Over the last few years, we have all felt the effect of semiconductor shortages. From phones to cars and high-tech electronics, these little chips have a big impact on our lives, so when semiconductor demand started to outpace supply, the “chip shortage” moved to the forefront of the conversation.
I recently had the chance to sit down with Arpad Hevizi, VP Digital Value Creation and S&OP Transformation Project Sponsor at Qualcomm, Michael Ciatto, SVP Supply Chain Service Line at Genpact, and Chris Stevens, VP of Supply Chain Service Line at Genpact, to discuss how concurrent S&OP processes helped Qualcomm thrive through the semiconductor shortage.
Here are some key takeaways from our conversation.
Recent semiconductor industry change and growth
The semiconductor industry is rapidly changing. According to McKinsey & Company, it is poised to become a trillion-dollar industry by 2030. With growth comes volatility and fluctuations in demand and supply.
Companies trying to reach the perfect balance between supply and demand must deal with the cyclical nature of the industry, where any balanced state of supply and demand is transitory. And then there’s the bullwhip effect. By the time you recognize changes in demand, it’s too late to react because lead times are so long.
While there’s no crystal ball to predict unseen changes to demand, it’s best to use a mix of historical demand patterns and real-time demand sensing to get ahead of volatility, identify weak spots in the supply chain, understand where to focus efforts, make decisions as seamlessly as possible and pivot from one set of market conditions to the next.
Being in a continuous growth industry, Qualcomm, a leader in wireless innovation with one of the largest semiconductor engineering patent portfolios, has experienced significant swings in demand over the past few years. It became critical to identify and sense changes in demand patterns and supply capabilities, while also coordinating multiple functions within the company, including sales, business unit planning, supply chain, long-term planning, the tactical execution team and finance.
To connect these disparate functions, it was essential to have an aligned process paired with an enabling platform that would deliver a single version of truth to everyone involved so they could make better trade-off decisions.
The semiconductor industry isn’t the only industry that experiences disruptions and change. Geopolitical concerns and ESG (environmental, social and governance) initiatives are driving the need for companies across all industries to have the agility to pivot and respond quickly to what’s happening so they can embrace volatility, build resiliency and seize any opportunities that come their way.
Qualcomm’s approach: Concurrent S&OP processes
Qualcomm was able to leverage concurrent S&OP processes to address the chip shortage. Focusing on instantly and continuously balancing the end-to-end network by collapsing silos, harmonizing data and shortening planning cycles translated into organizational alignment centered on concurrent planning.
This meant having an organization that continuously looked at the incoming signals, interpreted them, identified risks and made the best decisions. In turn, Qualcomm was able to make supply chain decisions that were in the best interest of its customers while at the same time supporting the company’s innovation goals.
The importance of sound process
Process and technology alignment is important in any supply chain transformation project. It can be the difference between success and failure.
Qualcomm had to strike a balance between running the business and transforming the business, so its processes were iterative and backed by the executive team. It was important to create value for each business function at each step in the process. This gave the teams incentive to collaborate as they moved from legacy planning methods to a concurrent S&OP process.
At the heart of this shift was data. Consistently measuring data integrity across the entire process and making it visible for all functions allowed Qualcomm to understand the planning process, analytics and decision-making.
Three important considerations should go into defining a target operating model as part of a supply chain transformation:
- Don’t design S&OP without S&OE. Certain areas – like allocation and wafer allotment, in Qualcomm’s case – require analytical support that can’t be managed using legacy planning tools like Excel.
- Create a consolidated business planning team of analytical and business-savvy individuals and empower them to make cross-functional enterprise decisions based on data.
- Resist building an operating model designed to current market conditions.
What’s next for supply chain?
The supply chain is getting more attention and focus than ever before. It is now a boardroom-level topic that is getting C-suite attention with a focus on revenue and controlling cost. As companies shift from a pure traditional operational cost focus to a cost-to-serve focus, they are balancing the responsiveness, resilience and cost associated with supporting the service-level objectives for various markets.
This is where agility and resiliency play a key role in helping to proactively manage costs. An agile supply chain supports revenue that might not have otherwise been captured and allows companies to pivot and capture revenue that might have otherwise been lost. Resiliency protects revenue that might have otherwise been lost to disruption because companies can more effectively manage inventory, which is one of the biggest costs in the supply chain. And when it comes to growing revenue, a responsive supply chain delivers a better customer experience, in turn creating more revenue-generating opportunities.
While the business grows with a concurrent supply chain, people do too. In many ways, this new focus on the supply chain presents an opportunity for supply chain professionals to shine. For so long, they have been the heroes behind the scenes. Now, with the technique of concurrent planning, they can seize opportunities to grow the business and gain a competitive advantage, making them an invaluable resource.
Hear more of our conversation by watching the on-demand webinar:
- Inventory optimization frequently asked questions