Semiconductor supply planning by considering transit options to take advantage of pre-productions and order cancellations

• We model the semiconductor supply chain which consists of factory, DC and customer.
• Two transit options and uncertainties stem from supply and demand are considered.
• The supply plan is decided by the length of lead time from reception to due week.
• Enough pre-productions or order cancellations make emergency transit beneficial.
• When an economy is weak, the start of productions can be delayed to save cost.

One of the objectives of supply planning is to find when and how many productions have to be started to minimize total cost. We aim to find the optimum. Base data like the length of transit time are important parameters to plan for the optimum start of production. In this research, we considered two kinds of transit options: normal transit and emergency transit, and we distinguished between planned and executed transit. The decision regarding which transit option to choose for the execution is trivial because emergency is only used when it is needed since normal transit is more cost efficient. However, for planning purpose, it is more difficult to decide which transit option should be used since the uncertainty in demand and supply between plan and execution can allow to plan an emergency transit but to execute the delivery with normal transit, which is a huge benefit in the competitive capital intensive semiconductor industry. If we planned an emergency, we can save inventory and production cost as we can delay the start of production. In contrast, we need pay additional transit cost in case that emergency transit is actually executed. Many characteristics of the semiconductor industry, which might be the front runner for many other industries, are considered in this model such as demand uncertainty, supply uncertainty and economic volatility. In our numerical experiments, we could gain the optimum, depending on each economic situation. Furthermore, we conducted sensitivity analysis of the effect of demand and supply uncertainties on total cost.