Material shortage reduction at a semiconductor equipment manufacturing facility through the re-evaluation of inventory management strategies

Abstract

This thesis addresses the material shortage problem in the Supermarket section of the production floor at the Varian Semiconductor Equipment business unit of Applied Materials. Through efforts in shortage data collection and subsequent analysis, it was ascertained that the inventory management strategies currently adopted by Varian are the dominant causes of shortages. This document serves as a guide on how to evaluate the performance of current inventory systems. A method of computing Theoretical Service Levels for current Re-order Points of inventory bins is proposed which relies only on the statistical distributions of daily demands for parts. Comparing computed Theoretical Service Levels with Observed Service Levels, allows for the inference on causes of shortages to be made. A criticism on a commonly advocated formula to determine bin sizes/re-order points is presented and the inappropriateness of the same is exposed when demands are not normally distributed. An unbiased formula for sizing bins/ setting re-order points to achieve Desired Service Levels is introduced which is accurate, regardless of the statistical distribution of demand. Using this technique, correct bin sizes/ re-order points of frequently short parts were computed to achieve desired performance during the replenishment period of the parts. The use of simulation software packages allowed for the validation of corrected bin sizes. The ineffectiveness of present inventory review methods for certain part types is also highlighted. The implementation of a FIFO policy for processing Shop Orders is recommended which has the potential to further reduce 21% of shortages while possibly lowering inventory levels. Lastly, the concept of setting desired Ontime Delivery goals for sub-assemblies through the storage of completed/picked-to-complete sub-assemblies is explored.