ST- Turning supply chain disruptions into a competitive advantage

Turning Supply Chain Disruptions

into a Competitive Advantage

Alberto Della Chiesa

Group Vice President

Company Supply Chain Management

Who we are

Supply Chain Excellence Award APICS Feb 2015

• A global semiconductor leader

• The largest European semiconductor company

• 2014 revenues of $7.40B

• Approximately 43,600 employees worldwide

• Approximately 8,700 people working in R&D

• 11 manufacturing sites

• Listed on New York Stock Exchange, Euronext Paris

and Borsa Italiana, Milano

Who we are

As of December 31, 2014


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Where you find us

Our MEMS & Sensors

are augmenting

the consumer experience

Our automotive products

are making driving safer,

greener and more

entertaining

Our smart power products

are allowing our mobile products to operate longer

and making more of our energy resources

Our Microcontrollers

are everywhere

making everything smarter

and more secure

Our digital consumer products

are powering the augmented

digital lifestyle


4

Global Presence

Americas

15%

29%

EMEA

26%

37%

Asia

59%

34%

2014 revenue by geography

% by location of order shipment

% by customer origin


5

Semi Supply Chain

and Challenges


Unprecedented Stress Test Recovery from dramatic declines have taken multiple years in the past

5 years

1 year


7

Technology Adoption Rates Acceleration

Source: Charlie Catlett, Argonne Nat'l Laboratory


8

Variability increases moving up the supply chain…

Flexibility

The BULLWHIP Effect

Consumption Customers Retailers Wholesalers Manufacturers Suppliers


9

Supply Chain Dual Mandate

Market Share

RONA improvement

Meet demand (CD=RD)

On time delivery (JIT)

Inventory

turns

Asset

utilization

Profitable Growth Minimize costs while

maximizing the flexibility

needed to grow market share


10

Supply Chain at ST


ST Supply Chain Foundations

• Supply Chain visibility: Global and synchronized daily visibility of demand /

supply enabling proactive planning & early warning

• Extended supply chain optimization in collaborative projects with our

partners

• Flexible manufacturing

• Efficient and fast logistics models

• Network of over 2000 supply chain actors

DIFFUSION - EWS ASSEMBLY – T&F

SUPPLIERS CUSTOMERS END-CUSTOMERS ST SUPPLY CHAIN with SUB-CONTRACTORS

WAREHOUSES


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Manufacturing Model

Flexible and

independent

manufacturing


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Flexible and Independent Manufacturing

Front-End

Back-End

Morocco

France

(Crolles, Rousset, Tours)

Italy

(Agrate, Catania)

Malaysia

Singapore

Philippines

China

(Shenzhen)

Malta


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Work Force,

Technology &

Financial Roadmaps

Key Investments

decisions

Detailed Investment

decisions

Detailed Investment

decisions & Allocation of

existing capacity

Consumption of

Allocated Capacity

Usage of Existing

Capacity

Planning Exercises & Cycles

to Guarantee Consistency

Detailed Material &

Capacity planning

Short term Plan

(up to 1 Year)

Medium & Long term plan

(up to 5 years)

Sales &

Marketing

Forecast

Execution

Critical resources

requirement

Strategic & Financial Guidelines

Rough-cut

capacity planning

Customer

Backlog

Management

Management at

Equipment level

PLANNING

EXERCICES

RESOURCE

MANAGEMENT

5 Years Plan

2 Years Plan

Budget

Sales &

Operation Plan

Order Scheduling

Master Production

Scheduling

Shop Floor Scheduling


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Maintaining a Competitive Supply Chain

Demand

• Demand management

Planning

• Planning process

• Inventory

management

Supply

• Cycle time

• Supply visibility and

predictability

• Supply strategy

Governance and Change management provide the mandatory framework to address Demand, Planning and Supply


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Disruptions into Competitive

Advantage


Volcanic Ash Cloud Over Europe…

The dense volcanic dust caused air traffic to STOP and left hundreds of

thousand stranded in Europe and throughout the world.


18

European Airports Go Quiet

As in Praha, many airports throughout Europe cancelled all flights

impacting worldwide airfreight.

Planes stayed on the ground for more than a week due to the danger of

volcanic ash damaging aircraft engines.


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What happened to ST Business?


2 Main Transportation Routes

Were Directly Affected

Asia to

Europe


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Team Behavior and Effectiveness

• Company Infrastructures & Services Formal announcement to ST Stakeholders & Partners

• Global Logistics & Warehousing War Room briefings

• Conf calls held twice daily at 09:00am & 03:00pm daily

• Global Logistics & Warehousing Daily bulletin

• Bulletins issued twice daily to the ST management stakeholders after each War Room briefing

• Global Logistics & Warehousing Help desk

• Setup helpdesk in Singapore and Geneva to acknowledge and address customer inquiries and requests in addition to the daily bulletins

• Global Logistics & Warehousing Crisis management

• Speed, agility & quick thinking of the logistics team Full control to overcome the many unknown variables. Quickly transformed into solutions & advantages for ST.


