The semiconductor industry is characterized by high volatility: rapid increases in market demandare followed by sharp downturns. Therefore, one would expect its supply chains to be very fast inadjusting to changes in demand. However, empirical data from one leading semiconductor firmsuggest that delays in adjusting to the latest downturn of the market in 2001 have beenconsiderable. For instance, inventory levels have taken two years to come back in line. Generally,these delays and the dynamics that are causing them are not well understood within the industry.This paper presents research that explains these delays by means of a system dynamicssimulation model that captures the overall supply chain structure, the generic decision-makingprocesses and the associated supply chain dynamics typical for this industry. The model is basedupon pre-existing and well-tested generic supply chain models from the literature. It has beentailored and validated with representatives from a major European IC manufacturer. Its dynamicperformance has been calibrated using four years of data on key performance aspects such asinventory levels, cycle times, demand flexibility and delivery quality.With this model, several SCM policies are explored that are effective in improving both salesand supply chain performance, such as more aggressive capacity build-up, lower capacityutilization targets and higher end product buffer stocks.
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