Fab Time Bottom Line Benefits

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					Bottom-Line Benefits of Cycle Time Management
Source Operations Operations Operations Operations Operations Operations Operations Operations Operations Operations Operations Marketing/Sales Marketing/Sales Marketing/Sales Marketing/Sales Marketing/Sales Marketing/Sales Marketing/Sales Marketing/Sales Marketing/Sales Marketing/Sales Finance Finance Finance Category Expense Expense Expense Expense Revenue Revenue Revenue Description Production Cycle Time % R&D Cycle Time % Production Cycle Time R&D Cycle Time WWOuts New Product% Yield Yield Factor ECN% Devices per Wafer Work Weeks Design Wins Design Win Factor1 Design Win Factor2 Pricing Factor Downturn Cycle Order Cycle Device Revenue Lost Profit Volatility Write-Off% ECN Cost Raw Wafer Cost WIP Carrying Cost Benefit E1: Raw Material Savings E2: ECN Savings E3: F.G. Write-Off Savings E4: WIP Carrying Cost Savings R1: Design Wins / Learning R2: Design Wins / First to Mkt R3: Pricing Premium Inputs 5% 5% 50 25 500 20% 90% 0.4% 1.0% 75 50 10 1.0% 1.0% 0.5% 3 30 $35 $15 75% 15% $250 $250 24% Annual $ 76,313 24,802 34,105 62,500 100,855 164,063 82,031 544,668 Notes Target improvement in production cycle time. Target improvement in R&D cycle time. Current production cycle time (in days). Current R&D cycle time (in days). Weekly wafer outs. % of outs that are new products (design wins from prior 12 months). Fab's current line yield. % increase in line yield per 1-day reduction in production cycle time. % of WIP requiring ECN action (per week). Good devices per shipped wafer. Fab workweeks per year. Current design wins per year. % increase in design wins per additional R&D learning cycle. % increase in design wins per 1-day reduction in R&D cycle time. % increase in new-product pricing per 1-day reduction in R&D cycle time. Years between industry downturns. Days between post-fab order reviews or cycles. Fab's revenue per good device. Post-fab's lost profit if it does not have device to sell. Estimated volatility in yearly demand for individual device-types. % of inventory post-fab writes off in case of industry downturn. Cost to address an ECN (per wafer). Cost of wafer when released into fab. Cost of holding WIP. Notes Improving yield means fewer starts required for same outs volume. Decreasing WIP means fewer wafers hit by ECNs. Decreasing cycle time means less finished goods safety stock required. Decreasing WIP means lower cost to carry WIP. Increasing cycles of learning means more competitive products. Shorter R&D cycle times means faster time to market. More competitive products on the market sooner means more pricing power.

$ $ $ $ $ $ $ $

Total Annual Benefit of Cycle Time Management

Copyright © FabTime Inc. 2002. All Rights Reserved. Web: www.fabtime.com. Tel: (408) 549-9932. Email: Frank.Chance@FabTime.com

Intermediate Results
Calculation New Product Volume Mid-Line WIP Value $ Results Notes 500.00 1,312.50 Valued on revenue basis.

R1: Design Wins (Increased cycles of learning)
Calculation Learning Cycles Additional Wins Additional Wafers Additional Devices Additional Revenue Current Results Improved Results 14.60 15.37 0 0.08 0 38.42 0 2,881.58 0 $ 100,855

Notes Estimated cycles of learning per year (365 / R&D cycle time) Estimated additional design wins per year (Additional cycles * L Wafers due to additional design wins Devices due to additional design wins Revenue due to additional design wins

R2: Design Wins (First to Market)
Calculation Additional Wins Additional Wafers Additional Devices Additional Revenue Current Results Improved Results 0 0.125 0 62.50 0 4,687.50 0 $ 164,063

Notes Estimated additional design wins per year (R&D cycle time red Wafers due to additional design wins Devices due to additional design wins Revenue due to additional design wins

R3: Pricing Premium (First to Market)
Calculation Pricing Premium New Product Revenue Additional Revenue Current Results Improved Results 0 0.63% $ 13,125,000 $ 13,207,031 0 $ 82,031 Notes Estimated pricing premium (per device) Annual revenue derived from new products Revenue due to pricing premium

E1: Raw Material Savings (Yield Improvement)
Calculation Yield Improvement Annual Starts Reduced Starts Reduced Expense Current Results 27,778 Improved Results 1.00% 27,473 305 $ 76,312.58 Notes Estimated yield improvement Wafers started Wafers due to yield improvement Reduced expenses due to yield improvement

