Source: National Semiconductors.

National Semiconductors, Supply Chain, 1993, 2001, 2005

National Semiconductors (NSC) is one of the world's leading manufacturers of semiconductors, offering a range of more than 10,000 different products. It particularly focuses on wireless handsets, display and imaging technologies, information infrastructure and information access devices. The chips manufactured by the company are used in a host of electronic systems; four billion are manufactured each year and are shipped to about 3,800 customers worldwide. Since the manufacturing of semiconductors products involves a wide variety of tasks ranging from capital and technology intensive to labor intensive, the industry is taking the form of a global production network to exploit the comparative advantages required for each task. Simplistically, the process involves wafer fabrication, a capital and technical intensive process, assembly and testing or electronic components, a process which is more labor intensive, and finally distribution to the customers. In turn, this implies a complex distribution system that has to be organized and maintained.

To improve its logistics, NSC has substantially modified its spatial freight distribution strategy. In the early 1990s the distribution system of NSC relied on five regional distribution centers, each servicing a specific regional market in Europe, North America and Asia. This Global Production Network (GPN) reflected well the division of labor common in the semiconductor industry. Delivery cycles were between 9 to 21 days with 700 logistics employees interacting with 42 freight forwarders contracting with 15 airlines. Distribution costs accounted for 2.9% of sales. In the late 1990s, the company opted to outsource its global distribution to a third-party logistics provider (FedEx). The distribution system undertook significant restructuring with the establishment of one global distribution center (GDC) in Singapore, close to the assembly and testing sites in Southeast Asia; its main manufacturing cluster. The delivery cycle has been reduced to 2-4 days, depending on the destination, with 100 logistics employees interacting with one logistical supplier. Singapore handles about 90% of the global inventory flows of the company. Distribution costs were lowered to 1.2 % of sales. In 2001, UPS Logistics inherited the GDC and undertook a reorganization of the distribution system. The GDC can ship up to 4.2 billion chips a year, which implies 12 million inbound chips fulfilling 1,300 daily orders. The order cycle time varies by the region of destination with 2 days for Asia, 2-4 days for North America and 2-5 days for Europe. One global DC and a reliance of air transportation have created a GPN which is highly functionally (low cycle times) and geographically (global market) integrated, but dominantly relying on low air transport costs. Doing so, NSC reduced the average delivery time by 47% while reducing distribution costs substantially.

Once the distribution strategy was rationalized and made more efficient cost-wise and time-wise, NSC embarked in a phase of consolidation of its supply chain by concentrating its activities in its most efficient facilities. Several plants were sold or shut down and a new assembly and testing plant was opened in Suzhou, China in 2004. Rationalization has gone further in 2006 with the closing of the Singapore (Toa Payoh) assembly plant and the consolidation of assembly and testing activities in Melaka and Suzhou. This has the double advantage of simultaneously reducing distribution costs as well as production costs. The recent evolution of the GPN of NSC shows a direct effort to cope with entropy, first by concentrating all final distribution activities at one location (Singapore GDC) and then by simplifying the supply chain in large facilities in relative proximity to the GDC. The new GPN thus reflects a semiconductor industry that has attained a phase of maturity, where innovation is still important but where competition is increasingly cost-dependant. Source: National Semiconductors.