@ Supply Chain Management


Required reading for these times…

Something of a required reading for these times… be it point or counterpoint.

America’s Great Depression

No, we’re nowhere near a depression but forewarned is forearmed as they say…

America’s Great Depression, Mises Institute

The Credit problem – What is it?

I’m sure that you’re drowning in the much bandied about term – Credit crisis or Credit crunch or liquidity crisis or the like. And I’ve come across some explanations of what event or series of events underlie this crisis. For a very good explanation of the problem and the failed bailout by the current Treasury Secretary Paulson, I refer you to this site – Understanding Tax.

As I pointed out in the previous post – Are you ready for the Supply Chain Shock?, a credit crisis is not a laughing matter and a serious credit crisis will send numerous shocks through the numerous supply chains of the world. The author of the article also points that out,

You might think of short-term money as the lubricant that keeps the world’s economic engine turning over smoothly. If there’s no lubricant,the engine freezes. No paydays, no goods on the shelves. Seriously.

So what is the purpose of the bailout bill? Let’s be clear about the probable scope of the current crisis – it’s not going away tomorrow if the bill is somehow passed in the House.

Note that Mr. Paulson’s proposal was not intended to solve the teaser-rate mortgage problem, either now or in the future. In the transactions that created the teaser-rate mortgages in the first place,both parties made bad decisions – the lender and the borrower. Mr.Paulson’s proposal was not intended to help either. One of its unavoidable side effects, however, was to relieve lenders of the consequences of their bad decisions, while leaving borrowers to suffer the consequences of theirs. This made it politically less palatable.
In addition, at least $500 billion more of teaser-rate mortgages are scheduled to reset over the next several years. In all likelihood, they too will go into default and become toxic waste. Nothing in Mr.Paulson’s original proposal was intended to do anything about this next$500 billion installment – or, indeed, to prevent lenders from making more teaser-rate mortgages in the future.
Similarly, Mr. Paulson’s proposal was not intended as a general Wall Street bail- out, although to some extent it would have had that effect.Note that the outstanding overhang of credit default swaps alone is estimated to be between $45 and $60 trillion – three to four times the size of our annual gross domestic product. The requested $700 billion, although the single biggest appropriation request in U.S.history, was miniscule when compared with the toxic waste problem as a whole. Mr. Paulson’s proposed solution was to cost just 1% of the size of the problem and was aimed only at a small part of that problem. (It is unnerving to realize that the U.S. government – the

Are you ready for the Supply Chain shock?

My apologies for the dip in blogging frequency but I was delightfully detained by the birth of my daughter – Mikayla Sara Abraham last Monday. What an interesting world she inherits in but a week’s time?

If you’re glued to the Dow/Nasdaq/S&P 500, let me ask you whether you’re equally glued to your supply chain cockpit i.e. if you have one? Regardless, if there is going to be a Supply Chain shock that is a consequence of tightened credit requirements, what is your plan, your firm’s plan for dealing with the fallout? Since offshoring and outsourcing have created a manufacturing base overseas, the impact of tightening credit requirements will not only be felt stateside but at all points along that financial supply chain.

If there is a shock that has been building up in your supply chain – for example, a supplier that might be facing a hard time raising money for his/her continuing operations for whatever reason – then you can be sure that this shock will be transmitted into you material flow supply chain at some point in the future. What if a supplier just closed shop because he couldn’t pay his payroll any longer and they were a single source supplier? Time to get busy finding another source before that become a real problem, you’d think? But perhaps your firm is the problem for your suppliers and your own delays in making good on payments to suppliers squeezes their cash flow sending them into a downward spiral – internal improvements would need to be made after assessing which of your suppliers might benefit the most in this regard. In some cases, your firm might even need to step in as a guarantor in the relationship between a supplier and the credit facility – be it local or global. This is a time for building close relationships with every facet of your supply chain that has the potential to cause serious disruptions within.

Also, since the transportation lead time is for most firms (I mean those that have gone the outsourcing route) a fixed quantity right now – given that one has to factor the average shipping, drayage etc on average and one cannot really change this without forking out more in transportation costs and given that one has to hold the larger inventory over this additional lead time, any improvements to driving down the magnitude of this inventory as well as improving inventory turns should free up working capital for continuing operations.

While oil is the physical commodity that greases the global supply chain and you might not have liked the era of soaring oil prices and how it affected your margins if you were not able to pass on the costs to consumers, credit is the real handshake that enables the global supply chain – the current credit squeeze makes the handshaking that goes on everyday (that needs to continue to go on into the future) a little less forthcoming. Anything that you can do to free up working capital in your firm such as speeding up material to cash conversion can only help but more importantly planning for it now (or hopefully, some months ago) will give you an edge no matter which way this ill-wind blows.

Update: If you wanted a recent news article that describes the relationship between credit markets and continuing business operations – Banks in miser mode send borrowing rates soaring.

