Eindhoven University of Technology MASTER Supply risk analysis the design of a supply risk analysis tool for the purchasing organization of NXP van Erp, W.W.

MASTER

Supply risk analysis

the design of a supply risk analysis tool for the purchasing organization of NXP

van Erp, W.W.

Award date:

2007

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Supply Risk Analysis

The design of a supply risk analysis tool for the purchasing

organization of NXP

Appendix

W.W. van Erp Master thesis

The design of a supply risk analysis tool for the purchasing organization of NXP

Author:

Telephone number:

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Supervisor NXP: 1^st supervisor TUE:

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APPENDICES

Ing. ^W.W. van Erp

0243532105 I 0641035507

w.w.v.erp@student.tue.nl / wes.van.erp@nxp.com Eindhoven University of Technology

Technology Management

Organization Science and Marketing NXP

Ors. Ing. J. Janssen Prof. Dr. A.J. van W eele Dr. J.A. Keizer

May 2007 Final report

Table of contents

APPENDIX A: COMMODITY STRATEGY DEVELOPMENT LEVELS ... 2

APPENDIX B: ORGANIZATION CHARTS ... 3

APPENDIX C: EXAMPLE AHP CALCULATION ... 5

APPENDIX D: HEURISTIC ALGORITHM ... 8

APPENDIX E: LIST OF INTERVIEWEES ... 10

APPENDIX F: INTERVIEW PROTOCOL ... 11

APPENDIX G: INTERVIEW RESULTS ... 24

APPENDIX H: SUPPLIER RATING SYSTEM - EQUIPMENT ... 26

APPENDIX I: SUPPLIER RATING SYSTEM - MATERIAL ... 29

APPENDIX J: SUPPLIER MATCH-MISMATCH ANALYSIS ... 33

APPENDIX K: IMPLEMENTATION PLANNING ... 34

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Appendix A: Commodity Strategy Development levels

0. No Commodity Strategy Development process visible/ in place.

1. Some evidence of Commodity Strategy Development within the purchasing department.

No documented strategy. No communication towards key stakeholders.

2. Multi-functional Teams in place to develop Commodity Strategies. People in place to set the charter for those teams, to co-ordinate decisions across different teams, to consciously evaluate the appropriate level & place in the organization (cross-functional, cross-site, crossbusiness), and to decide on appropriate participants. Evidence of minutes of meetings. Commodity Strategy Development is based on the identification of internal purchase item requirements. Focus on (short-term) costs and volume leveraging.

3. As per 2, but Commodity Strategy Development is also based on thorough

understanding of supplier market structure & trends (documented), including current and potential suppliers' business situation, capabilities and performance.

4. As per 3, and based on the identification of external (customer) requirements. Focus on long term requirements and capabilities.

5. Formal, structured and documented Commodity Strategy Development Process in place, based on total internal & external requirements identification (as per 2, 3 & 4) including a formal evaluation process for prioritizing on quality, cost, delivery, technology, service, sustainability (environmental, health and social issues) requirements. Detailed action plan available showing tasks, accountabilities, timing and critical path actions. Little evidence of communication with key stakeholders and breakthrough goal setting.

6. As per 5, but based on alignment of internal (customer) and external (supplier) future technology roadmaps.

7. As per 6, but including SMART (specific, measurable, time-driven) breakthrough goals, aligned with the business and purchasing objectives. Structured follow-up and review of targets with corrective action planning. Evidence of achieved and improving results.

8. As per 7, and with regular communication of the commodity strategies towards key stakeholders (internally and externally).

9. As per 8, and Commodity Strategy Development Process includes benchmarking (to determine World Class levels) and internal & external (across industry, incl. competition) gap analysis.

10. As per 9, and involvement of suppliers in Commodity Strategy Development Process for strategy definition, goal setting and risk/award assessment. Formal Supplier Market Risk Assessment (SMRA) is an integral part of the Commodity Strategy Development Process.

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Appendix B: Organization Charts

Purchas,iing

I

Supply Mana,gement Philips Semiconductors

PROGRAM MAN_AGEMENl

S,13ooe1·Wl/Je111.;1

SUPPl Y SASE MA;,jA.GEMEi:NIT

!&.IT

s .. ,ryD.'~n

SUPPLY e,r.,se 1.tAN'AG!;;:M.eNT IC WA.i'"l::R OIJTSOURCNG

Enk G'oem

'3Et-e W. PU CH.A.SING ProJ>:ci M~r Rob H~m

Figure 1: Organization chart CPO

Chief Purchasing Officer

0!!1'.!k W.a.'/aoit

,,,.

... ...

^_ ... ^,, ... ...

i - - - - ~'

!

