Controlling Capacity Investment Risk at ON Semiconductor

High-tech company deploys risk management solution from Vivecon to bring financial engineering approach to tooling, capacity investment decisions

High-tech company deploys risk management solution from Vivecon to bring financial engineering approach to tooling, capacity investment decisions

Mountain View, CA — January 27, 2005 — A unit of ON Semiconductor has licensed a supply chain risk management solution from Vivecon to mitigate risk for all of its major production capacity investment decisions.

A preferred supplier of integrated components for portable and consumer electronics, the Integrated Power Group (IPG) of ON Semiconductor will use Vivecon's Launch Manager Solution to achieve and maintain an optimal level of wafer capacity.

Vivecon said its solutions will help IPG conserve capital and minimize costs while preserving the flexibility required to meet excess demand throughout 2005 and beyond. Launch Manager will enable ON Semiconductor to quantify the risks associated with new product introductions and position its supply chain to avoid errors due to uncertain demand, the solution provider said.

This will help alleviate the potential of making big bets on capacity and waiting to see if demand matches it. Instead, Vivecon's solution recommends the optimal amount of production capacity for wafer starts to limit ON Semiconductor's initial investment and allows the company to add capacity as needed and at the best cost.

In addition, the Launch Manager's forward-looking monitoring capabilities will alert ON Semiconductor to constraints and provide capacity expansion recommendations to achieve just-in-time capacity adjustments, Vivecon said. The solution structures options for capacity expansion so that in the event of rising demand, ON Semiconductor can execute an option with adequate lead time to meet demand without resulting in backlogs or lost sales, according to the solution provider.

"As a preferred supplier of power management solutions that service the global electronics industry, improving the efficiency of our manufacturing supply chain provides us with a competitive advantage," said Sal Barlett, director of operations at ON Semiconductor's Integrated Power Group. "Vivecon's predictive analytics will enable us to anticipate and manage the risks associated with uncertainties in demand and volatility in the marketplace, and make intelligent tradeoff decisions instead of simply reacting to events."

George Devlin, CEO of Vivecon, noted that semiconductor manufacturers have a long history of making substantial capital investments with little or no clarity on the correctness, flexibility or impact of those decisions, much like driving on the freeway blindfolded. "Vivecon helps these manufacturers go from using rules-of-thumb, heuristics or best guesses to a scientific approach that quantifies risks and costs associated with ranges of demand and supply scenarios to make more intelligent tooling and capacity investment decisions," Devlin said.

According to Devlin, semiconductor companies have made billion-dollar investments in foundries that employ the newest 300-mm technologies. They need to optimize this manufacturing capacity and make intelligent tradeoff analyses.

Vivecon believes supply chain risk management is an emerging best practice in industries with capital-intensive supply chains such as the semiconductor industry. The provider is already working with manufacturers in the automotive industry, where it is addressing similar uncertainty issues, and Vivecon said that its software solutions are enabling automakers to lower their initial tooling investments for new car options and structure more flexible and responsive supply contracts for components and raw materials without increasing liability risk to themselves or their suppliers.

In addition to solutions for the automotive industry, Vivecon offers solutions for consumer packaged goods and high-technology manufacturers.

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