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Simple Fabless Semiconductor Supply Chain PDF Print E-mail


Supply Chain for a fabless semiconductor company

Fabless model pioneered by Xilinx and Altera over 20 years ago became mainstream. In 2009 AMD divested their manufacturing facilities to GLOBALFOUNDRIES and established fabless structure as a norm. Segregation from capital intensive and complex manufacturing helps semiconductor companies to invest in design and marketing. It allows foundries to benefit from economy of scale for building and operating modern facilities.

Click here to see the supply chain model for fabless semiconductor company.

While fabless companies enjoy not carrying inventory on their books, the model brings new risks and requires a different approach to managing production:

  • Fabless companies have little control over fab capacity allocation. The agreements to ensure capacity are written on annual basis – 4x longer than a reliable forecast information is available

  • Lead times committed by fabs are longer than those of in-house manufacturing.

  • Information exchange of WIP and quality data is more complex as two independent companies are involved.

  • Influence over changes in technology is limited.

Once wafers are manufactured, they need to be sorted (go through initial test cycle) and assembled. Usually assembly, test, and mark and pack activities are done by semiconductor assembly houses.

Some semiconductor companies employ turn-key solution in which assembly vendors manage wafer manufacturing process, assembly, test, mark and pack, and shipping. The semiconductor company receives final invoice for services rendered and does not engage in piece parts inventory and wafer management, testing, and logistics.

As technology progresses, more and more functionality is delivered outside of the die. Piece parts (substrates, package components) become increasingly more complex and therefore expensive. Their price is many times more expensive than the fee for chip assembly and test services. That caps ability of assembly subcontractors to keep sufficient inventory of piece parts. They resort to frequent re-ordering of piece parts, which exposes semiconductor company to risk of capacity constraints at piece parts manufacturer. Famous example was introduction of Sony PS3 which consumed entire substrates production capacity and deprived many IC vendors of piece parts.

Exposure to loss from delayed assembly and test needs to be carefully managed as well. If one chip is not shipped on time, the assembly subcontractor will lose $50 service fee; the semiconductor company will lose $2500 in revenue.

FAB, Assembly, Test, and Logistics providers support many customers some of which are direct competitors. That creates risk of involuntary information sharing with competition in technology and business areas. To mitigate this risk company needs to define processes and audit suppliers for compliance with NDA, inventory segregation and information security.

Specific business practices depend on market, demand elasticity, profit margin, available substitution, relationships with suppliers, distributors, and customers. The following controls are commonly used for risk mitigation:
Risk management for fabless semiconductor company


There are many systems designed to help manage outsourced supply chain. The key to success lays in thoughtful use of these systems, well defined processes, clear, open, and timely communication and collaboration. The latter includes collaboration between teams inside the company as well as companies comprising the supply chain.

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