^MD

i

! fr1tchltei~ Die:flfefl i

: ,d • "" '••••••• ,., .. -u , , ""'H"". •.•• .'"'° •, •• .• •. -,,o,u ••.• .••••u•••• ••• ••. o,u":

SUPPLY t,1ANAGD.1EelllT nQ

I ~ - - --;

i,,,,,,,,_,,,,,,,,,,,_,,,_,,,,,_,,,,,,,,,,,,,,,,,,,..,,,.,,..,,,,,,..,,.,u,,,,,,,,,,,,:

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Wes van Erp

I

Stephaiie Tan ^ASSISTMH

^I

I

••••••••

SUPP¥ Bffie Mgnt Outsowcing

Marl( Ting

SUPP¥ Bffie Mgnt Materias FE ^>--

1--

Liang Sli I

Supp¥ Bffie Mgnt Supp¥ Bffie Mgnt - Subcmtracting MO EE _~ Equipment FE ^>--

Grace LC. Lee JanJaissen

IC Wafer

- Outsouicing -

Erik Goltz

Figure 2: Organization chart IMO

Master Thesis, Appendices

PURCHASING IMO and MMS

Angelique van der Burg

Supp¥ Bffie Mgnt

Operational Excellerce

Materias IMO BE - Front

K.K. Tzw HaydeEscay EndJV's

• .. _. ... ...

: Loomin SUPP¥ Bffie Mgnt

Materias IS&O

Crolles 2 i.9-u.8..~.o.U.ill°.U.X..J Simon Wong

!..Cheon SSMC g Wei Chyang. \ SUPP¥ Bffie Mgnt

Equipment BE _ASMC

Dion Boerri]ter Ji an Wei Hu

... ... ,

; i Jilin

L ..

+

_· ^{Su Yingjie ,}

... ·

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Front End S ttes

· .. ^_ ... ·

Nijmegen !

····1 Joep Eijselendoorn \

\. ... ·

,···,

l

^Hamburg

l

·· ·: Joep Baggerman !

: ...... :

l

^Boblingen

!

····\ Joep Bagge rm an .. ...!

.-··-··-·-·-·--~

Caen Eric Barbe

· ... ·

···1 Fishkil

···) Rich Sasso ,

· ... :

i

~ - - - · · ··· ^{JulieHazelgrove Bemdt}

Back End Sttes

.., ... .

r-···· · · · - - - ,

j PST· Bangkok ;

··1Piyanani .lntarapravich

!

r···;

i PSK • Kaoshiung i

1 ... /C.Jen···!

i ;

1PSCCHK- Hong Kong!

····! Brenda MLLee j

1 ••••••••••••••••••••••••••••••••••••••• '

r···,

I

^PSG · Guangdong

!

···1 ... 'rene.KY.Wong····j

r·- - - ~

; PSS· Seremban

.i MJZ lk .

1 ... ~ ... a.r:i.a.1n. ... )

!

PSC • Philippines l

· ·j !.. ...•...•... · Loloy Banez

!

r·· ... .

! PSPI • Philippines i

···t. ...

^{Loloy Banez-a.i ...} i

Appendix C: Example AHP calculation

In order to compare specific elements that share a common parent it is important to specify the difference in importance (weights) between these elements. This weight will determine the impact of the element. Filling in a square matrix in which the set of elements is compared with itself can do this. Figure 3 shows the possible entries in these matrices and their definitions.

- - -

³ C Moderate impact Experience and judgment slightly favor one activity over another

5 Strong impact Experience and judgment strongly favor one activity over another

7 Very strong or demonstrated An activity is favored very strongly over another;

impact its dominance demonstrated in practice

9 Extreme impact The evidence favoring one activity over another is of the highest possible order of affirmation 2,4,6,8 For compromise between the Sometimes one needs to interpolate a

above values compromise judgment numerically because there is no good word to describe it

Figure 3: Definitions of intensity of impact

Each judgment represents the dominance of impact of an element in the column on the left over an element in the row on top. In this model it is the idea to evaluate all risk factors.

The first step is to evaluate the importance between the level-one classes. Different from Figure 3, here the relative importance of each class is calculated. Not the impact is compared here, but the importance. Therefore, one should read "importance" were "impact" is written in this figure.

The matrices can be entered as follows:

Fl: Supplier controllable risks

F2: Supplier partially controllable risks F3: Supplier uncontrollable risks

Fl F2 F3 Calculated

importance

Fl ¹ 3 ⁵ 0.63

F2 1/3 l 3 0.26

F3 ^1/5 1/3 ¹ 0.11

Figure 4: Matrix for class importance calculation

relative

The relative importance of each class can be by calculated by taking the average of each class's part:

(i

^{+ !/~+}

1/5)

⁺

(3 + I ~ 1/3) + ( 5 ⁺ ! ^{+ 1 )}

⁼

_{0_63}

3

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•

All numbers in this example are only for indication purposes only. The data is made-up for this example and therefore no conclusions should be drawn based on these numbers.

