When bad data and poor visibility turn planning into guesswork

A leading semiconductor manufacturer encountered formidable obstacles to its plans to shift from a revenue-expansion model to one more focused on improving profitability to fund future growth. The company could not track profits by customer, product, region, product technology node, or any other significant measure, leaving senior management unable to assess the financial impact of their decisions to expand or reduce production of any given semiconductor; accurately forecast demand; and price products appropriately. Data on costs and revenues was scattered across the company, with many different “owners” and in various formats and inconsistent categories, making it difficult if not impossible to make useful comparisons or perform meaningful analysis. Unreliable forecasts hampered efficient capital allocation, and the supply/demand matching process had broken down, leading to product shortages and overstocks. Some production facilities were working close to full capacity, while others were under-utilized. Senior management brought in AlixPartners to help get a handle on company data and give company leaders and key stakeholders a true picture of profitability and asset utilization in granular detail.

Rapid analysis and implementation of new tools bring the future into focus

The AlixPartners team fanned out across the company to collect and pool financial data and perform a customer and product profitability analysis. The data was cleaned, curated, and aggregated in a business intelligence platform to give management visibility into profit and cost drivers, while the customer and product profitability analysis enabled management to segment customers, eliminate unprofitable, low-volume SKUs, and initiate a dynamic pricing regime. We also developed a virtual fab cost model to estimate the cost of advanced technologies, identify under-utilized assets, and determine the cost of excess capacity. The outputs from the profitability analysis also informed R&D portfolio planning, helping management identify the avenues of research with the most profit potential and shut down work that would not yield an acceptable return on investment. A new sales and operations planning (S&OP) process was implemented that improved forecasting accuracy by 10%, enabling management to anticipate demand and allocate production capacity more effectively.

Sharper data makes for smarter decisions and higher profits

The measures implemented have boosted management’s confidence in its planning and forecasting, allowing the company to accelerate its shift toward a profit-improvement model. With a clearer view of costs and profits, management was able to earmark more than $100 million in process tools for possible divestment with little or no impact on productivity, while avoiding a further $100 million in unneeded capital investment. New deals with leading-edge customers yielded a $20 million improvement in price realization compared with traditional pricing methods; overall, the new pricing process generated more than $100 million in incremental annual profit. In addition, we identified numerous opportunities to improve profitability by as much as $500 million a year, as well as substantial additional revenue opportunities revealed by the upgraded S&OP process. And with trustworthy data in easy reach, management can make the swift, decisive moves that separate the leaders from the also-rans in the hotly competitive semiconductor industry.