CEO of AIoT chip company XMOS, Mark Lippett is a technology leader with 25 years’ experience in startup, scale-up and blue-chip companies.
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My oldest friend is in the construction business. Not long ago, he shared a recent experience regarding builders’ merchants.
He needed some lengths of 2-by-4 timber—an absolute staple for any building project. The merchant shrugged and pointed at a pile of 2-by-6 timber. “That’s what we have,” he said. “You’ll have to cut it.”
In recent years, supply challenges have affected almost every aspect of our lives, from limited raw materials to insufficient capacity in manufacturing. Our inability to purchase products has raised some unlikely essentials to the mainstream consciousness, driven by our inability to renew our car or buy our son or daughter a game console. Never before have semiconductors been dinner party conversation!
Of course, the use of semiconductors extends much further than mobility and entertainment. Semiconductors are the foundations of our economy and, in these years of weaponized economics, our national security.
Demanding Supply
In his excellent article, Mark Pesce wrote: “The best time to plant a tree, it’s said, is 20 years ago. The best time to build a next-generation semiconductor foundry is 5 years ago.”
Semiconductor manufacturing is extremely complex and relies on deep technology throughout. Those time scales offer little comfort to our friends in the construction industry and should offer little comfort to those of us that rely on semiconductors … but wait, that’s all of us.
Semiconductor fabrication plants might take five years to build if the skills are available, but that time scale could be grossly optimistic if that expertise is not readily accessible—for example, if we are trying to on-shore the capability after decades of over-reliance on a politically and geologically sensitive region, as we have with Taiwan and South Korea.
Are we really going to build local fabs to cope with regional demand? While this might appear to make sense from a national security perspective, these factories are extremely expensive to build and run, and the semiconductor industry is notoriously cyclical—prone to gross overshoots in demand that result from an open-loop supply chain. The most sensible and economical compromise may be to secure baselined supply and rely on other measures to manage the peaks.
In his article for Deloitte, Duncan Stewart suggests a rethink of our attitude to inventory. While a length of 2-by-6 can be cut down to 2-by-4 in minutes, semiconductors chips take four to six months to build—they have never been “just-in-time.” It is inventory held somewhere after the fab that gives the illusion of instantaneous availability, which has become an expectation in an increasingly impatient world.
Recently, the term “strategic inventory” has been frequently cited, mostly in relation to a grab for scarce products based on available supply rather than demand. But can inventory really be strategic?
True Strategic Inventory
Inventory is frequently regarded as a dirty word, borne of a natural tendency to want to hold a company’s assets in their most liquid form, like cash. However, if we accept that we need to ensure the stable supply of semiconductors for economical and national security reasons, we must accept that inventory is not intrinsically a bad thing.
The desirability of cash lies within its flexibility and immediacy for any number of strategic options. We can use it for acquisitions, talent, capital equipment and many other things. If it’s all about flexibility, can we build flexible inventory? That inventory would surely then be strategic.
Flexible semiconductor platforms, whose function is determined only when they are deployed in the end system, offer a compelling interpretation of strategic inventory. Original design manufacturers (ODMs) and original equipment manufacturers (OEMs) that focus their design teams on the integration of such products are enabling strategic manufacturing options in a supply-constrained market. This has the potential to lead to increased buyer power and after-market value creation opportunities.
For many companies, this is a shift of the system design dynamic toward careful consideration of continuity of supply—an occasionally new and certainly empowered influence on component selection. The challenge for the developers of these flexible platforms is to ensure that they are not just a good choice for procurement, but also the right choice for designers.
I have written previously about the ability of flexible software-programmable silicon platforms to empower a new wave of creativity. Such a wave is meaningless without the ability to supply those products. Fortunately, that same flexibility offers the opportunity to optimize the manufacturing and inventory management of the platforms themselves.
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