E2: ECN Savings (Decreased WIP)
Calculation Average Cycle Time Starts Average WIP ECN Wafers (Week) ECN Wafers (Annual) ECN Cost Reduced Expenses Current Results Improved Results 7.14 6.79 555.56 555.56 3,968.25 3,769.84 39.68 37.70 1,984.13 1,884.92 $ 496,032 $ 471,230 $ 24,802

Notes Production cycle time (weeks) Per week Using Little's Law: WIP = (Starts) * (Cycle Time) Estimated wafers requiring ECN action per week Per year ECN Cost per year Reduced expenses due to reduction in WIP / fewer ECNs requ

E3: Finished Inventory Write-Off Savings (Decreased Safety Stock Require
Calculation h D_avg D_stdDev FabRev FabCTY RY CTPlusR D2_avg D2_stdDev RHS OneMinusRHS NormInv OrderUpTo LossQty WriteOff Annualized Reduced Expense Current Results $ 8 1,950,000 487,500 $ 68,250,000 0.14 0.08 0.22 427,397 228,230 0.04 0.96 1.71 816,763 122,514 $ 4,288,005 $ 1,429,335 Improved Results $ 8 1,950,000 487,500 $ 68,250,000 0.13 0.08 0.21 414,041 224,636 0.04 0.96 1.71 797,275 119,591 $ 4,185,691 $ 1,395,230 $ 34,105

Notes Holding cost for post-fab to hold one device for one year Estimated average yearly demand (shipments) for good device Post-fab's estimate for standard deviation of yearly demand fo Estimated average annual fab sales revenue Fab's cycle time (years) Time between post-fab order reviews or cycles (years) Cycle time plus review time (years) Estimate for average demand during cycle time plus review tim Estimate for standard deviation of demand during cycle time p Right-hand-side of periodic review policy solution equation One-minus right-hand side z-value for OneMinusRHS -- value such that P(Z <= z) = OneM "Optimal" order-up-to quantity for post-fab, e.g. when ordering, Quantity post-fab will write-off in case of industry downturn. Dollar amount post-fab will write-off. Write-off annualized by average time between downturns.

E4: WIP Carrying Cost Savings (Decreased WIP)
Calculation Average Cycle Time Starts Average WIP Valued @ Mid-Line WIP Carrying Cost Reduced Expense Current Results Improved Results 7.14 6.79 555.56 555.56 3,968.25 3,769.84 $ 5,208,333 $ 4,947,917 $ 1,250,000 $ 1,187,500 $ 62,500

Notes Production cycle time (weeks) Per week Using Little's Law: WIP = (Starts) * (Cycle Time) Valued at midpoint between raw wafer cost and end-of-line Cost of capital required to finance WIP, using corporation's inte Reduction in WIP carrying cost due to cycle time improvement

year (365 / R&D cycle time) per year (Additional cycles * Learning Cycle Factor * Current Design Wins)

per year (R&D cycle time reduction * Cycle time Factor * Current Design Wins

* (Cycle Time) action per week

tion in WIP / fewer ECNs required.

ety Stock Required)

one device for one year d (shipments) for good devices deviation of yearly demand for device

iews or cycles (years)

ring cycle time plus review time f demand during cycle time plus review time w policy solution equation

ue such that P(Z <= z) = OneMinusRHS, where Z is N(0,1) random variable post-fab, e.g. when ordering, should represent the on-hand quantity plus the quantity ordered. case of industry downturn.

time between downturns.

* (Cycle Time) wafer cost and end-of-line e WIP, using corporation's internal rate of return ue to cycle time improvement

E3: Finished Inventory Write-Offs: Uses standard (R,S) periodic review policy for inventory order-up to points. Calculations as given in section 17-8 of "Operations Research: Application and Algorithms (2nd ed)" by Wayne Win Policy assumes post-fab demand is normally distributed. Assumes there is some lost profit due to post-fab not having device on hand when demand occurs (e.g. there are c Assumes constant lead-time from fab.

Input: Current Design Wins per Year: Changing the number of design wins per year does not change the outputs. If you examine the details of the calculations, you will find that the number of design wins is used in several interme calculations, but cancels out in the final benefit amount. We continue to include this input variable, because it makes the intermediate variables more intuitive and thus easier to understand and double-check. Regards, Frank Chance

Algorithms (2nd ed)" by Wayne Winston.

hen demand occurs (e.g. there are competitive providers).

esign wins is used in several intermediate this input variable, because d and double-check.


				
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