Global Chip Industry Has Room to Improve

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These forces helped semiconductor makers weather the downturn, but the industry can't afford to be complacent. To capitalize on market opportunities in the new growth cycle, chipmakers still need to make fundamental, structural improvements. They need to rethink their business models and strategies to make operations lower cost, more efficient, and more effective at generating revenues and profits. There are several ways to do this, including:

Transforming the Sales Force: Creating new metrics and reward structures is key to improving sales force effectiveness. These should make sales people accountable for pure sales (driven by commissions), the health of the pipeline, the accuracy of forecasts, the time between sales stages, and conversion rates. Companies should be mindful of the profitability, opportunity cost, and strategic value of each deal—not just its size. They also should consider taking steps to ensure that the potential value of each deal is depicted accurately.

Improving Research and Development: Semiconductor companies should focus sharply on improving research and development processes by using methods such as product life cycle management and product portfolio management. It's becoming increasingly important for semiconductor companies to possess deep knowledge about specific types of chips such as microprocessors or analog devices, not just general knowledge about the larger chip universe. Companies should focus their research in product areas where they can develop a potential design advantage. (If such an advantage persists for a business cycle or two, it may force competitors to shift away.) In addition, R&D efforts should focus more on leveraging a company's unique strengths, in keeping with the industry trend in this direction.

Innovating Supply Chains: Companies should focus on innovating and optimizing their supply chains and processes, including sharpening their demand-planning procedures. In some cases it will be necessary to reconstitute supply chains. Semiconductor companies should consider integrating with their suppliers by developing and deploying extended-relationship management capabilities. This improves demand forecasts, production plans, and the acquisition of manufacturing capacity. And it allows chip companies to make better decisions and improve customer service and profit.

Planning and Fulfillment: To expand visibility and use all available information, it's best to consolidate disparate planning systems and processes across the organization into a single, unified platform. Keys to success in this area are total data quality management (TDQM) programs that train employees to improve their order entry, planning, and reporting while standardizing the system. These management programs help cut errors, reduce the number of human touches on a given order, and enable better decision making. This results in more realistic and meaningful capacity planning and demand forecasts.

becoming valued-added chipmakers

A growing number of companies are asking us to get them ready for the market sprint that's about to begin. They are asking for help managing and monitoring engineering capacity and product inventories. Right now inventory management should be a huge priority. As with improved planning, the ultimate payoff of optimized fulfillment is the ability to provide customers with the products they need as quickly and consistently as possible.

Furthermore, companies need to become more deliberate with product offerings, product development, product innovation, R&D efficiency, product design operations, product management, human resources management, supply chain performance, inventory optimization, operational efficiency, and knowledge delivery.

In short, they need to convert themselves from transaction-based companies to value-added companies. The results will determine which ones finish as high performers during the impending industry rebound.

Scott Grant is a managing director with Accenture's Semiconductor Business.

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