When changes in wafer fabrication added more links to Texas Instruments' supply chain, the semiconductor maker responded by streamlining its operations.
James Cooke is a principal analyst with Nucleus Research in Boston, covering supply chain planning software. He was previously the editor of CSCMP?s Supply Chain Quarterly and a staff writer for DC Velocity.
Over the years, its supply chain has expanded to include additional steps and players. Yet Texas Instruments hasn't allowed that to slow down the process. James Cooke tells the story in this article, which first appeared in the Quarter 1/2008 edition of CSCMP's Supply Chain Quarterly.
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You might think that a product made from silicon would flow through a supply chain like sand through an hourglass. But that's hardly the case for Texas Instruments Inc. (TI), one of the world's largest makers of silicon chips. Though its products may not present handling challenges, the Dallas-based company still faces the same difficulties that confront any business trying to coordinate the movement of materials through a far-flung global supply chain. And for TI, those challenges have only been magnified as the company's manufacturing process has become increasingly complex.
Those changes in Texas Instruments' manufacturing process over the years are largely a reflection of marketplace developments. Since TI introduced the first integrated circuit to the world in the middle of the last century, the market has exploded into a multibillion dollar global business. The company, which once concentrated on making chips for use in computers, now produces 55,000 different semiconductor products that are incorporated into a wide variety of electronic devices, including mobile phones, modems, and DVD players. Today, the computer industry accounts for only about 30 percent of TI's semiconductor sales, while customers in the communications industry consume at least half of the 10 billion-plus chips TI makes each year.
Not surprisingly, these changes have also had repercussions for TI's supply chain. Compared to a few decades ago, there are now more steps in the manufacturing process and, because TI has contracted with third parties for some of its manufacturing and distribution needs, more players in the chain. The conventional wisdom holds that the more links in the chain, the greater the potential for delays and other disruptions to the flow of materials and information among the various parties. Yet that hasn't been the case at TI. In the face of added challenges, the semiconductor maker has actually responded by streamlining its operations.
Complicating factors
Semiconductors—also called integrated circuits or chips— are big business for TI, which makes both analog and digital versions. In 2006, the most recent year for which financial figures are available, $13.7 billion of the company's $14.2 billion in revenue (96.5 percent) came from its semiconductor business. Asia and Europe each accounted for 25 percent of the company's semiconductor sales; the United States accounted for another 20 percent.
The chips themselves are made from silicon wafers in highly specialized factories known as fabrication plants, or "fabs." From the fabs, they move to assembly and test (A/T) facilities, where the wafers are cut into individual chips, which are then assembled into packages and tested.
Not so long ago, back when most of TI's chips were sold for use in personal computers (PCs), chip manufacturing was a relatively straightforward business. "The world used to be fairly simple," says Jan De Meulder, TI's director of supply chain logistics. "You were building chips for one PC application in one fab, sending them to one assembly and test site for completion, and your end customer was IBM, who was doing everything else. That was back in the '70s."
These days, it's no longer so simple. "Today, we have some processes [that] start in a first fab and then go to a second fab to complete the wafer's fabrication," explains De Meulder. "Then, they could be packaged in an assembly plant, followed by burn-in (tests in which the devices are subjected to high temperatures to assure quality) and final test processes in yet another site. Quite often, we then have to send those to an electronic manufacturing corporation that builds subassembly boards." From there, the units might be shipped directly to the customer's factory, where end products such as cell phones are assembled.
At the same time, more players have been introduced into the process. Three decades ago, Texas Instruments owned most of its chip-making facilities. But over the years, the company has outsourced part of its production to thirdparty foundries. At present, Texas Instruments uses more than 30 fabs and foundries around the globe. (Fabs make product strictly for TI's customers; foundries take orders from multiple customers, including TI's competitors.)
Delivering the goods
TI's process for moving semiconductors out to its customers, which now number more than 3,000 worldwide, is no less complicated. About 75 percent of the company's semiconductor products move through its distribution network, which includes four big regional distribution centers and more than 70 smaller hubs (see Figure 1). The company uses a regional DC in Singapore to serve customers in Asia; one in Dallas to serve North America; one in Utrecht, the Netherlands, to serve Europe; and one in Tsukuba, Japan, to serve markets in that country. But Texas Instruments doesn't manage these facilities itself; it uses third-party logistics service providers (3PLs) to handle the day-to-day operations of those warehouses.
