Global value Chain Inventory management assignment

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Jan 9, 2024

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Global Value Chain Assignment 2 Inventory Management Submitted by Student Name Student Id Melvin Justin 0843229 Abhijith Kilimala Rajendran 0839130 Nikhil Bajaj 0835347 Vijay Krishna Nidasanametla 0827573 Jaskiran Kaur 0838434 Amit Sekhon 0836806 1

Table Of Contents Page No Executive Summary 3 Inventory Requirements 3 Inventory Management Techniques 5 Inventory Management Techniques and Fin 6 Recycling & Inventory Management 7 Circular Economy Model 7 Optimum Inventory Management Strategy 7 Conclusion 8 References 9,10 2

Executive Summary This report delineates the pivotal criteria governing the procurement and sourcing of semiconductor chips by X Tech, a Canadian company specializing in supplying semiconductor chips to automotive giants like GM and Ford. As X Tech caters to the automotive industry with critical semiconductor components, ensuring product quality, reliability, and market competitiveness is paramount. This report offers an exhaustive analysis of the essential criteria and considerations integral to this strategic undertaking, reinforcing X Tech's commitment to sustaining and enhancing its pivotal role in supporting major automotive manufacturers. Additionally, it explores how X Tech plans to incorporate sustainable inventory practices, including strategic reverse logistics and circular supply chains, to promote environmental responsibility and resource efficiency in semiconductor production. Inventory requirements for manufacturing Semiconductors in X-tech Silicon Wafer (Above Figure) Silicon wafers are a significant component of the semiconductor materials market, holding a substantial share in 2021 and being the most prevalent type of semiconductor wafer. These wafers are available in various sizes, with 300-millimeter diameter wafers, equivalent to 12 inches, being the standard for advanced chip production. Over the past two decades, the silicon wafer market has witnessed consolidation, leading to a noteworthy reduction in the number of major players. In 2020, approximately 95 percent of the market was under the control of just five companies, headquartered in Japan, Taiwan, Germany, South Korea, and the United States. Germanium plays a pivotal role in semiconductor manufacturing, with the European Union and the United States designating it as a critical element for mining. This recognition underscores the increasing importance of germanium in future technologies, where it may surpass the limitations of silicon. China currently dominates the germanium market, 3

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producing approximately 60% of the world's supply, while Germany, Japan, and Ukraine are key contributors. However, export restrictions imposed by China in response to the US CHIPS and Science Act of 2022 have disrupted the global technology supply chain, affecting the production of high-end microchips and technology. Thus, securing a stable supply of germanium is essential for X Tech's semiconductor manufacturing operations to meet the demands of its automotive clients. Gallium, a critical inventory for X Tech, has gained prominence due to recent export restrictions imposed by China, which accounts for a staggering 98% of refined gallium production. This scarcity underscores the importance of securing a stable gallium supply chain. Although not naturally abundant, gallium is a vital component in numerous technologies, including LED lighting, solar cells, and high-efficiency semiconductors, with applications spanning from consumer electronics to defense systems. Gallium nitride, in particular, is pivotal for rapid charging devices, potentially revolutionizing electric vehicle charging times. To mitigate supply chain vulnerabilities, X Tech is exploring diversified aluminum sources and downstream refining capacity development, recognizing the need to reduce reliance on China's dominance in this sector and ensuring a steady supply for semiconductor manufacturing. Indium phosphide (InP), an essential component in X Tech's semiconductor inventory, is witnessing substantial market growth. The global Indium Phosphide Compound Semiconductor Market is anticipated to reach $7.6 billion by 2027, with a robust 9.7% CAGR during the forecast period. This surge is attributed to significant factors, including its crucial role in high-speed fiber optic communications, facilitating advanced communication technologies, and driving innovations in the automotive industry. InP wafers play a vital role in high-power optoelectronic devices such as laser diodes, photodetectors, LEDs, and optical transceivers, particularly within optical fiber communication systems. The automotive sector, in particular, leverages compound semiconductors to integrate advanced features, despite the inherent complexity in semiconductor device design. 4

