Customer acceptance

17

Challenges in Postponement Strategy (cont.)

What Well Cover

Supply Chain Challenges in managing these points:

Forecasting challenges
Forecast netting challenges
Supply Planning challenges
Safety Stock challenges
Execution challenges

Introduction
High Tech Industry
Postponement Strategy
Challenges in postponement strategy
SAP SCM Modeling Approaches
Pros and Cons
Wrap-up

18

Modeling in SAP SCM

19

Approach I: Integrated Approach

Two modeling approaches

Approach I: Integrated SCM DP and SCM SNP approach
Approach II: SCM SNP Approach

This approach uses the Demand Planning and Supply Planning

Modules of SAP SCM
This approach allows the forecasting to be performed at finished
goods level enabling you to manage product mix in a better way
This enables the systemic calculation of quantities to be produced

20

Approach I: Integrated Approach (cont.)

Demand Planning

21

Approach I: Integrated Approach (cont.)

Supply Planning

Demand Planning

Supply Planning

Forecasting done at Finished Goods level

Part #

Forecast Released to SNP at Finished

Goods Level

Finished
Goods-1

Fcst

W1

W2

W3

100

200

300

Supply Planning Performed in

Simulation Version

Dependent Demands are generated at the

point of postponement levels
Part #

Dependent Demands are released back to

DP in a separate key figure

Die Bank

Dep.
Dmd.

W1

W2

300

300

Part #

Finished Goods1

W1

W2

W3

Finished
Goods-1

Forecast

100

200

300

Part #

Finished
Goods1

W1

W2

W3

Finished
Goods-1

Forecast

100

200

300

Die
Bank

Dep.
Dmd.

300

300

W3

Part #

Release this key figure from DP to SNP

in Active Version for planning

Die
Bank

Active version planning performed

22

Final
Production
Plan
W1

W2

Fcst

300

300

Supply

300

300

Die Bank is the most common postponement point in this industry

W3

23

Approach II: SNP Approach

Approach II: SNP Approach (cont.)

This approach uses the master data element Requirement

Strategy to differentiate materials with different manufacturing
strategies, i.e., Build to Forecast (BTF), Build to Order (BTO), etc.
The approach presents planning data in a manner that enables
planners to make quick and relevant decisions

Demand Planning

Supply Planning

Forecasting done at Finished Goods level

Forecast Released to SNP at
Finished Goods Level
Supply Planning Performed in
Active Version

Planning results published to the planners

to enable better decisions

Production Plan released

24

Approach II: SNP Approach (cont.)

Demand Planning
Part #
Finished
Goods-1

Fcst

Finished
Goods-2

Fcst

Approach II: SNP Approach (cont.)

Supply Planning

Receipts View

W1

W2

W3

Part #

Finished Goods1

W1

W2

W3

100

200

300

Finished
Goods-1

Fcst

100

200

300

10

20

30

25

Finished
Goods-2

Fcst

10

20

Part #

Finished
Goods1

W1

W2

Die Bank-I

Dep.
Dmd.

300

300

Supply

300

300

Die BankII

Dep.
Dmd.

30

30

Supply

30

30

30

Period

Part #

Qnty

Mfg. Strategy

Pegged
Demand

W1

Die Bank-1

300

BTF

Fcst

W1

Die Bank-2

30

ATO

Sales Order

W2

Die Bank-1

300

BTF

Fcst

W2

Die Bank-2

30

ATO

Fcst

W3

Release for
production
Release for
production
Release for
production

Communication process with Contract Manufacturer needs to be streamlined to

execute this approach
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What Well Cover

27

Pros and Cons of Approach I

Introduction
High Tech Industry
Postponement Strategy
Challenges in postponement strategy
SAP SCM Modeling Approaches
Pros and Cons
Wrap-up

28

Pros:
Systemic derivation of forecast at postponement points
Enables a smoother release of production plans
Less manual intervention required

Cons:
Any capacity constraints in the downstream processes could
be ignored
Any component requirement, if based on active version only,
could be ignored
Potential capacity over commits

29

Pros and Cons of Approach II

What Well Cover

Pros:
Downstream capacities are considered
Component requirements are planned for
More flexibility to the planners

Cons:
Manual intervention required

Introduction
High Tech Industry
Postponement Strategy
Challenges in postponement strategy
SAP SCM Modeling Approaches
Pros and Cons
Wrap-up

30

7 Key Points to Take Home

31

Resources

Semiconductor industry presents unique supply chain

challenges: fluctuating customer demands and long lead
manufacturing times
Industry is adopting postponement strategies to manage such
challenges
Main postponement point in this industry is Die Bank
Challenge is to do the manufacturing till Die Bank based on
forecast and add value based on customer order
SAP SCM does not offer direct functionality to manage this
With the creative usage of SCM Demand Planning and Supply
Network Planning this process can be easily modeled
Based on business practice, either of the approaches
can be adopted

www.sematech.org/corporate/news/mfgproc/mfgproc.htm
Describes the chip manufacturing process
www.scmr.com/article/CA431580.html
Paul Matthews and Nadeem Syed, The Power of
Postponement (Supply Chain Management Review, April
2004).
www.amrresearch.com/CONTENT/View.asp?pmillid=20902
Stephen Hochman and David Aquino, High-Tech and Soft
Goods Go Fast Fashion: From Postponement to Risk Hedging
(AMR Research, November 2007).

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Your Turn!

33

Disclaimer
SAP, R/3, mySAP, mySAP.com, xApps, xApp, SAP NetWeaver, Duet, PartnerEdge, and other SAP products and services mentioned herein as
well as their respective logos are trademarks or registered trademarks of SAP AG in Germany and in several other countries all over the world. All
other product and service names mentioned are the trademarks of their respective companies. Wellesley Information Services is neither owned nor
controlled by SAP.

How to contact me:

Saroj Tripathi
Saroj.Tripathi@bcone.com
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