Another 10 percent of TI's chips move directly from its factories to customers. The other 15 percent are sent to warehouses near key customers' factories. TI maintains inventories for those customers at the sites on a consignment basis.
To move its products, Texas Instruments relies heavily on air carriers, although the company has begun experimenting with ocean shipments for products with long lead times. Given its global reach, TI must keep track of rates on more than 1,000 different shipping routes.
All in all, the process is a lengthy one. On average, it takes eight months to source material, build the various semiconductor components, and deliver them into the end customers' hands. Texas Instruments keeps about 90 days' worth of inventory on hand to meet demand.
All together now!
As for how TI has managed to streamline its supply chain despite the additional steps, the explanation lies partly in its effective use of electronic communications. For starters, TI has standardized its information technology platform, deploying a common global IT system to handle all orders and shipments. The company now uses a single version of SAP's enterprise resource planning (ERP) system across all business units around the globe. The SAP system allows Texas Instruments to take an order from any customer anywhere on the planet and check whether it can meet the order. "People can look at orders and inventory anywhere around the world," says De Meulder. "It allows us to track changes in real time."
At the same time, the company has set up a global connectivity platform to exchange information with its external partners. It uses a variety of methods, ranging from electronic data interchange (EDI) to XML-messaging on the Internet, to connect with those external players. "When you have so many touch points with suppliers, you have to be connected by IT to your partners," De Meulder says.
TI's efforts to standardize its information base have extended to other areas of the operation as well. For example, the company uses a single version of i2's production planning software and has adopted a sales and operations planning (S&OP) process that has pushed everyone in the organization to use a standard set of data. "Everybody is aligned on what the company will aim for, what revenues we're looking for, and what the factories will build to," De Meulder says. "And everybody will execute the same plan."
As part of that process, Texas Instruments conducts a monthly review to spot potential gaps between supply and demand, so that it can act swiftly to resolve disparities. That monthly plan drives the weekly production plan for the factories, which must be kept running in order to be cost effective. "We can't afford to have the factory idle," De Meulder explains.
Fast-moving parts
Along with its IT and planning initiatives, Texas Instruments has also introduced several innovative transportation programs. To coordinate inbound parts shipments from offshore suppliers to its North American production plants, for example, the company has set up an Inbound Routing Center in Dallas. As it did with its regional distribution centers, TI has contracted with a 3PL to run the Inbound Routing Center. Among other functions, the 3PL is responsible for determining the most cost-efficient manner of shipping.
To help ensure a steady flow of parts and components needed for production, the Dallas chipmaker has also contracted with suppliers to set up vendor-managed inventory hubs near its fabs and A/T factories in Asia and Mexico. "We are asking suppliers to put key components right in front of our factories," says De Meulder, who notes that these programs are similar to the ones TI operates for its own customers.
Initiatives aimed at streamlining the company's outbound transportation include what TI calls the "shippacked-to-sales-order" program. Under this program, which is designed to expedite order shipping, a factory in, say, Malaysia will consolidate individual orders for Japanese customers into one container for shipment to TI's Tsukuba distribution center. Before it leaves the factory, each package is labeled with the final customer's name and other delivery details. When the shipment arrives at Tsukuba, workers at the DC break down the load into individual orders for final delivery.
Texas Instruments has also begun deploying transportation management software (TMS) to help it move shipments to customers swiftly at the lowest possible cost as well as to obtain better visibility of shipments in transit. Although it now uses the software only at its distribution centers, the company has plans to deploy the same TMS applications at all of its assembly and test facilities, which will allow those sites to take over tasks like filling out customs and shipping documents. "We want the factory to be able to do the same thing the DC can do," says De Meulder. The company has also developed contingency plans to keep the network running in case of supply chain disruptions. It has re-examined its shipping patterns and routes to ensure that it has an alternative carrier to move products and supplies on every key inbound and outbound lane. "If something happens, we have a backup plan with another strong provider," De Meulder reports.
A perfect delivery network
For all of its successful improvement initiatives, Texas Instruments still considers its supply chain to be a work in progress. It recently engaged an outside research firm to model its distribution network to determine the optimum locations for its distribution centers. "We will use that model to project the future," De Meulder says. He adds that he expects TI to relocate more DC operations to Asia in an effort to get closer to Asian customers, increase its presence in that part of world, and reduce its operating costs.