Now the relative importance of each class is known, the relative impact of each risk factor within each risk class needs to be calculated. In order to calculate this, first the responsible commodity purchasing managers should fill in the matrices that can be seen in Figure 5, Figure 6 and Figure 7.

F 1, l: Quality of the supplier's products F l,2: Cost of the supplier's products F 1,3: Delivery performance of the supplier F 1,4: Production capacity of the supplier F 1,5: Flexibility of the supplier

F 1,6: Financial health of the supplier

F 1,1 F 1,2 F 1,3 F 1,4 F 1,5 F 1,6 Calculated relative im act

F 1,1 1 3 3 5 3 4 0.36

F 1,2 1/3 1 1/3 1/3 3 3 0.11

F 1,3 1/3 3 I 3 5 3 0.23

F 1,4 1/5 3 l/3 1 5 5 0.18

F 1,5 ^{1/3 1/3 1/5 1/5 1 2 0.07}

F 1,6 ^1/4 1/3 1/3 1/5 1/2 1 0.05

Figure S: Matrix for relative impact of supplier controllable risks F 2, 1: Accidents at the supplier's location

F 2,2: Supplier market strength F 2,3: Labor strikes

F 2,4: 2^nd tier supplier

F 2,5: Security at the supplier's plant F 2,6: Power cuts at the supplier's plant F 2, 7: Transportation risks

F 2,1 F 2,2 F 2,3 F 2,4 F 2,5 F 2,6 F 2,7 Calculated relative im

F 2,1 1 1/3 3 1/5 5 3 1/3 0.10

F 2,2 3 l 5 1/3 5 5 1/3 0.17

F 2,3 ^{1/3 1/5 l 1/7} l 1/3 1/3 0.04

F 2,4 5 3 7 1 7 7 3 0.38

F 2,5 ^{1/5 1/5 1 1/7 l 1/3 1/5 0.03}

F 2,6 1/3 1/5 3 1/7 3 1 l/5 0.06

F 2,7 3 3 3 1/3 5 5 1 0.21

Figure 6: Matrix for relative impact of supplier partially controllable risks F 3, l: Natural hazards (earthquake, tsunami, etc)

F 3,2: Economical downturn in the supplier's country F 3,3: Political situation in the supplier's country F 3,4: Market characteristics (size of the market) F 3,5: Terrorism

F 3,6: Exchange rate in the supplier's country

act

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F 3,1 F 3,2 F 3,3 F 3,4 F 3,5 F 3,6 Calculated relative im act

F 3,1 1 5 5 3 7 9 0.46

F 3,2 1/5 1 3 2 3 4 0.17

F 3,3 1/5 1/3 1 1/3 1/4 1 0.05

F 3,4 1/3 1/2 3 1 1/3 3 0.11

F 3,5 1/7 1/3 4 3 l 5 0.16

F 3,6 1/9 1/4 1 1/3 1/5 1 0.04

Figure 7: Matrix for relative impact of supplier uncontrollable risks

Now all weights for all supply risk classes and supply risk factors are known, the probabilities should be calculated. This is done in almost the same way as the calculations of the other factors.

As can be concluded from the interviews with the different commodity purchasing managers, not all risks are important for everyone. By giving a low probability value to these factors, this problem can be solved. The matrix that needs to be filled in to calculate the relative probability of the risk factors per supplier is a bit larger. Per supplier incorporated in the comparison, a table adding probability values to all risk factors, needs to be entered. Via this way, the calculated relative probability for every risk factor, for every incorporated supplier, can be calculated. By using the equations from Paragraph 3.4, the risk that NXP runs by dealing with a certain supplier can be calculated. Via this way, a comparison of the risk levels of certain suppliers can be made.

Also the ranking of supply risk factors from a certain supplier can be indicated.

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Append ix D: Heuristic algorithm

A matrix is consistent when the Consistency Ratio (CR) is lower than 0.05 (for n=3), lower than 0.08 (for n=4) and lower than 0.10 (for n~5). When a matrix is not consistent, this heuristic algorithm changes the judgments with the greatest deviation in an inconsistent matrix until the matrix is consistent. Comparing the "real" version of the inputs with the "correct" versions does

this. The "correct" versions are calculated by using the following equation:

real X real

=

^{correct \-I · ·} k 1

a;k akJ aiJ , vl,J,

= , ...

,n, This is also called the consistency condition.

Suppose the following matrix including its relative impact (right column) is entered:

1.0000 2.0000 2.0000 0.2500 0.5000 0.1572

0.5000 1.0000 4.0000 6.0000 0.5000 0.2473

0.5000 0.2500 1.0000 0.1111 0.1250 0.0415

4.0000 0.1667 9.0000 1.0000 0.5000 0.2389

2.0000 2.0000 8.0000 2.0000 1.0000 0.3060

Step 1 of calculating the Consistency Ratio (CR) results in (see Paragraph 3.4):

0.1572 0.4946 0.0830 0.0597 0.1530 0.9475

0.0786 0.2473 0.1660 1.4334 0.1530 2.0783

0.0786 0.0618 0.0415 0.0265 0.03825 0.24665

0.6288 0.0412 0.3735 0.2389 0.1530 1.4354

0.3144 0.4946 0.3320 0.4778 0.3060 1.9248

The right column represents the vector of weighted sums.

