Bottom-Line Benefits of Cycle Time Management

Source Description Inputs Notes

Operations Production Cycle Time % 5% Target improvement in production cycle time.
Operations R&D Cycle Time % 5% Target improvement in R&D cycle time.
Operations Production Cycle Time 50 Current production cycle time (in days).
Operations R&D Cycle Time 25 Current R&D cycle time (in days).
Operations WWOuts 500 Weekly wafer outs.
Operations New Product% 20% % of outs that are new products (design wins from prior 12 months).
Operations Yield 90% Fab's current line yield.
Operations Yield Factor 0.4% % increase in line yield per 1-day reduction in production cycle time.
Operations ECN% 1.0% % of WIP requiring ECN action (per week).
Operations Devices per Wafer 75 Good devices per shipped wafer.
Operations Work Weeks 50 Fab workweeks per year.
Marketing/Sales Design Wins 10 Current design wins per year.
Marketing/Sales Design Win Factor1 1.0% % increase in design wins per additional R&D learning cycle.
Marketing/Sales Design Win Factor2 1.0% % increase in design wins per 1-day reduction in R&D cycle time.
Marketing/Sales Pricing Factor 0.5% % increase in new-product pricing per 1-day reduction in R&D cycle time.
Marketing/Sales Downturn Cycle 3 Years between industry downturns.
Marketing/Sales Order Cycle 30 Days between post-fab order reviews or cycles.
Marketing/Sales Device Revenue $35 Fab's revenue per good device.
Marketing/Sales Lost Profit $15 Post-fab's lost profit if it does not have device to sell.
Marketing/Sales Volatility 75% Estimated volatility in yearly demand for individual device-types.
Marketing/Sales Write-Off% 15% % of inventory post-fab writes off in case of industry downturn.
Finance ECN Cost $250 Cost to address an ECN (per wafer).
Finance Raw Wafer Cost $250 Cost of wafer when released into fab.
Finance WIP Carrying Cost 24% Cost of holding WIP.

Category Benefit Annual $ Notes

Expense E1: Raw Material Savings $ 76,313 Improving yield means fewer starts required for same outs volume.
Expense E2: ECN Savings $ 24,802 Decreasing WIP means fewer wafers hit by ECNs.
Expense E3: F.G. Write-Off Savings $ 34,105 Decreasing cycle time means less finished goods safety stock required.
Expense E4: WIP Carrying Cost Savings $ 62,500 Decreasing WIP means lower cost to carry WIP.
Revenue R1: Design Wins / Learning $ 100,855 Increasing cycles of learning means more competitive products.
Revenue R2: Design Wins / First to Mkt $ 164,063 Shorter R&D cycle times means faster time to market.
Revenue R3: Pricing Premium $ 82,031 More competitive products on the market sooner means more pricing power.

Total Annual Benefit of Cycle Time Management $ 544,668

Copyright © FabTime Inc. 2002. All Rights Reserved. Web: www.fabtime.com. Tel: (408) 549-9932. Email: Frank.Chance@FabTime.com
Intermediate Results
Calculation Results Notes
New Product Volume 500.00
Mid-Line WIP Value $ 1,312.50 Valued on revenue basis.

R1: Design Wins (Increased cycles of learning)

Calculation Current Results Improved Results Notes
Learning Cycles 14.60 15.37 Estimated cycles of learning per year (365 / R&D cycle time)
Additional Wins 0 0.08 Estimated additional design wins per year (Additional cycles *
Additional Wafers 0 38.42 Wafers due to additional design wins
Additional Devices 0 2,881.58 Devices due to additional design wins
Additional Revenue 0 $ 100,855 Revenue due to additional design wins

R2: Design Wins (First to Market)

Calculation Current Results Improved Results Notes
Additional Wins 0 0.125 Estimated additional design wins per year (R&D cycle time red
Additional Wafers 0 62.50 Wafers due to additional design wins
Additional Devices 0 4,687.50 Devices due to additional design wins
Additional Revenue 0 $ 164,063 Revenue due to additional design wins

R3: Pricing Premium (First to Market)

Calculation Current Results Improved Results Notes
Pricing Premium 0 0.63% Estimated pricing premium (per device)
New Product Revenue $ 13,125,000 $ 13,207,031 Annual revenue derived from new products
Additional Revenue 0 $ 82,031 Revenue due to pricing premium

E1: Raw Material Savings (Yield Improvement)

Calculation Current Results Improved Results Notes
Yield Improvement 1.00% Estimated yield improvement
Annual Starts 27,778 27,473 Wafers started
Reduced Starts 305 Wafers due to yield improvement
Reduced Expense $ 76,312.58 Reduced expenses due to yield improvement

