The definition of second-sourcing gets turned on its head.
Prior to the horrible tragedy that recently occurred in Japan, the definition of second sourcing was well understood. At least we all thought that was the case. Several companies had second-sourcing strategies they were very proud of for risk management and negotiating power. If we take the example of building an ASIC, the second sourcing may mean having more than one OSAT (outsourced assembly and test) for a particular device. While it is much more difficult, a second source for a wafer fab may be possible but may be generally impractical in the ASIC space. Many of these fancy strategies turned out to be pretty useless.
That second sourcing general concept did not mitigate any risk at all when the earthquake, tsunami, nuclear meltdown, loss of life, destruction of infrastructure and power outages hit eastern Japan. We all watched in horror as the people in that region suffered. I was particularly glued to the news channels while one problem after another affected the area near Sendai and Fukushima. While none of my friends and colleagues in Japan nor their families were impacted by anything other than power outages, it was tough not to feel connected with the suffering.
None of our direct supply partners were affected. In fact, none of their suppliers were significantly affected either. The problem occurred several links down in the supply chain. Unfortunately, even though we were greatly diversified in supply partnerships based throughout the world, once you go a few links deeper in the various supply chains, we realized that many of these companies shared the same links. It was the common links that were directly affected by the disaster. Materials such as the glass fiber used in BGA laminates; the fillers used in soldermask and underfill materials; and the big whammy — the main source in the world for BT (bizmalemide triazine) raw material was shut down. Mitsubishi Gas Chemical (MGC) held about a 70-percent market share and Hitachi held an additional 20 percent. When the crisis occurred both of the plants were closed. Hitachi returned to operation after a couple of weeks but was subject to rolling blackouts like every other company in the area. MGC stayed shutdown a while longer with only a small percentage of production starting a few weeks after the disaster. The industry collectively held its breath and readied itself for a gut-shot.
It took a few days before we were able to get details on what factories were affected as it is generally difficult to jump more than a few links in the supply chain to get precise information. Luckily our strong strategic partnerships helped with getting the necessary info, and we formed what we called a “tiger team” to understand our exposure and deploy a disaster recovery plan with our supply partners and customers. A dozen members of our eSilicon team had a new half-time job ensuring continuity of supply for our production customers as well as those entering proto-validation phase. This often required the need to change material sets before all of the reliability could be collected. Luckily, there was usually existing data on similar parts that could be leveraged to gain confidence. Those already second-sourced projects were just as affected as the sole-sourced products since the various supply partners shared common supply chain links. So much for good disaster recovery planning prior to the disaster!
Given that we were not the only ones finding alternate sources, the suppliers of the alternate materials became overloaded with new requests. This was an incredible opportunity for tier-two suppliers to gain market share. In order to ensure the supply, we had to occasionally prepare documentation and tooling for triple sourcing, given the fluidity of the loading at these alternate suppliers. Details changed on a near-daily basis. Luckily, a characteristic of our VCP (value chain producer) model requires relationships with a broad range of suppliers. This helped us navigate the crisis in a way that other companies, large or small, would have had a much more difficult time with.
Our customers were kept informed and given recommendations and options. This seemed to keep everyone focused on the end-goal of overcoming the supply problem. So far, we have been able to execute to forecasts with some products requiring material changes. At this point, the worst of the impact will just be an occasional delivery delay of a couple of weeks, which is far better than the customer base expected when the news of the supply problems began to emerge. We are not through the supply crisis, but we appear to be over the hump.
While we can manage the supply side very well, we have little control over the demand side. In other words, if the world’s supply of mobile phone microphones is wiped out as an example, no one will ship cell phones. This means that even though a company may fully meet their production commitments, they are still potentially victim to the delivery performance of other companies, if they have a common customer. It is clear, we are all in this together.
Once the dust completely settles, the industry will need to focus on what we learned from this crisis. Our highly globalized industry can easily be impacted yet again if industry clusters like the ones in Taiwan, Korea, Singapore, Japan and the US have a major catastrophe. We, as an industry, need to define second sourcing through many more links in the supply chain than we have in the past.
