Inventory Optimization in Action

By Bridget McCrea, Contributing Editor -- Supply Chain Management Review, 9/13/2006

Some semiconductor manufacturers have already discovered the value of effective inventory optimization and management. Take ON Semiconductor, for example. Recognizing the opportunity for advanced inventory management, this designer and supplier of power management and power distribution semiconductors implemented an inventory optimization solution in 2004 and is reaping the benefits of its investment.

Using lead-time trends from individual customers to determine how much supply to hold for each of its three processes (wafer fab, die bank and finished goods), ON Semiconductor is gaining market share and growing revenues based on the alignment of on-hand inventory with customer demands.

"We could have one customer that forecasts well and lets us know what products it needs two months in advance, and there is no need to hold inventory for that customer. We could build it from scratch," says Ravi Vancheeswaran, Phoenix-based ON Semiconductor's, Director, Planning in the Global Supply Chain Organization. "On the other hand, we could have a customer who always comes in right before they need- product and place orders within the stated lead time. For this customer, if we don’t have inventory on the shelf, we might lose the business, or the customer may be caught with a delay in support."

With its sights set on gaining control of current inventory and strategically forecasting future demand, ON Semiconductor predicted a 5 percent reduction in total inventory and a 300 percent ROI within six months of going live with the solution. This return was achieved.

"The power in Inventory Optimization is that we can directly focus our inventory positions based on individual customers or individual products," says Vancheeswaran. "It is a true gain in market share because we can consistently satisfy customer request dates."

ON Semiconductor isn't alone in its discovery of inventory optimization as a way to do much more than just fulfill orders. A leading designer and supplier of digital signal processing and analog semiconductors also implemented inventory optimization strategies. With more than 55,000 products and an order volume of 145,000 orders per month, the company launched a strategic initiative in 2002 to increase the emphasis on customers as one of company’s top priorities. Part of that initiative involved inventory optimization, which has resulted in a 25 point improvement in meeting customer-requested delivery dates.

Another high-tech company was interested in improving market share and reducing inventory costs. Thanks to the newfound optimal production postponement and smart inventory strategies, the company has reduced inventory cost by 14 percent while simultaneously improving service levels.