E2: ECN Savings (Decreased WIP)

Calculation Current Results Improved Results Notes
Average Cycle Time 7.14 6.79 Production cycle time (weeks)
Starts 555.56 555.56 Per week
Average WIP 3,968.25 3,769.84 Using Little's Law: WIP = (Starts) * (Cycle Time)
ECN Wafers (Week) 39.68 37.70 Estimated wafers requiring ECN action per week
ECN Wafers (Annual) 1,984.13 1,884.92 Per year
ECN Cost $ 496,032 $ 471,230 ECN Cost per year
Reduced Expenses $ 24,802 Reduced expenses due to reduction in WIP / fewer ECNs req
E3: Finished Inventory Write-Off Savings (Decreased Safety Stock Require
Calculation Current Results Improved Results Notes
h $ 8 $ 8 Holding cost for post-fab to hold one device for one year
D_avg 1,950,000 1,950,000 Estimated average yearly demand (shipments) for good devic
D_stdDev 487,500 487,500 Post-fab's estimate for standard deviation of yearly demand fo
FabRev $ 68,250,000 $ 68,250,000 Estimated average annual fab sales revenue
FabCTY 0.14 0.13 Fab's cycle time (years)
RY 0.08 0.08 Time between post-fab order reviews or cycles (years)
CTPlusR 0.22 0.21 Cycle time plus review time (years)
D2_avg 427,397 414,041 Estimate for average demand during cycle time plus review tim
D2_stdDev 228,230 224,636 Estimate for standard deviation of demand during cycle time p
RHS 0.04 0.04 Right-hand-side of periodic review policy solution equation
OneMinusRHS 0.96 0.96 One-minus right-hand side
NormInv 1.71 1.71 z-value for OneMinusRHS -- value such that P(Z <= z) = OneM
OrderUpTo 816,763 797,275 "Optimal" order-up-to quantity for post-fab, e.g. when ordering
LossQty 122,514 119,591 Quantity post-fab will write-off in case of industry downturn.
WriteOff $ 4,288,005 $ 4,185,691 Dollar amount post-fab will write-off.
Annualized $ 1,429,335 $ 1,395,230 Write-off annualized by average time between downturns.
Reduced Expense $ 34,105

E4: WIP Carrying Cost Savings (Decreased WIP)

Calculation Current Results Improved Results Notes
Average Cycle Time 7.14 6.79 Production cycle time (weeks)
Starts 555.56 555.56 Per week
Average WIP 3,968.25 3,769.84 Using Little's Law: WIP = (Starts) * (Cycle Time)
Valued @ Mid-Line $ 5,208,333 $ 4,947,917 Valued at midpoint between raw wafer cost and end-of-line
WIP Carrying Cost $ 1,250,000 $ 1,187,500 Cost of capital required to finance WIP, using corporation's int
Reduced Expense $ 62,500 Reduction in WIP carrying cost due to cycle time improvemen
 year (365 / R&D cycle time)
s per year (Additional cycles * Learning Cycle Factor * Current Design Wins)

s per year (R&D cycle time reduction * Cycle time Factor * Current Design Wins

mprovement

) * (Cycle Time)
action per week

tion in WIP / fewer ECNs required.

 ety Stock Required)

one device for one year

nd (shipments) for good devices
deviation of yearly demand for device
ales revenue

iews or cycles (years)

uring cycle time plus review time

of demand during cycle time plus review time
w policy solution equation

ue such that P(Z <= z) = OneMinusRHS, where Z is N(0,1) random variable

r post-fab, e.g. when ordering, should represent the on-hand quantity plus the quantity ordered.
case of industry downturn.

time between downturns.

) * (Cycle Time)
wafer cost and end-of-line
e WIP, using corporation's internal rate of return
ue to cycle time improvement
E3: Finished Inventory Write-Offs:
Uses standard (R,S) periodic review policy for inventory order-up to points.
Calculations as given in section 17-8 of "Operations Research: Application and Algorithms (2nd ed)" by Wayne Win
Policy assumes post-fab demand is normally distributed.
Assumes there is some lost profit due to post-fab not having device on hand when demand occurs (e.g. there are c
Assumes constant lead-time from fab.

Input: Current Design Wins per Year:

Changing the number of design wins per year does not change the outputs.
If you examine the details of the calculations, you will find that the number of design wins is used in several interme
calculations, but cancels out in the final benefit amount. We continue to include this input variable, because
it makes the intermediate variables more intuitive and thus easier to understand and double-check.

Regards,
Frank Chance
s (2nd ed)" by Wayne Winston.

nd occurs (e.g. there are competitive providers).

is used in several intermediate

variable, because