Securing a stable supply of InP is imperative for X Tech's semiconductor manufacturing, ensuring its ability to remain at the forefront of technological advancements. Inventory Management Techniques: Inventory management techniques and models play a pivotal role in optimizing global value chains, including their application at X Tech. Let's compare and briefly explain the relevance of some of these methods: ABC Analysis: ABC analysis categorizes inventory items into three groups based on their importance and value. "A" items are the most critical, "B" items are moderately important, and "C" items are of lower significance. X Tech employs ABC analysis to prioritize inventory control efforts, ensuring that high-value items receive close monitoring and efficient supply chain management. Just-in-Time (JIT): JIT inventory management emphasizes receiving and producing goods only as they are needed, reducing excess inventory holding costs. X Tech utilizes JIT to streamline its global value chain, minimizing waste, and ensuring efficient production and delivery of semiconductor components. Vendor Managed Inventory (VMI): In VMI, suppliers monitor and replenish inventory levels at the customer's location. X Tech collaborates with its semiconductor suppliers, such as Formosa Sumco Technology Corp and Siltronic, using VMI to maintain optimal inventory levels and reduce the risk of supply chain disruptions. 5

Economic Order Quantity (EOQ): EOQ helps determine the optimal order quantity to minimize holding costs while ensuring inventory availability. X Tech employs EOQ principles to strike a balance between stockpiling semiconductor materials and the associated carrying costs. These inventory management methods are crucial for X Tech's global value chain, enhancing efficiency, reducing costs, and ensuring a reliable supply of semiconductor components. By aligning these techniques with its strategic partnerships, X Tech maintains a competitive edge in the semiconductor industry and meets the demands of its global clients, including major car manufacturers like GM and Ford. Inventory management system and their financial Implications on X-Tech Inventory systems, such as ABC analysis, Just-in-Time (JIT), Vendor Managed Inventory (VMI), and Economic Order Quantity (EOQ), have a significant impact on controlling inventory levels and mitigating financial risks for X Tech. ABC analysis allows X Tech to prioritize resources and focus on high-value inventory items, minimizing the financial risk associated with stockouts of critical components. JIT helps in reducing carrying costs by ensuring that inventory is maintained at optimal levels, preventing overstocking and the associated financial burden of excess storage. VMI, in collaboration with suppliers, enhances control over inventory levels, reducing financial risks related to understocking or overstocking. EOQ assists in optimizing order quantities, minimizing inventory holding costs, and ensuring financial efficiency. By striking the right balance between order size and carrying costs, X Tech manages financial risks effectively. X Tech's inventory policies and strategies are financially sound. They enable the company to control inventory levels, reduce carrying costs, and maintain a lean, efficient supply chain. This, in turn, contributes to cost savings, minimizes financial risks, and enhances the company's overall financial health, allowing X Tech to allocate resources strategically and invest in its growth and global expansion initiatives. 6

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Integrating Reuse and Recycling into Inventory Management: X Tech places significant emphasis on integrating reuse and recycling principles within its inventory management systems as part of its sustainability initiatives. Through the adoption of strategic reverse logistics procedures and the establishment of circular supply chains, X Tech is dedicated to the reclamation of valuable semiconductor materials from both end-of-life products and manufacturing byproducts. This strategic approach not only contributes to the reduction of the environmental footprint associated with semiconductor production but also mitigates the dependence on virgin raw materials. X Tech's commitment to responsible resource stewardship is evident in its pursuit of secure and sustainable semiconductor component sourcing, aligning seamlessly with its corporate sustainability objectives. Transitioning to a Circular Economy Model: X Tech is assessing the potential value of transitioning to a circular economy business model from its current linear model. The circular approach involves reusing, refurbishing, and recycling semiconductor components, thereby reducing waste and conserving resources. By evaluating the economic and environmental benefits of this transition, X Tech aims to minimize the financial risks associated with resource scarcity and waste disposal. Moreover, embracing circular practices can enhance the company's reputation for sustainability and attract environmentally conscious customers, contributing to long-term profitability. Optimum Inventory Management Strategy: X Tech's inventory management strategy focuses on maintaining optimum inventory levels while considering the principles of a circular economy. The company employs advanced recycling methods, such as physical and environmentally friendly chemical processes, to recover semiconductor materials from discarded products and waste. These materials can be reintroduced 7

into the manufacturing process, reducing the need for new raw materials. Additionally, X Tech collaborates with suppliers committed to sustainable practices. This strategy ensures a continuous supply of semiconductor components, minimizes financial risks associated with resource scarcity and aligns with the company's sustainability goals. Conclusion In conclusion, X Tech's strategic approach to semiconductor procurement and sourcing stands as a testament to its dedication to excellence and sustainability. As a key supplier to automotive giants like GM and Ford, the company recognizes the critical importance of semiconductor chips in today's technological landscape. This report has elucidated the multifaceted criteria and considerations that govern X Tech's procurement strategy, from selecting reliable suppliers like Taiwan Semiconductor Manufacturing Co. Ltd. and Intel Corp. to addressing the challenges of supply chain resilience and inventory management. Furthermore, X Tech's commitment to sustainability is evident through its adoption of reuse and recycling practices, fostering responsible resource management. As the company navigates the intricate landscape of semiconductor supply, its unwavering focus on quality, innovation, and ethical practices ensures a promising future in serving the automotive industry and beyond. 8