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Diversion Processes as a Standard Feature

Leveraging

local skills and

people

empowerment


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Tools and Methodologies to Map Risks

• Global events

1. Flood and water based

events

2. Large natural Fires & smoke

residues

3. Hurricanes, Tornadoes,

Monsoons

4. Volcanic Eruptions, ash fall

out

5. Snow & winter storms

6. Freezing conditions

7. Pandemics

8. Lighting & electrical storms


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Route Diversions

Singapore Barcelona St Genis

Hong Kong Singapore Barcelona St Genis

Singapore Roma St Genis

Singapore Milan St Genis

Singapore Doha St Genis

During the 10 day crisis, the team put in place several route diversions

to protect customer deliveries

France Casablanca Singapore & Hong Kong

Italy Malta Singapore & Hong Kong

Saint-Genis Barcelona Los Angeles

Asia

to

Europe


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Customer Focus as Key Priority

During this period, Global Logistics & Warehousing (GLWO)

diverted 132 tons of freight, while limiting the cost of

diversion to below 1M$

During those 10 days, this effort protected 50M$ of business


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…Turning into a Competitive Advantage

Moreover, ST extended its logistics services for the benefit

of Key Customers and Suppliers who did not have such

capabilities.


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Japan Earthquake and Nuclear Disaster

Northeastern part of Japan suffered

serious devastation and destruction

• The biggest earthquake in history,

magnitude 9.0

• The biggest tsunami hit the long

coastal area across Japan on the

Pacific Ocean

• The Fukushima nuclear plant was

destroyed and affected a large area

of Japan with radiation pollution.

IMPACT


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Japan is a Key Materials Supply Source

Japan represents:

• 60% on the Raw Wafers global supply

• 50% on the Fab Chemicals global supply

• 90% on the BT* Core Substrates global supply

• 70% on the Raw Copper for leadframe global supply

* BT Bismaleimide-Triazine


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Consequences for the Longer Term

• Change in business model: move from ASIC/semicustom to standard

Ics

• Current shortage finally enabling Japanese ICs companies to push standard parts

at domestic OEMs instead of usual semicustom chips

• Seen as an opportunity for Japan IC makers:

• to produce in larger volumes at lower cost

• to lower the number of employees needed to support custom designs

• to enter foreign / emerging markets

• But also an opportunity for non Japanese players to sell standard ICs to Japanese

OEMs

• Change in the OEM supply chain: purchasing components from local

and neighboring countries (Nissan Motor)


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Speed to React

Global Purchasing Office Crisis Involvement

• Immediate intervention in the field (Taiwan/Korea) on Tuesday 15th

March to secure BT Core / Substrates (ST 1st IDM to visit substrate

suppliers after the tragedy)

• Immediate work with Global Purchasing / Corporate Packaging to

identify and set qualification of alternative cores and secure the supply

• Daily conference call with Operations/Groups/Suppliers to monitor

crisis with excellent team work within ST

• Top Management weekly consolidation conference call

• Continuous presence of Global Purchasing and Management in

Taiwan and Korea since 15th March, with intensification on the next 2

critical months of April and May, including visits to Japan.


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Running the Clock

with Daily Systemic Approach (PDCA) • Supplier / Critical subject specific sub-teams (both cross-functional):

monitoring action plan execution and collecting updated information

• Global Purchasing: Synthesizing and dispatching information

• Operations /Global Purchasing: Prioritizing actions

• Running according to “Crisis center scheme” reported above starting Monday

March 14th constantly until more than 8 weeks after the event.

Starting from Raw materials tables and Supply Chain mapping with

Supplier Performance Evaluation (SPE) already in place


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Understand Russian Dolls

Downstream Impact

CIS / CSM APR 2011 ST Confidential

The substrates chain is much complex and longer

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STSubstrate

makers

BT core

materials

copper

foils

glass

cloth

Dry

film

Solder

mask

glass

fiber

power

outage

fillers

Our supplier’s supplier’s supplier’s supply

till Feb 2011= US$23.4 million

The Substrates Chain is Much Complex and Longer


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Visibility as Key Prerequisite

Standard reporting for daily updates Company wide


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Differentiated Approach

• ST has promoted - as much as possible - loyal approach towards

Japanese suppliers as outcome of joint programs and regular

communication by

• increasing confidence and assessment on the recovery plan

• anticipating competition

• One example - Nikko Metals feedback:

“Thank you so much for the good discussion and positive remarks during our last

conference call on Friday, April 29. We are glad that you trust our production

capability again.” (Nikko Metals May 2nd, 2011)


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…But Leveraging Flexible and

Multisource Supply Chain

0

1

2

3

4

5

MOLECULAR/PRODUCT NAME

RAW MATERIAL MANAGEMENTFOR ST

# Sources On qualification # Sources Qualified # ST Sources Qualified

Flexible and

independent

manufacturing

And multiple

material

source


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Wins/Upsides Effect of the Japan Crisis

• We increased our supply to different key markets:

• Automotive +300k/week for different product lines

• HDD +8M/week components

• Printer +100k/week products

• In addition to the important revenue increase, emphasis on

addressing supply chain disruption prevented those market from

sustaining severe cost of missed volumes (Cars, PCs, Printers…)


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Conclusions


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Conclusions

• People: Strategically position key functions for the supply chain and its Executive

Management in the geographical areas to drive decisions.

• Core Competencies: Internal knowledge & Competencies of the Company Supply

Chain & Operations is fundamental. Be in direct control of the key enablers, operational

monitoring (KPI) & decisional controls embedded in the internal structure.

• Infrastructure: Integration of the all Company logistics activities & the optimization of

the transportation network, execution processes & operational enablers.

• Operational Agility & Flexibility: Rely on partnerships and the contribution of

suppliers (risk & benefit sharing) to respond to Customers’ supply chain request for

aggressive trade-off between efficiency and responsiveness--so called flexibility.

• Visibility and Speed: System integration. from planning to supply, from long term to

short term, with daily refresh from material to end products that allow to timely tactical

decision-making and to propagate them around the whole supply chain.


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Thank you!


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