Supply chain management: Case analysis of NSEM (National Semiconductor Sdn Bhd)

By | April 16, 2014

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1. Brief introduction

As National Semiconductor Corporation’s largest manufacturing facility in the Asian area that started from 1972, NSEM (National Semiconductor Sdn Bhd) is located in the Batu Berendam free trade zone, Melaka, Malaysia, two hours’ drive from Kuala Lumpur (Unknown 2010). The 100,000 square feet manufacturing site consists of four functional areas: manufacturing area, clean-room area, assembly facility and testing facility (Unknown 2010). The test and assembly of ICs that NSEM is focusing on could also be found in Singapore. With Melaka’s strategic positioning in term of offering convenient and efficient logistic service, the logistic system of NSEM plays a critically important role in helping the company gain competitive advantage in a fast changing business environment.

2. NSEM’s upstream supply chain and next tier downstream

Supply chain management is the integration of business processes from the end user through original suppliers that provides products, services and information that add values for customers (Lau & Lee 2000).

2.1 Upstream supply chain of NSEM

As NSEM’s core business is the assembling and test of the ICs that are produced by National Semiconductor’s global manufacturing plants that located in Main, Texas and Scotland (Dusharme 2006). These manufacturing plants are considered to be NSEM’s upstream in the supply chain. As one of the three assembling and test centers corresponding to several manufacturing plants which locate in different positions, the coordination of the suppliers within upstream supply chain become extra important especially the information flow.

2.2 Tier downstream of NSEM

The single worldwide distribution centre of National Semiconductor is in Singapore using FedEx as the third party logistics service provider (Fang 2000, p46). With the advantage of being locating near the Kuala Lumpur International Airport (KLIA) and fast and convenient road transport, and taking into the consideration of the short distance between Singapore and Melaka, the good flow in logistics is of great advantage. Even though the final products would be sent all over the world to various distributors, suppliers and industries, speaking from NSEM alone, it does not need to worry about the downstream in the supply chain too much.

3. Challenges to NSEM

3.1 Range of challenges that could apply to NSEM

Problems in supply chain partner modularity: this problem refers to the extent to which the individual companies and partners have difficulties in participating in the creation of an agile supply chain (Water 2007, p60). As mentioned above, NSEM’s upstream partners are also from the companies inside the National Semiconductor, the modularity should not generate too many difficulties as the information is shared among them. But think about the downstream partner, i.e. the warehouse which is under the management of United Parcel Service (UPS) and Federal Express (Fedex). With a third party and a fourth party joining the logistics process, it may lead to some kind of misunderstanding caused by lack of information sharing between the no. 1 and no. 2 logistic giant.

High cost: compared to the traditional way of traffic such as shipping and high way, the air way will incur more cost to the company even though it is fast and speed for the company is critical as the demand of the end user is also change in a high and fast frequency. It is necessary, but high cost will reduce the competiveness of the company which is a challenge still unfixed.

Increased environmental concerns: as mentioned above in order to pursuit a fast speed in the logistics, products are shipped to international locations via bonded trucks from its facilities at the Batu Berendam Free Trade Zone in Melaka to the Kuala Lumpur International Airport from which the product will reach the Singapore warehouse. The large energy consumption caused by frequent flight, possible water pollution, greenhouse emission, waste disposal and other environmental issues may possibly attract criticism and social pressure because for sure that environmental protection will become more and more accepted value among people.

Ever shorter lead time: as the ICs which the NSEM is deal with could usually be used in a variety of devices such as mobile phones, automobiles and other audio and video equipments (Unknown 2009), the need for such product is changing fast and so is the need for the ICs. So with the ever shorter lead time, the company needs to be more flexible and responsive.

Management risks: Usually the longer the supplies chain the greater time that is needed for the management to control the supply chain to general a good result. And for NSEM which is part of the supply chain, integrating suppliers and companies that involved in the management of the warehouse where the products are moving to is important and could be costly in term of management.

Supply chain integrity: Even consider just the part of the supply chain that will involve NSEM, there are also different legal entities that will directly have cooperation relationship with the company. And some of them are inside the group, but there is no guarantee that these companies would not have conflicting interests due to fierce competition in the market and not to mention the partners outside the group. This problem comes together with the strategy of outsourcing because a partnership relationship involved traditionally has been arm’s-length with each party concerned only for its own welfare (Maltz 1994).

