Case Study

Wired for Success

Managing Inventory at Texas Instruments

Texas Instruments Fast Facts

Industry Manufacturer of Semiconductor Technologies Headquarters Dallas, Texas Description A global semiconductor company, Texas Instruments provides pioneering semiconductor technologies that enable its customers to create the most advanced electronics. Texas Instruments innovates through manufacturing, design and sales operations in more than 25 countries.

Business Challenge All products are not necessarily created equal. You may have certain products that you wish to carry more inventory on than others in order to meet specific business objectives. By using JDA Inventory Optimization to evaluate several different sensitivity analyses essentially what-if scenarios TI was able to choose the best set of circumstances and move into production almost immediately.
- Ken Bean, former director of business support systems, Texas Instruments Texas Instruments needed an integrated sales and operations planning (S&OP) process focused on both demand and inventory management in order to manage its inventory more effectively and to combat long supply chain lead times, short product lifecycles and inadequate customer service levels.

Business Solutions
JDA Inventory Optimization JDA Demand Manager JDA Transportation Manager JDA Master Data Management JDA Supply Chain Planner

Business Benefits
Increased profit margins by 40 percent Improved customer service performance by 25 percent Reduced the gap between requested delivery date and actual delivery date

JDA Software Group, Inc., completed its acquisition of i2 Technologies, Inc., in January 2010. Texas Instruments, a legacy i2 customer, continues to work with JDA on its supply chain management initiatives.

With manufacturing operations all over the world, Texas Instruments (TI) needed a process for managing its inventory more effectively. Because of the nature of the semiconductor industry, TI faced several challenges in its supply chain, including long lead times, short product lifecycles and inadequate customer service levels. TI has more than 55,000 stock keeping units (SKUs) and processes over 145,000 orders each month. Due to the multiple stages in the semiconductor supply chain, there are several points at which inventory can be held to produce the necessary finished goods. We have a capacity-constrained model, and our major challenge is the fact that we are governed largely by the laws of physics, said Ken Bean, former director of business support systems at TI. Manufacturing semiconductors can take several days, and depending on the product the process can incorporate anywhere from six to 36 levels of complexity. Based on the varying manufacturing cycle times and often short product lifecycles, TI required an inventory optimization solution that could provide the flexibility needed to manage its complex supply chain. There were multiple reasons why TI kept substantial amounts of inventory on hand. One factor was to address the varied product manufacturing cycle times leading to supply chain variability. In addition, TI found itself unable to consistently develop accurate demand forecasts. The company also had a financial incentive to build up certain inventory. For example, even though a specific product may have low demand, combining that group with a larger manufacturing lot made it more economical to build the product. As a result, TI was determined to find the best way to make the most effective use of the inventory it was carrying. You want to optimize the amount of good inventory and diminish the amount of bad inventory that you have on hand, said Bean. To address this challenge, TI realized that it needed to implement an integrated sales and operations planning (S&OP) process that would focus on both demand management and inventory management.

Enhancing the JDA Partnership

A long-time JDA customer*, TI first implemented JDA Supply Chain Planner in the late 1990s in order to improve its custom supply chain solutions. More recently, TI implemented solutions for demand management, transportation management and master data management. Because of its previous successes, TI looked to JDA to help further enhance its supply chain processes through the implementation of JDA Inventory Optimization.

market share. The business unit decided to segment its products based on shipment volume. The products with the highest volume would maintain higher inventory at the product distribution center and those with the lowest volume would be strictly built to order. Using the JDA Inventory Optimization solution, the business unit now calculates the quantity of each product required at each of the inventory staging locations. A second strategy implemented by TI segmented products by profit margin and revenue. The company was able to divide products into classes ranging from those with the highest margin and highest revenue to those that yielded the lowest margin and lowest revenue. Once the inventory targets were optimized, TI prioritized the budget toward the inventory with the highest margin, allocating the remainder to its other products based on segmentation level. TI was able to achieve an approximately 40-percent gain in margin with this inventory strategy. Although the business unit also adopted additional methods to improve margin, Bean indicated that TI could not have realized this kind of improvement without the use of Inventory Optimization. TI has actively leveraged JDA Inventory Optimization for several years. The company continues to constantly review and revise its processes and strategies based on changes within its internal and external environments.

Implementing New Inventory Strategies

TI found JDA Inventory Optimization to be a very flexible tool that enabled the company to quickly change its inventory strategy. Inventory Optimization features various segmentation rules that can be applied across TIs products. All products are not necessarily created equal. You may have certain products that you wish to carry more inventory on than others in order to meet specific business objectives, said Bean. By using JDA Inventory Optimization to evaluate several different sensitivity analyses essentially what-if scenarios TI was able to choose the best set of circumstances and move into production almost immediately. One business unit in particular had a goal of improving its customer service performance, thereby increasing its overall

That is a continuous improvement cycle that I would encourage every company to do, and the JDA Inventory Optimization tool has some features that essentially lend themselves to operating in that fashion, said Bean.

About JDA Software Group, Inc.

JDA Software Group, Inc. (NASDAQ: JDAS), The Supply Chain Company, is a leading global provider of innovative supply chain management, merchandising and pricing excellence solutions. JDA empowers more than 6,000 companies of all sizes to make optimal decisions that improve profitability and achieve real results in the discrete and process manufacturing, wholesale distribution, transportation, retail and services industries. With an integrated solutions offering that spans the entire supply chain from materials to the consumer, JDA leverages the powerful heritage and knowledge capital of acquired market leaders including i2 Technologies, Manugistics, E3, Intactix and Arthur. JDAs multiple service options provide customers with flexible configurations, rapid time-to-value, lower total cost of ownership and 24/7 functional and technical support and expertise.

Positioning Inventory Ahead of Demand for Ongoing Results

With Inventory Optimization, TI is able to manage a larger portfolio with a smaller amount of people and effort. Utilizing the segmentation attributes, one TI business unit which has over 20,000 SKUs was able to reduce the number of materials it had to manage. In addition, one person is able to manage the entire portfolio in approximately 30 minutes each week. The ultimate goal of TIs shipmentvolume-based inventory strategy was to improve the inventory mix against customer demand, and in the end to gain market share through improved customer service. Through the implementation of this new strategy, the business unit utilizing this strategy was able to improve customer service levels by 25 percent. Another method that TI used to measure the results of this strategy was to observe the on-time delivery of customer orders. If TI was not able to deliver the order on the requested delivery date, it looked at when the order was actually delivered and the gap between the requested and actual delivery dates. With the new product segmentation in place and the Inventory Optimization solution providing required data, TI was able to improve the on-time delivery of customer orders. With the help of JDA solutions, TI can run its entire operating plans several times a week. In a given situation, the company can realign its supply chain if necessary in about 72 hours. Additionally, TI does S&OP on a monthly basis and is able to make the required updates as a result. TIs strategy of positioning inventory ahead of demand has allowed the company to improve its service levels and grow its business over the past five years. Essentially what youre doing is prioritizing your portfolio in terms of ways that make sense to achieve your business goals, said Bean in regards to the benefits of leveraging JDAs Inventory Optimization solution.

*This case study is based on a web seminar presented by Texas Instruments and i2, entitled Inventory as a Competitive Weapon. TI is a long-time customer of i2 Technologies, Inc., which was acquired by JDA Software Group, Inc., in January 2010. TI continues to work with JDA on its supply chain management initiatives.

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