Step 2 is the division of the vector of the weighted sums obtained in step 1 by the corresponding relative impact.

Weighted sum Relative impact Division

0.9475 0.1572 6.0274

2.0783 0.2473 8.4040

0.24665 0.0415 5.9434

1.4354 0.2389 6.0084

1.9248 0.3060 6.2902

Step 3 is the calculation of the average of the values of step 2 and denotes this average Amax·

6.0274+ 8.4040+ 5.9434+ 6.0084+ 6.2902

=

^6.53468

5

Step 4 is the computation of the Consistency Index: CI = 6

·53468 - 5

= 0.38367 5-1

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Step 5 is the calculation of the Consistency Ratio (CR): CR= 0

·38367

=

0.3456 1.11

According to the standards, a rank-5 matrix is consistent when the CR value is below 0.10.

This matrix is therefore not consistent and the heuristic algorithm designed by Peters and Zelewski (2003) should be used in order to improve this consistency.

When a matrix is inconsistent the algorithm changes the judgments

a t

^{1 with the greatest}

deviation to the

a t 'eci

calculated with the consistency condition. In the matrix above, this will be

a ; ;at .

The deviation is

! a ; ;ai - a ;:a l

^X

a ; ;ai I

= 14 - 541 = 50.

a ; ;"

¹ is increased from 4 to 5 and the Consistency Ratio is calculated again but is not below 0.10.

Therefore the process is repeated. In the first three iterations

a ; ;at

^{seems to be} the greatest deviation and the value is increased to 7. When the value is increased from 7 to 8, the consistency ratio increased instead of decreased. Therefore, the algorithm searches for the next greatest deviation, which is:

ia; ~ a l - a ;:a l

^X

a ; ~ a L

^I

=

I0.5 - 6 ^X 41

=

23.5. Then

a ;~a l

is raised to 1.5. This process is repeated until the consistency ratio falls below the goal consistency of 0.10 for a rank-5 matrix. In this example this appears to be after 31 adjustments when the matrix below is set up.

1.0000 0.1538 2.0000 0.2500 0.2500 0.0573

6.5000 1.0000 18.0000 6.0000 0.5000 0.3902

0.5000 0.0556 1.0000 0.1111 0.0625 0.0217

4.0000 0.1667 9.0000 1.0000 0.5000 0.1636

4.0000 2.0000 16.0000 2.0000 1.0000 0.3673

From this matrix, the consistency ratio can be calculated again. This results in a consistency ratio of 0.0886. Because 0.0886 < 0.10, the algorithm is finished and the matrix is consistent.

Of course this process can be very lengthy if the commodity purchasing managers have to execute this algorithm manually for every entered matrix. Peters and Zelewski (2003) developed a program in the programmable mathematical software packet Scilab. The algorithm was tested in 50 inconsistent test matrices and the algorithm worked for every one.

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Appendi x E: List of interviewees

Name Function Email address

Andre Krul Cluster Purchasin_g Mana_ger andre.krul@nxp.com

Robert van Vooren Cluster Purchasing Manager robert. van. vooren@philips.com Jola Neuteboom Cluster Purchasing Manager jola.neuteboom@nxp.com Liang Shi Supply Base Manager Materials IMO Frontend lian_g.shi@nxp.com Michiel Schraven Cluster Purchasin_g Manager michiel.schraven@nxp.com Joep Eijselendoom Site Purchasing Manager joep.eijselendoom@nxp.com Matthias Beis Cluster Purchasing Manager matthias.beis@philips.com

Haye te Brinke Senior buyer haje. te.brinke@nxp.com

Derek Wallace Vice President & Chief Purchasin_g Officer derek. wallace@nxp.com Jan Janssen Global Equipment Purchasing Manager ian.ianssen@philips.com Figure 8: List of interviewees

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Appendix F: Interview Protocol

Dear sir / madam,

My name is Wes van Erp and I am a student doing a graduation project, coordinated by Jan Janssen, at the purchasing department of NXP Nijmegen. I study Industrial Engineering and Management Science at the Technical University in Eindhoven, maJonng in purchasing management. My thesis consists of a research concerning supply risks at the purchasing department of NXP. The goal of this research is:

"The development of a tool for the purchasing department of NXP that is able to assess the supply risks and which can be implemented in the Commodity Strategy Development tool. This assessment tool can be developed by analyzing all factors that can be of influence to the supply risk of NXP. The result of the assessment tool should be an indication of the current supply risk situation and an advice on how to act in order to manage supply risks".

