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Slides_for_class_8 - G-Number ISSM 2005 1 Buyer Option...

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Unformatted text preview: G-Number ISSM 2005 1 Buyer Option Portfolio Composition: – # of options, lead time, pricing / risk sharing Utilization: – Over time, across demand outcomes Demand Time 8 5 3 Option exercise 3 month LT 5 month LT 8 month LT G-Number ISSM 2005 2 Buyer Portfolio Optimization Match supply availability and lead time to demand variability Tailor performance to operational and financial objectives High margin OEM Test house G-Number ISSM 2005 3 Supplier Execution Operating Decisions Defined Option Portfolio Characteristic Composition Number and lead time of options Capacity Long lead time materials Utilization Buyer exercise decisions Production Remaining materials Buyer perspective: Control supply chain decisions that define tool cost, lead time and availability G-Number ISSM 2005 4 Supplier Option Pricing Holding cost – Financing cost of capacity and inventory Obsolescence cost – Risk that capacity and inventory never used Holding cost Obsolescence cost Stage in tool lifecycle X XXX Var. of individual customer demand X XX # of customers and relative size X X Correlation of customer demands X X Sample tool procurement option structure 5 Performance impact: Inventory and shortages With options Without options With options Without options 6 Relevant reading- Intel’s description of its use of tool procurement options: Vaidyanathan, V., D. Metcalf, and D. Martin, “Using Capacity Options to Better Enable Our Factory Ramps,” Intel Technology Journal , Vol. 9, Issue 3, pp. 185-191. – Professor Johnson’s description of optimal utilization and business impact of tool procurement options on buyers and suppliers: Johnson, B., “ Optimizing Tool Availability and Lead Time with Procurement Options ”, Proceedings of the Thirteenth Annual International Symposium on Semiconductor Manufacturing , San Jose, California, September 2005. Copyright, Blake Johnson Contract options: Summary Major costs: – To purchase (up-front cost) – To exercise (place “firm” order, or make a purchase commitment) Lead time: – Between purchase of option and time when it can be exercised (“preparation period, or time required to complete “lead time buy-down”) – Between exercise of option and product delivery (how distant is the target buyer must shoot at?) Exercise window: – Time window during which option can be exercised “Adjustment” costs: – To “buy down” the exercise lead time – To extend, or keep open, the exercise window – To “buy out” of a firm order or purchase commitment Other terms: – Per period vs. cumulative constraints on exercise (“swing”) – “Sell-through” rights Interdependencies between options – “Price” and “quantity” terms (e.g. fixed vs. flex quantity, fixed vs. index price)“Price” and “quantity” terms (e....
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This note was uploaded on 06/16/2010 for the course MS&E 369 taught by Professor Blakejohnson during the Spring '08 term at Stanford.

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Slides_for_class_8 - G-Number ISSM 2005 1 Buyer Option...

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