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The New Economics of Semiconductor Manufacturing – Part 3 (Final)

In this final part of my review of The New Economics of Semiconductor Manufacturing, an article that you can find at the IEEE Spectrum site, I mean to go over the capabilities of Fab PowerOps (FPO) and contrast it with the essence/framework that Toyota Production System (TPS) offers. In the earlier two parts, The New Economics of Semiconductor Manufacturing – Part 1: I looked at the core outline of the consulting experience that the researchers (Clayton M. Christensen, Steven King, Matt Verlinden, and Woodward Yang) and in The New Economics of Semiconductor Manufacturing – Part 2: I delved further into the essence of earlier research that identified a few rules distilled from TPS that those researchers (Spear and H. Kent Bowen) claimed describe essential parts of the system that is internalized within the organization primarily as an outcome of iterative growth over the last five decades.
A brief about FPO – What is FPO? FPO is a scheduler for a wafer fab (but it can be extended to other industries as well) – pure and simple. It is a first generation scheduler in its class – the class being (near-)real time optimization (MIP: Mixed Integer Programming) based scheduling. It is rapidly customizable (aren’t they all? No, Seriously!) – it is so customizable that you can swing from one extreme of weighing it down by the whims of those who don’t know any better to direct it to the other extreme of it being light and flexible for those who mean to get certain scheduling behaviors realized and every other point in between. Fast! Now, while some solutions can achieve this as well, for example: "Do activity A if condition B for tool-space C", there are two immediate problems with this approach:
  1. It doesn’t scale very well – multiple statements and overlapping tool-spaces lead to conflicts that must be resolved and accounted for. Otherwise, you’d default to FIFO (First in, first out) or some other simple rule.
  2. Is it the best solution available? Is it a really good solution, good solution, solution, workable solution, bad solution, very bad solution?
It is also highly extensible in the sense that while there is a product architecture, layered on top of it is an customizable interface that a client can write pretty much whatever he wants (i.e in Java) and since the bulk of the product is in Java, it is cross platform compatible as well.

For some of us who might be aware of an SAP or like system that plans out a day in advance, week in advance or maybe even a month in advance, FPO is a breath of fresh air, it generates schedules every five minutes. No, that is not a typo. Every five minutes, FPO accesses the state of the wafer fab (from an MES (Manufacturing Execution System) – it is flexible enough to be hooked up to several MES-es) and computes a schedule for all tools that it is in charge of scheduling. What type of tools? Batch tools, single chamber tools, multi-chamber tools, parallel chamber tools and so on. When things change on the floor within a five minute interval, it becomes a state change that figures into the next computation run or iteration (five minutes later) and the schedules update accordingly taking the event(s) into account – however many events there are. The last piece of this powerful scheduler is access to the data it uses in several transformational states and forms for monitoring, information, review, investigation and continuous improvement.
Now, back to the TPS story, the connection between the consultants and the earlier researchers (Spear and Kent) is that the four rules distilled by Spear and Kent informs some of the questions that are used in the exercise. From, the examples listed in the article:
The first rule, on activities, states that

In praise of mavericks…

In praise of mavericks is a short piece by Col. Michael Wyly (Ret.) that can be found at the Armed Forces Journal. The byline reads –

A true professional will strive to do something, not be someone

The colonel’s principal interest is in a single word – professional, in brief terms – the development of the profession and the professional.

It was during the European Renaissance that the professional class emerged and defined itself. It was during the Renaissance that the birthright nobility began to give way to a society led by persons respected for their merits – for what they did instead of who they were. Each profession had standards for entry, they professed something, and their study of it was daily, continual and life- long.They served their society. Medicine, law, the clergy and military leadership became during the 15th and 16th centuries – and still stand as – the classically defined professions.

A profession must be applied for and joined after being accepted,and its moral standards are as important as its philosophy.

So it follows that I ask myself this same question – What is my profession? What professional am I? And the surest answer is that I am not in any profession – of many professions but not in any one. And I don’t find that as troubling as I normally might. Or should I?

Some of the Secretary of Defense’s remarks invoke another Air Force Colonel John Boyd, the OODA loop etc. It has been a long standing desire on my part to study the OODA loop and possible adaptations to what I do everyday. Or maybe the OODA loop itself is the desire.

After they graduate and leave Maxwell, Gates warned the students:

JDA acquires i2

JDA is all set to acquire i2 Technologies for approximately USD $346 million – the huger for scale is relentless, it seems but whether or not it succeeds is a different matter altogether.

The New Economics of Semiconductor Manufacturing – Part 2

In this part of The New Economics of Semiconductor Manufacturing, an article that you can find at the IEEE Spectrum site, I mean to look at the specific claims and experiences that the authors of the article had in their TPS consulting journey at the unnamed IDM. The following are the four specific "distilled" rules (that earlier Harvard researchers have conducted research on – Decoding the DNA of the Toyota Production System. My own foray into this matter is in this review – Toyota, Toyota

About me

I am Chris Jacob Abraham and I live, work and blog from Newburgh, New York. I work for IBM as a Senior consultant in the Fab PowerOps group that works around the issue of detailed Fab (semiconductor fab) level scheduling on a continual basis. My erstwhile company ILOG was recently acquired by IBM and I've joined the Industry Solutions Group there.

@ SCM Clustrmap

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June 2020
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