"We are busy working on developing a truly optimized network that can handle any shipment to any customer anywhere," says De Meulder. "Customers are not ... forgivng today; they want a perfect delivery network."
Most of the apparel sold in North America is manufactured in Asia, meaning the finished goods travel long distances to reach end markets, with all the associated greenhouse gas emissions. On top of that, apparel manufacturing itself requires a significant amount of energy, water, and raw materials like cotton. Overall, the production of apparel is responsible for about 2% of the world’s total greenhouse gas emissions, according to a report titled
Taking Stock of Progress Against the Roadmap to Net Zeroby the Apparel Impact Institute. Founded in 2017, the Apparel Impact Institute is an organization dedicated to identifying, funding, and then scaling solutions aimed at reducing the carbon emissions and other environmental impacts of the apparel and textile industries.
The author of this annual study is researcher and consultant Michael Sadowski. He wrote the first report in 2021 as well as the latest edition, which was released earlier this year. Sadowski, who is also executive director of the environmental nonprofit
The Circulate Initiative, recently joined DC Velocity Group Editorial Director David Maloney on an episode of the “Logistics Matters” podcast to discuss the key findings of the research, what companies are doing to reduce emissions, and the progress they’ve made since the first report was issued.
A: While companies in the apparel industry can set their own sustainability targets, we realized there was a need to give them a blueprint for actually reducing emissions. And so, we produced the first report back in 2021, where we laid out the emissions from the sector, based on the best estimates [we could make using] data from various sources. It gives companies and the sector a blueprint for what we collectively need to do to drive toward the ambitious reduction [target] of staying within a 1.5 degrees Celsius pathway. That was the first report, and then we committed to refresh the analysis on an annual basis. The second report was published last year, and the third report came out in May of this year.
Q: What were some of the key findings of your research?
A: We found that about half of the emissions in the sector come from Tier Two, which is essentially textile production. That includes the knitting, weaving, dyeing, and finishing of fabric, which together account for over half of the total emissions. That was a really important finding, and it allows us to focus our attention on the interventions that can drive those emissions down.
Raw material production accounts for another quarter of emissions. That includes cotton farming, extracting gas and oil from the ground to make synthetics, and things like that. So we now have a really keen understanding of the source of our industry’s emissions.
Q: Your report mentions that the apparel industry is responsible for about 2% of global emissions. Is that an accurate statistic?
A: That’s our best estimate of the total emissions [generated by] the apparel sector. Some other reports on the industry have apparel at up to 8% of global emissions. And there is a commonly misquoted number in the media that it’s 10%. From my perspective, I think the best estimate is somewhere under 2%.
We know that globally, humankind needs to reduce emissions by roughly half by 2030 and reach net zero by 2050 to hit international goals. [Reaching that target will require the involvement of] every facet of the global economy and every aspect of the apparel sector—transportation, material production, manufacturing, cotton farming. Through our work and that of others, I think the apparel sector understands what has to happen. We have highlighted examples of how companies are taking action to reduce emissions in the roadmap reports.
Q: What are some of those actions the industry can take to reduce emissions?
A: I think one of the positive developments since we wrote the first report is that we’re seeing companies really focus on the most impactful areas. We see companies diving deep on thermal energy, for example. With respect to Tier Two, we [focus] a lot of attention on things like ocean freight versus air. There’s a rule of thumb I’ve heard that indicates air freight is about 10 times the cost [of ocean] and also produces 10 times more greenhouse gas emissions.
There is money available to invest in sustainability efforts. It’s really exciting to see the funding that’s coming through for AI [artificial intelligence] and to see that individual companies, such as H&M and Lululemon, are investing in real solutions in their supply chains. I think a lot of concrete actions are being taken.
And yet we know that reducing emissions by half on an absolute basis by 2030 is a monumental undertaking. So I don’t want to be overly optimistic, because I think we have a lot of work to do. But I do think we’ve got some amazing progress happening.
Q: You mentioned several companies that are starting to address their emissions. Is that a result of their being more aware of the emissions they generate? Have you seen progress made since the first report came out in 2021?