In the first phase of this research a literature review was executed. In order to see whether the actual (in practice) situation is similar as the theoretical situation, interviews with specific employees within NXP will be held. With these interviews I want to accomplish a couple of things:

• To.find out what materials and equipment is purchased.

• To.find out which suppliers the purchasing managers deal with.

• To create an overview of all risk factors which purchasers from the purchasing department of NXP have to deal with.

• To find out how these supply risks are dealt with.

• To obtain ideas of analyzing these supply risks.

• To obtain ideas on how to manage these supply risks.

• To create enthusiasm.for my research.

In this letter, I also included a list of questions, which will be used during the interview. I would appreciate it if these questions are read before the actual interview.

I hope this short introduction of the interview is helpful in creating a first impression of the research and the interview. I thank you in advance for your cooperation.

With kind regards, Wes van Erp

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Personal information

• Name:

• Function:

• Department:

• Education:

• Amount of years working for NXP:

• Job tasks:

1. Function related questions:

a. What materials/equipment do you purchase?

b. In which stages of the semiconductor production process (see appendix I) are these products needed?

c. Which suppliers are available for these materials/ equipment?

d. Which of these suppliers are certified/ qualified to supply NXP?

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e. How long does a certification process take for these products?

f. What are your biggest problems with these suppliers?

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2. Questions about supply risk:

A supply risk factor is a factor that can cause a supply shortage. Examples of supply risk factors are: Quality, cost, delivery, supplier market strength, labor strikes, natural disasters and other markets using the same base materials.

a. Can you put the following supply chain strategies in order? Start with the strategy that is, according to you, the biggest reason for supply risks:

□ Reduction of inventory holding

□ Outsourcing

□ Centralized distribution

□ Globalization

□ Reduction of the supplier base

□ Centralized production Comments:

c. What are the main supply risk factors for the materials/equipment you procure? (A supply risk factor is a factor that can cause a supply shortage. Examples of supply risk factors are: Quality, cost, delivery, supplier market strength, labor strikes and natural disasters, etc).

d. For materials: Which other markets also use the materials you purchase?

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e. Is this a threat to your supply (price wise and capacity wise)?and why?

f. What percentage of the supplier's turnaround is yours?

g. If you look at the list of supply risk factors (see appendix II), which supply risk factors are most applicable to you?

h. Why are these risk factors most applicable to you?

i. What information do you miss in making SMART decisions concerning supply risks?

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3. Questions about supply risk analysis:

a. How do you make decisions concerning the supply risk?

b. Can you determine the severity of the supply risk that comes from dealing with a certain supplier?

c. Would this be important information according to you, and why?

d. Can you determine the severity of the supply risk caused by other markets using the same base materials?

e. Would this be important information according to you, and why?

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f. Is there a tool available to quantitatively measure these supply risks?

If yes, how does this tool work?

If no, do you have any ideas on how this tool should work?

g. Is there a tool available to qualitatively measure these supply risks? If yes, how does this tool work?

If no, do you have any ideas on how to do this?

h. Do you procure materials/equipment using single sourcing? This means that for the procured material only one supplier is available and certified?

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i. What are the reasons for this?

j. Do you see this as a treat?

If yes, how can this treat be minimized?

If no, why not?

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4. Questions about supply risk management:

a. How do you observe the supply risks factors you mentioned in the former question?

b. How do you control the supply risks factors you mentioned in the former question?

c. Which mana ement techni ues to control these su 1 risk factor do ou su est?

d. Which of the following management techniques do you use to control the supply risk factors?

•

•

•

•

•

Supplier certification

This certification is awarded to suppliers that continuously meet predetermined terms on quality, cost, delivery, financial and volume objectives. If the certification process is done regularly, purchasing organizations do not have to conduct as many time consuming and expensive goods or services inspections

Implementation of quality management programs

These programs try to improve the supplier's abilities and activities to satisfy the purchasing firms requirements

Target costing

The supplier works with the purchasing organization to minimize the cost of its products or services. In order to accomplish this, the purchasing organization must share information on its' sales and production schedule.

Supplier development

This technique is used by purchasing organizations to improve the suppliers performance and/or capabilities so that the supplier can meet the purchasing organization's long and short term supply needs

Management of inventory

Inventory can be held by the purchasing organization by keeping an internal safety stock.

The supplier can also hold inventory by a finished goods inventory. Both ways greatly reduce the effects of supply risk, especially when the inventory is held close to the production facilities

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• Multiple sourcing

This management technique is often used to create a competitive environment and to reduce the risk of supply disruption and price escalation

Comments:

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5. Questions about the supply risk tool:

a. Do you see the supply risk tool as an asset that can create value for you?

b. What should, according to you, be the input and the output for the supply risk tool?

c. Who should be responsible for maintaining the supply risk tool?