3.2 Logistical challenge that NSEM addresses in practice

One challenge that NSEM addressed in practice is the issue about the high cost accompanying the speedy logistics. As mentioned above, the major source of cost of the logistics for NSEM is from the air freight. And NSEM addressed this by building up strategic relationships with the airliners to reduce the total cost that spent on the air. Such kind of strategic partner relationship is helpful to build up stable and efficient supply chain.

3.3 Comparisons of the two lists

There are a lot of different problems and challenges that faced by NSEM and just one of these issues is considered to have been solved well by the company. By comparing these two lists, we can easily make such a conclusion that for NSEM’s functional logistics system, there are many other problems that the company need to address even though some of them are not getting noticed nowadays but surely they are need to be resolved in the future such as the environmental issues.

4. Solutions for NSEM to overcome the challenges

As there are many possible challenges that could be applied to NSEM, here some solutions will be stated below to fix one of these challenges.

For the problem of increasing environmental concern, considering the need to protect the environment and satisfy the distributors’ and the customers’ need to get the products in an efficient way, the company could not decide whether to focus on the environment protection at the cost of quality logistic service. The assumptions are that slow shipment will cost less energy consumption. Under this precondition a balance solution could be reached by the both sides, and it is applicable to the whole supply chain as well. The solution is like this: National Semiconductor can provide options to the customers and distributors who are the ones to press for speedy delivery which causes major environment problems, the options include slow delivery and fast delivery. And the company could also make some explanations to them about the environment issues together with the fast delivery and suggest that they use the slower but still efficient way of delivery. If the customers still insist on a fast delivery, then the company accepts it anyway. But in this way the company and the customers achieve a balance way of dealing with the environmental issues of logistics.

5. Possible alternative procedures and viability of the alternatives

A possible alternative way of handling the logistic part of NSEM is outsourcing. Outsourcing offers the opportunity for organizations to use the best logistics providers available to meet their needs (Benard, Londe, Martha, Cooper & Thomas 1988). This could be achieved by using a third party to manage logistics of the company in Melaka. And this partner could be United Parcel Service (UPS) which is already managing the National Semiconductor’s logistics part in Singapore. The potential hire of UPS as a third party logistics partner is viable for the following reasons:

Firstly, modularity problem could be too some extend solved. On one hand outsourcing the logistics is handing out the part of the business to the third party, and on the other hand it could also be understood as that UPS manage a larger part of the supply chain. To UPS it is more like a process of integration; in that case UPS would be more flexible and empowered to manage the good flow and information flow with more participating in the creation of an agile supply chain. In this way, the logistics gradually become wholly under controlled and management by the third party and the modularity caused problems could to some extent be solved because there is no exact boundary between the partners.

Secondly, cost could be lowered through outsourcing the logistics. National Semiconductor had a very good experience in the outsourcing of this kind in Singapore. In the early 1990s the warehouse project of National Semiconductor was constructed by Federal Express in Singapore. But since Federal Express did not pay attention to the cost of the logistics but instead they fully focused in the speedy deliver in term of shipping everything in the most expensive way even a shipment did not require that fast speed. Then in 1999, National Semiconductor’s director of worldwide logistics, Kelvin Phillips eventually could not bear with this inflexibility and he handed the job from FedEx’s hand to it competitor UPS who reconstructed the operation process in two years’ time. And the result was good which was that National Semiconductor’s logistics cost managed to be reduced by 15% in term of inventory cost and shipment cost (Ndustries 2001). With this good experience, NSEM could expect that the continual cooperation with UPS in the logistics will help reduced the cost with their professional and flexible management system. And what is more, as the company outsources the logistics party of the business, then the relative management cost could also be saved.

6. Conclusion
Through the analysis above by theoretical and practical analysis done to the logistics process of NSEM, a subsidiary of National Semiconductor, together with the review of National Semiconductor’s successful experience in Singapore, we can see that even though the logistics of NSEM so far seems to be working quite well but there are also a lot of problems waiting to be fixed. And with the consideration in term of modularity and integrity I suggest that a use of third party in the logistics of NSEM could help further developed and improve the logistics system of NSEM.

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