A: Yes. When we published the first roadmap back in 2021, our statistics showed that only about 12 companies had met the criteria [for setting] science-based targets. In 2024, the number of apparel, textile, and footwear companies that have set targets or have commitments to set targets is close to 500. It’s an enormous increase. I think they see the urgency more than other sectors do.
We have companies that have been working at sustainability for quite a long time. I think the apparel sector has developed a keen understanding of the impacts of climate change. You can see the impacts of flooding, drought, heat, and other things happening in places like Bangladesh and Pakistan and India. If you’re a brand or a manufacturer and you have operations and supply chains in these places, I think you understand what the future will look like if we don’t significantly reduce emissions.
Q: There are different categories of emission levels, depending on the role within the supply chain. Scope 1 are “direct” emissions under the reporting company’s control. For apparel, this might be the production of raw materials or the manufacturing of the finished product. Scope 2 covers “indirect” emissions from purchased energy, such as electricity used in these processes. Scope 3 emissions are harder to track, as they include emissions from supply chain partners both upstream and downstream.
Now companies are finding there are legislative efforts around the world that could soon require them to track and report on all these emissions, including emissions produced by their partners’ supply chains. Does this mean that companies now need to be more aware of not only what greenhouse gas emissions they produce, but also what their partners produce?
A: That’s right. Just to put this into context, if you’re a brand like an Adidas or a Gap, you still have to consider the Scope 3 emissions. In particular, there are the so-called “purchased goods and services,” which refers to all of the embedded emissions in your products, from farming cotton to knitting yarn to making fabric. Those “purchased goods and services” generally account for well above 80% of the total emissions associated with a product. It’s by far the most significant portion of your emissions.
Leading companies have begun measuring and taking action on Scope 3 emissions because of regulatory developments in Europe and, to some extent now, in California. I do think this is just a further tailwind for the work that the industry is doing.
I also think it will definitely ratchet up the quality requirements of Scope 3 data, which is not yet where we’d all like it to be. Companies are working to improve that data, but I think the regulatory push will make the quality side increasingly important.
Q: Overall, do you think the work being done by the Apparel Impact Institute will help reduce greenhouse gas emissions within the industry?
A: When we started this back in 2020, we were at a place where companies were setting targets and knew their intended destination, but what they needed was a blueprint for how to get there. And so, the roadmap [provided] this blueprint and identified six key things that the sector needed to do—from using more sustainable materials to deploying renewable electricity in the supply chain.
Decarbonizing any sector, whether it’s transportation, chemicals, or automotive, requires investment. The Apparel Impact Institute is bringing collective investment, which is so critical. I’m really optimistic about what they’re doing. They have taken a data-driven, evidence-based approach, so they know where the emissions are and they know what the needed interventions are. And they’ve got the industry behind them in doing that.
The global air cargo market’s hot summer of double-digit demand growth continued in August with average spot rates showing their largest year-on-year jump with a 24% increase, according to the latest weekly analysis by Xeneta.
Xeneta cited two reasons to explain the increase. First, Global average air cargo spot rates reached $2.68 per kg in August due to continuing supply and demand imbalance. That came as August's global cargo supply grew at its slowest ratio in 2024 to-date at 2% year-on-year, while global cargo demand continued its double-digit growth, rising +11%.
The second reason for higher rates was an ocean-to-air shift in freight volumes due to Red Sea disruptions and e-commerce demand.
Those factors could soon be amplified as e-commerce shows continued strong growth approaching the hotly anticipated winter peak season. E-commerce and low-value goods exports from China in the first seven months of 2024 increased 30% year-on-year, including shipments to Europe and the US rising 38% and 30% growth respectively, Xeneta said.
“Typically, air cargo market performance in August tends to follow the July trend. But another month of double-digit demand growth and the strongest rate growths of the year means there was definitely no summer slack season in 2024,” Niall van de Wouw, Xeneta’s chief airfreight officer, said in a release.
“Rates we saw bottoming out in late July started picking up again in mid-August. This is too short a period to call a season. This has been a busy summer, and now we’re at the threshold of Q4, it will be interesting to see what will happen and if all the anticipation of a red-hot peak season materializes,” van de Wouw said.
The report cites data showing that there are approximately 1.7 million workers missing from the post-pandemic workforce and that 38% of small firms are unable to fill open positions. At the same time, the “skills gap” in the workforce is accelerating as automation and AI create significant shifts in how work is performed.