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Add 1

I ~/ ~ ^I

^Rd~ITT

^{I I}

^~

I I I 1 ~~, 1

Tra"SStcr

I

Mtaiza:icn

I Wl~:n l I ^I

Bdirg(Dyadl) Rdcreo,im lrrpa1 (PI.O' la,<Jfomrm tomrm WifrtES CM' Claairg

WIE<faroliro (PI.O'O,Q -rg(Litto 1) Eiqxa,e(Liltu~ (Liltu~ Sln1'1]rg(Wt) 0,Q, Fure:e (Pl.0'0,Q (l".00-q (l".00-q

Miaias _R,ctae-

Miaias

9-wias

Fttfalas

~

Ei:µl)TB1 R,ctae-

Miaias ' - -

S.Wias Fttfalas

Figure 9: Worksheet

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Add2

List of supply risk factors

Supplier controllable risks:

Quality of the supplier's products Cost of the supplier's products Delivery performance of the supplier Capacity of the supplier

Flexibility of the supplier Financial health of the supplier

Supplier partially controllable risk:

Accidents at the supplier's location Supplier market strength

Labor strikes 2^nd Tier supplier

Security at the supplier's plant Power cuts at the suppliers plant Transportation risks

Supplier uncontrollable risk:

Natural hazards (earthquake, tsunami, etc) in the supplier's location Economical downturn in the supplier's country

Political situation in the supplier's country Market characteristics (size of market) Terrorism

Exchange rate in the supplier's country

Single sourcing

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Appendix G: Interview results

Question Interviewees

1 2 3 4 5 6 7 8 9 10

1 Capacity, Quality, NXP Material Costs, Quality, Costs Material Scarcity, Material scarcity, Lack of Supplier Costs, Costs, Quality

attractiveness, Single scarcity, Delivery, Costs Single source standardization, dependence Quality

source Costs Quality Quality

2 yes yes yes yes no n.a. yes n.a. yes n.a.

3 Supplier's contingency Sub-tier Objective None Information on Information on single Market Sub-tier Market intelligence

plans information market possible new source situations intelligence information information

information suppliers information

4 Supplier information, Supplier Supplier No answer Follow the market Supplier information, Supplier Supply risks are No answer Supplier information

Gatner Group, information information leaders Hanno Zoutendijk information, covered by

magazines tool Market contracts

intelligence, Magazines

5 n.a. no no no no no no n.a. n.a. n.a.

6 yes yes yes yes yes yes yes yes yes yes

7 Hanno Zoutendijk Hanno Hanno No No Hanno Zoutendijk No n.a. No n.a.

Zoutendijk Zoutendijk

8 Ranking is more Ranking is Ranking is Ranking is more Ranking is more Ranking is more Ranking is more Ranking is more Ranking is Ranking is more

important more more important important important important important more important

important important important

9 n.a. yes yes yes yes yes yes yes n.a. n.a.

10 n.a. Yes and No No Yes No I Yes Yes No I Yes Yes n.a. n.a.

11 n.a. All but target All but target All but target All but target costing All but target All but target All but target n.a. n.a.

costing costing costing and costing, costing and costing and

supplier standardization is management of management of

development also important inventory inventory

12 Yes Yes Yes Yes Yes, when easy to Yes -Material Yes, when easy Yes Yes, when Yes

access and input No -Equipment to access easy to

parameters not access

difficult to obtain

13 Map supply chain and Risk level per No answer Raw material Supplier ranking Supplier ranking Risk priority Ranking and

risk level per supplier supplier information, number supply risk factor

and per supply risk Financial risk level

factor information of

supplier and Supplier rating

14 Corporate level Corporate Corporate Quality Corporate level Corporate level Corporate level Corporate level No answer Central body

level level department

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Explanation of the questions:

1. What are the main supply risk factors for the materials/equipment you procure? (A supply risk factor is a factor that can cause a supply shortage. Examples of supply risk factors are: Quality, cost, delivery, supplier market strength, labor strikes and natural disasters, etc)

2. Do you see other markets, using the same materials as a threat to your supply?

3. What information do you miss in making SMART decisions concerning supply risks?

4. How do you make decisions concerning the supply risk?

5. Can you determine the severity of the supply risk that comes from dealing with a certain supplier?

6. Would this be important information according to you?

7. Is there a tool available to measure the supply risks?

8. Should supply risks be quantifiably or quantitatively analyzed? 9. Do you procure materials/ equipment using single sourcing?

10. Do you see this as a threat?

11. Which of the following management techniques do you use to control the supply risk factors? Supplier certification, implementation of quality management programs, target costing, supplier development, management of inventory, multiple sourcing.

12. Do you see the supply risk tool as an asset that can create value for you? 13. What should the output of the supply risk tool be?