References Thadani, A., & Allen, G. C. (2023). Mapping the Semiconductor Supply Chain: The Critical Role of the Indo-Pacific Region. Www.csis.org. https://www.csis.org/analysis/mapping- semiconductor-supply-chain-critical-role-indo-pacific-region Germanium and gallium in today’s technology landscape. (2023). Brunel. https://www.brunel.net/en-au/blog/mining/germanium-and-gallium-in-technology Ali, S. H. (n.d.). Mining For Gallium: The Next Step Toward American Semiconductor Supremacy. Forbes. Retrieved October 3, 2023, from https://www.forbes.com/sites/saleemali/2023/08/15/sourcing-gallium-for-american- semiconductor-supremacy/?sh=724b03173c1f Markets, R. and. (2022, March 16). Global Indium Phosphide Compound Semiconductor Market 2021-2027: Rise in the Usage of Compound Semiconductors Across Automotive Industry. GlobeNewswire News Room. https://www.globenewswire.com/en/news- release/2022/03/16/2404492/28124/en/Global-Indium-Phosphide-Compound-Semiconductor- Market-2021-2027-Rise-in-the-Usage-of-Compound-Semiconductors-Across-Automotive- Industry.html Barron, A., 2021. Chemistry of Electronic Materials. MiDAS Green Innovations. https://www.alibris.co.uk/Chemistry-of-Electronic-Materials-Andrew-Barron/book/49727639 Bogust, P. and Smith, Y., 2020. Physical Separation and Beneficiation of End-of-Life Photovoltaic Panel Materials: Utilizing Temperature Swings and Particle Shape. JOM, 72(7), pp.2615-2623. https://www.proquest.com/docview/2420726761 Dume, I., 2021. Carbon-based inks make first fully recyclable transistors. [online] Physics World. Available at: https://www.sciencedaily.com/releases/2021/04/210426140908.htm Fort, V., Balde, C., Kuehr, R. and Bel, G., 2020. The Global E-waste Monitor 2020. Bonn: United Nations University/United Nations Institute for Training and Research. https://collections.unu.edu/view/UNU:7737 Oliveira, R., Benvenuti, J. and Espinosa, D., 2021. A review of the current progress in recycling technologies for gallium and rare earth elements from light-emitting diodes. Renewable and Sustainable Energy Reviews, 145, p.111090. https://ideas.repec.org/a/eee/rensus/v145y2021ics1364032121003786.html 9

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Punathil, L., Mohanasundaram, K., Tamilselavan, K., Sathyamurthy, R. and Chamkha, A., 2021. Recovery of Pure Silicon and Other Materials from Disposed Solar Cells. International Journal of Photoenergy, 2021, pp.1-4. https://www.hindawi.com/journals/ijp/2021/5530213/ Rahman, M., Mateti, S., Sultana, I., Hou, C., Falin, A., Cizek, P., Glushenkov, A. and Chen, Y., 2021. End‐of‐Life Photovoltaic Recycled Silicon: A Sustainable Circular Materials Source for Electronic Industries. Advanced Energy and Sustainability Research, 2(11), p.2100081. https://onlinelibrary.wiley.com/doi/full/10.1002/aesr.202100081 Yoon, A., 2021. 5G and AIoT will need new semiconductor materials. [online] 5G Technology World. Available at: https://www.5gtechnologyworld.com/5g-and-aiot-will-need-new- semiconductor-materials/ Zhan, L., Zhang, Y., Ahmad, Z. and Xu, Z., 2020. Novel Recycle Technology for Recovering Gallium Arsenide from Scraped Integrated Circuits. ACS Sustainable Chemistry & Engineering, 8(7), pp.2874-2882. https://pubs.acs.org/doi/abs/10.1021/acssuschemeng.9b07006 10