That information comes from the “2024 Labor Day Report” released by Littler’s Workplace Policy Institute (WPI), the firm’s government relations and public policy arm.
“We continue to see a labor shortage and an urgent need to upskill the current workforce to adapt to the new world of work,” said Michael Lotito, Littler shareholder and co-chair of WPI. “As corporate executives and business leaders look to the future, they are focused on realizing the many benefits of AI to streamline operations and guide strategic decision-making, while cultivating a talent pipeline that can support this growth.”
But while the need is clear, solutions may be complicated by public policy changes such as the upcoming U.S. general election and the proliferation of employment-related legislation at the state and local levels amid Congressional gridlock.
“We are heading into a contentious election that has already proven to be unpredictable and is poised to create even more uncertainty for employers, no matter the outcome,” Shannon Meade, WPI’s executive director, said in a release. “At the same time, the growing patchwork of state and local requirements across the U.S. is exacerbating compliance challenges for companies. That, coupled with looming changes following several Supreme Court decisions that have the potential to upend rulemaking, gives C-suite executives much to contend with in planning their workforce-related strategies.”
Stax Engineering, the venture-backed startup that provides smokestack emissions reduction services for maritime ships, will service all vessels from Toyota Motor North America Inc. visiting the Toyota Berth at the Port of Long Beach, according to a new five-year deal announced today.
Beginning in 2025 to coincide with new California Air Resources Board (CARB) standards, STAX will become the first and only emissions control provider to service roll-on/roll-off (ro-ros) vessels in the state of California, the company said.
Stax has rapidly grown since its launch in the first quarter of this year, supported in part by a $40 million funding round from investors, announced in July. It now holds exclusive service agreements at California ports including Los Angeles, Long Beach, Hueneme, Benicia, Richmond, and Oakland. The firm has also partnered with individual companies like NYK Line, Hyundai GLOVIS, Equilon Enterprises LLC d/b/a Shell Oil Products US (Shell), and now Toyota.
Stax says it offers an alternative to shore power with land- and barge-based, mobile emissions capture and control technology for shipping terminal and fleet operators without the need for retrofits.
In the case of this latest deal, the Toyota Long Beach Vehicle Distribution Center imports about 200,000 vehicles each year on ro-ro vessels. Stax will keep those ships green with its flexible exhaust capture system, which attaches to all vessel classes without modification to remove 99% of emitted particulate matter (PM) and 95% of emitted oxides of nitrogen (NOx). Over the lifetime of this new agreement with Toyota, Stax estimated the service will account for approximately 3,700 hours and more than 47 tons of emissions controlled.
“We set out to provide an emissions capture and control solution that was reliable, easily accessible, and cost-effective. As we begin to service Toyota, we’re confident that we can meet the needs of the full breadth of the maritime industry, furthering our impact on the local air quality, public health, and environment,” Mike Walker, CEO of Stax, said in a release. “Continuing to establish strong partnerships will help build momentum for and trust in our technology as we expand beyond the state of California.”
That result showed that driver wages across the industry continue to increase post-pandemic, despite a challenging freight market for motor carriers. The data comes from ATA’s “Driver Compensation Study,” which asked 120 fleets, more than 150,000 employee drivers, and 14,000 independent contractors about their wage and benefit information.
Drilling into specific categories, linehaul less-than-truckload (LTL) drivers earned a median annual amount of $94,525 in 2023, while local LTL drivers earned a median of $80,680. The median annual compensation for drivers at private carriers has risen 12% since 2021, reaching $95,114 in 2023. And leased-on independent contractors for truckload carriers were paid an annual median amount of $186,016 in 2023.
The results also showed how the demographics of the industry are changing, as carriers offered smaller referral and fewer sign-on bonuses for new drivers in 2023 compared to 2021 but more frequently offered tenure bonuses to their current drivers and with a greater median value.
"While our last study, conducted in 2021, illustrated how drivers benefitted from the strongest freight environment in a generation, this latest report shows professional drivers' earnings are still rising—even in a weaker freight economy," ATA Chief Economist Bob Costello said in a release. "By offering greater tenure bonuses to their current driver force, many fleets appear to be shifting their workforce priorities from recruitment to retention."