14. Who should be responsible for maintaining the tool?

founded by Phi: ips -25-

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Appendix H: Supplier Rating System - Equipment

founded

by

Philips

New Supplier Rating System- Equipment

Presentation to Internal Users

&

Stakeholders

Quality Management CPO NXP Serriconductors Septerrber 2006

Purpose of SRS

NXP Serriconductor Supply Management aims to promote continuous improvement in the performance ofNXP Serriconductors' supply base, and to strengthen the Overall supply chain solutions that form the basis of a competitive advantage to NXP Serriconductors' customers. The SRS is a tool we use to facilitate constn.ctive discussions betv..€en NXP Semiconductcrs' supply team and our suppliers.

The SRS systems are segmented according to the characteristcs of the supply base, e.g. SRS-Equipment, SRS-Materials, and SRS-NPR ... etc.

The Goal of SRS-Equipment

Develop the equipment supply base towards excellence Continuous improvement of our installed base

Evaluate the supplier perfcrmance in a consistent method and establish a tracking system for Supplier improvement

Identification of NQC (Non Quality Cost)

Recognize suppliers fcr outstanding perfcrmance and seek fcr continuous improvement.

Company Confidential

CONFIDENTII\L

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The Measurements in the New SRS-E

Company Confidential

Quality:

-Supplier Quality System and ISO standard - Quality Com plaints

Logistics:

- Delivery Performance - Lead time

Responsiveness

-Responsiveness to Quality Issue -Effectiveness r:i the Response

Support:

-Local Support -Support Competence -Application Support -Sharing Best Practices -Sharing Technical Knowledge Price/Cost

-Cost Breakdown -Cost Reduction -Warranty of Equipment Technology

-Supplier Technology Roadmap v.s.NXP Requirement

CONFIDENTII\L

The Input Schedule & Requirements

✓Intranet Site: http:/ /n ww .sbmn xp .com'P D Po1tal/webpages/delau I t/HomePage.aspx

✓IT support: For new user access, please find in the SRS-E intranet a SOP form (Standard Operation Procedt..re form), fill in the details, and sent it to Marieke Wesseling, and copy CPM and SBM for api:x-oval. For other questions, please e-mail to lori.crevecoeur@NXP.com

✓Input preparation:To make sure the relevant suppliers, sites, input person names are accurate in the system for input. two weeks before ood of the qua1er CPO quality manager will send out an input confirmation sheet to all SBMs. Once this sheets signed off by SBMs,

the system is react{ for input on the first v.eek atte: the last <JJacte: ends

✓Input entry period is set as four weeks. That is, one month after the quarter is ended, input entry = uld be clcsed by CPO Quality. However. one week before closing. the system will send out one aUDrnatic rerrinder to the relevant input owners.

✓Input requirements: Please Please do not leave any score card blank, if there are any questions regarding input, please consult CPM or your site purchasing management. Or alternatively send an e-mail with your question to CPO quality.

✓Supplier performance hght-light:/ low-light comment Site buyers comnent on three items that each supplier does the best and 1he worst.

CONFIDENTII\L Company Confidential

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S RS-E Score Matrics

Quality 20 points

Logistics 20 points

Responsiveness 10 points

Support 15 points

Price/Cost 25 points

Technology 10 points

Total 100 Points

Maxim um PD Score is100 points. For the supplier who serves multiple sites, the average score of all sites in each criteria are added up to form the PD score.The supplier performance traffic light is based on the follows:

Traffic Light Green: Rating Total >= 75 points in the quarter, AND scores in each criteria meet at least 50% of the maximum points. If the latter criteria is not met, the traffic light would be Orange.

Traffic Light Orange: Rating Total>= 50 points and < 75 in the quarter Traffic Light Red: Rating Total< 50 points

Cetnpany: Confidential

CONFI0ENf"'-L

Supplier Recognition & Continuous Improvement Supplier Recognition:

Every year in February SRS traffic light scores are reviewed. Suppliers who achieve the green light for the past consecutive four quarters are recognized with the SRS award.

Continuous Improvement:

If a supplier sea-es red light in a quarter, SC Corrrmdity Purchasing Manager will request an improvement action plan from the supplier side in the following 2 weeks upon receipt of the score. If a supplier scores red light in two consecutwe quarters, discussion will be escalated to the Supp~ Base Management Team or further to the PLT (Purchase Leadership Team) at CPO.

Company Confidential

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Appendix I: Supplier Rating System - Material

founded by Ph iii ps

Supplier Rating System- Materials

Name: CPO Quality lv1anagement Subject

Project January 2007

Purpose of SRS

NXP Semiconductor Suppo/ Management aims to promote continuous improvement in the performance of NXP Seniconductors' supply base, and to strengthen the 0\/erall supply chain solutions that form the basis of a competitive advantage to NXP Seniconductors' customers. The SRS is a tool we use to facilitate constructive discussions belv\een NXP Semiconductcrs' supply team and our suppliers.

