Taking the lead on semiconductor lead-times

microchip-1Global sales manager, Microchip Direct, Martin Warmington, outlines procurement initiatives designed to help OEMs and CEMs optimise inventory management—identify lead-time trends and use rolling 30-day cancellation windows.

Working with lead-times is a vital part of keeping production lines rolling, but unfortunately they can be open to misinterpretation and even mismanagement. The problem lies in the different interpretation of the information published by semiconductor manufacturers. From the original equipment manufacturers’ perspective, the lead-times quoted by the component manufacturer at the start of a project’s procurement phase are typically used as a fixed time-scale. Lead-times are entered into the manufacturer resource planning system and often remain unchanged throughout the pre-production and production stages.

The semiconductor manufacturers’ perception of lead-time information is, however, very different. The lead-times that they quote are correct at the time of publication, but they are also subject to change as fluctuations in demand affect factory loading. All it takes is one or more customers to place high-volume orders for the same semiconductor to change the factory loading, pushing an eight-week lead-time out to 14 weeks.

Intelligence-led planning

It is therefore more realistic for OEMs to treat lead-times as changeable trend indicators, rather than fixed timescales. For example, if a lead-time that was originally quoted at eight weeks is extended to 12 weeks, the customer should update their MRP system with the new information to ensure they are always working to the most accurate timescales. If the change to lead-time is very large over a short space of time, the high volume OEM customer should also start to ask questions of their supplier to understand why the lead-time is extending so they can get a clearer indication of future lead-time trends.

Of course, requesting updated lead-times from multiple manufacturers at regular intervals would stretch procurement resources. This is why Microchip Direct offers customers the opportunity to receive a weekly lead-time update on the parts they are buying and also provides sales order history and invoices, which customers can find in their online account. Used in conjunction with back-log reports, these weekly lead-time updates enable customers to take a more intelligence-led, trend-orientated approach to lead-time management. This method of monitoring lead-time trends is a vital tool in the procurement of any semiconductor, regardless of whether it is a high or low runner.

Rolling cancellation windows

At the other end of the supply-chain, is the industry-standard practice of suppliers holding buffer stock. This helps OEM customers to balance the cost of holding inventory against fluctuations in demand from their own end-customers. While this system has many advantages, in the current climate of sharp market volatility, OEMs are finding it increasingly difficult to get visibility of future demand from their end-customers. This is particularly difficult with new designs, where the OEM may not want to commit to inventory until the success of the design has been proven in the field.

To help OEMs overcome the risk of forward inventory planning without clear visibility of future demand, Microchip Direct has created a 30-day rolling cancellation window. This 30-day window effectively allows a customer to cancel or push out a delivery of any standard semiconductor, at any time up to 30 days before the parts are scheduled to be shipped. So, for example, an order placed on the Microchip Direct website on 19 September, for delivery on 19 November, could be cancelled or pushed out at any time before 19 October.

As each new shipment date is reached, the 30-day window is rolled forward, enabling OEMs to lower inventory costs while also reducing the risk that their continuity of supply could be compromised. This not only helps Microchip Direct customers, it also allows them to help their own end-customers by ensuring greater flexibility and responsiveness to market demand.

To help customers manage this rolling 30-day cancellation window, Microchip Direct can issue a weekly back-log report showing which products are scheduled for shipment within the cancellation window. This allows customers to focus their attention on imminent shipments and to adjust their schedules to reflect any changes in demand.

Managing lead-times and buffer stock has been an important part of industry best-practice in relation to optimising inventory costs for decades. These latest initiatives provide OEMs with procurement tools that take inventory management to a new level by delivering greater visibility and tighter control of semiconductor orders.