The definition of second-sourcing gets turned on its head.
Prior to the horrible tragedy that recently occurred in Japan, the definition of second sourcing was well understood. At least we all thought that was the case. Several companies had second-sourcing strategies they were very proud of for risk management and negotiating power. If we take the example of building an ASIC, the second sourcing may mean having more than one OSAT (outsourced assembly and test) for a particular device. While it is much more difficult, a second source for a wafer fab may be possible but may be generally impractical in the ASIC space. Many of these fancy strategies turned out to be pretty useless.
That second sourcing general concept did not mitigate any risk at all when the earthquake, tsunami, nuclear meltdown, loss of life, destruction of infrastructure and power outages hit eastern Japan. We all watched in horror as the people in that region suffered. I was particularly glued to the news channels while one problem after another affected the area near Sendai and Fukushima. While none of my friends and colleagues in Japan nor their families were impacted by anything other than power outages, it was tough not to feel connected with the suffering.
None of our direct supply partners were affected. In fact, none of their suppliers were significantly affected either. The problem occurred several links down in the supply chain. Unfortunately, even though we were greatly diversified in supply partnerships based throughout the world, once you go a few links deeper in the various supply chains, we realized that many of these companies shared the same links. It was the common links that were directly affected by the disaster. Materials such as the glass fiber used in BGA laminates; the fillers used in soldermask and underfill materials; and the big whammy — the main source in the world for BT (bizmalemide triazine) raw material was shut down. Mitsubishi Gas Chemical (MGC) held about a 70-percent market share and Hitachi held an additional 20 percent. When the crisis occurred both of the plants were closed. Hitachi returned to operation after a couple of weeks but was subject to rolling blackouts like every other company in the area. MGC stayed shutdown a while longer with only a small percentage of production starting a few weeks after the disaster. The industry collectively held its breath and readied itself for a gut-shot.
It took a few days before we were able to get details on what factories were affected as it is generally difficult to jump more than a few links in the supply chain to get precise information. Luckily our strong strategic partnerships helped with getting the necessary info, and we formed what we called a “tiger team” to understand our exposure and deploy a disaster recovery plan with our supply partners and customers. A dozen members of our eSilicon team had a new half-time job ensuring continuity of supply for our production customers as well as those entering proto-validation phase. This often required the need to change material sets before all of the reliability could be collected. Luckily, there was usually existing data on similar parts that could be leveraged to gain confidence. Those already second-sourced projects were just as affected as the sole-sourced products since the various supply partners shared common supply chain links. So much for good disaster recovery planning prior to the disaster!
Given that we were not the only ones finding alternate sources, the suppliers of the alternate materials became overloaded with new requests. This was an incredible opportunity for tier-two suppliers to gain market share. In order to ensure the supply, we had to occasionally prepare documentation and tooling for triple sourcing, given the fluidity of the loading at these alternate suppliers. Details changed on a near-daily basis. Luckily, a characteristic of our VCP (value chain producer) model requires relationships with a broad range of suppliers. This helped us navigate the crisis in a way that other companies, large or small, would have had a much more difficult time with.
Our customers were kept informed and given recommendations and options. This seemed to keep everyone focused on the end-goal of overcoming the supply problem. So far, we have been able to execute to forecasts with some products requiring material changes. At this point, the worst of the impact will just be an occasional delivery delay of a couple of weeks, which is far better than the customer base expected when the news of the supply problems began to emerge. We are not through the supply crisis, but we appear to be over the hump.
While we can manage the supply side very well, we have little control over the demand side. In other words, if the world’s supply of mobile phone microphones is wiped out as an example, no one will ship cell phones. This means that even though a company may fully meet their production commitments, they are still potentially victim to the delivery performance of other companies, if they have a common customer. It is clear, we are all in this together.
Once the dust completely settles, the industry will need to focus on what we learned from this crisis. Our highly globalized industry can easily be impacted yet again if industry clusters like the ones in Taiwan, Korea, Singapore, Japan and the US have a major catastrophe. We, as an industry, need to define second sourcing through many more links in the supply chain than we have in the past.