The SRS system is segmented according to the characteristi::s of the supply base, e.g.

SRS-Equipment, SRS-Materials, and SRS-NPR. .. etc.

CONFIDENTII\L 2

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The Measurements in the New SRS-M

Technology

-Access to Technology and Best Practice - Qualification Support

Quality:

-Product Quality -Statistical Process Control -Response to Quality Complaints

-ISO, Supplier Audit, Commitment to Quality - Commitment to Environmental Performance

Delivery:

- Delivery Performance -Incidents of Premium Freight Cost

-Price Management

- Cost and Financial Management -Payment Terms and Advanced Logistics -Purchasing Operation Excellence

CC)';FIOENT~L 6

Abbreviation

Third Party Logistics Solution 3PL

8D 8 Disciplines Process, a problem management tool used in responding to customer retu ms or issues.

CPM Commodity/Material Purchasing Manager LSP Logistics Service Providers

LB Local Site Buyer

PPM Defect Parts Per Million opportunities

RLIP SC Requested Line Item Performance (delivery) SBM Supply Base Manager

SMI Supplier Managed Inventory SRS Supplier Rating System SOE Supplier Quality Engineer

_ _ v_M_I _ _ _ _ _ V_e_n_d_o_r...,o_r Supplier Managed lnve ntory

CC)';FIDENT~L 7

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SRS-M Score Metrics

Technology 15 points

Quality 40 points

Delivery 15 points

Cost 30 points

Total 100 Points

Total score is a sum of all criteria scores with maximum 100 points. If a supplier delivers to multiple sites, each criteria score is calculated ba;ed on the Ile average of all the site scores. The supplier perfonmnce taffic light is ba;ed on the following: (The score targets in the traffic light system may be raised a; a result of the annual SRS review)

Traffic Lig,t Green: Total Score Points> 80 points in the quarter; and for each criteria (technology, quality .. etc) at least 50% of the maxim um points ism et.

: Total Score Points>= 60 points and < 80 in the quarter;

and for each criteria (technology, quality .. etc) at least 50% of the maximum points is met.

Traffic Lig,t Red: Rating Total < 60 points

CON Fl DE NH<\ L 8

"-'-'

- -

Supplier Recognition & Continuous Improvement

Supplier Recognition:

Every year in February SRS 1raffic light scores are reviewed. Suppliers who achieve the green light for the µ'!St consecutive four quarters within a calendar year are recognized with the SRS aNard.

Immediate Action Required:

A supplier whcse total score falls into red light in a quarter ( or in the case of any criteria score is lower than 50%) will be required to subrrit a correction action plan within 2 weeks after receiving the score result.

If a supplier scores red light in two consecutive quarters, discussion will be escalated to the Supply Base Management Team or further to one of the Senior Director Purchasing, NXP

CONFIDENT~L 9

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•

The Input Schedule & Requirements

✓Intra net site: http://pww.sbm.sc.NXP.com/SRS-M/webpages/default/H omePaqe. aspx fnotya tve')

✓IT support: For new user access, please find in the SRS-M Intranet a SOP form (Standard Operation Procedure form), fill in the details, and sent it to Marieke Wesseling, and copy CPM, SBM and ste management for acknowledgement. For other questions, please e-mail to lori creye;oeur@NXP com

✓Input preparation:To make sure the relevant suppliers, stes, input person names are accurate in the system for input, CPO quality manager will send out an input confirmation sheet to all SBMs 1YtQ

weeks before the input process starts. Once this sheets signed off by SBMs, the system is ready tor input on the first week after the last quarter ends

✓Input entry pericx:I is set as four weeks. That is, one month after the quarter is ended, input entry would be closed by CPO Quality. However. one week before closing the system wjU send out one automatic reminder to the relevant input owners «unct;on is not live yel1}

✓Input requirements: Please Please do not leave any score card blank, t there are any questions regarding input, please consult CPM or your ste purchasing management. Or alernatively send an e-mail with your question to CPO quality.

✓ Action Plan Update: CPM updates the action plans based on the last quarter comments.

CCNFIDENT~L 10

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Appendix J: Supplier match - mismatch analysis

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Core

Development

Exploitable

Nuisance

NXP's view towards the product

Don't invest in the relationship. Change supplier

when supplier under-performs

Good match; Standardization of processes

Healthy starting point; Try to reduce risk in order to move to leverage and routine boxes

D

Change supplier

Danger! Try change supplier; If this is not possible, then try to change supplier's view towards NXP

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Wes van Erp Master Thesis, Appendices

Appendix K: Implementation planning

12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35

rainin sessions

Deployment of the supply risk tool Evaluate the su pl risk tool

Set up project to develop Intranet-based supply risk tool Design Intranet-based supply risk tool

Deployment of the Intranet-based supply risk tool Evaluation of the Intranet-based supply risk tool

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