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Importance of Scalable ERP Planning for Fabless Semiconductor

January 20, 2015
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Fabless semiconductor companies often start up as an engineering focused organization, investing all their time and energy into their core differentiator: integrated circuit (and software) designs.

In the early operating stages, many fabless start-ups will implement a small financial package such as a Quickbooks/Peachtree, or a lower tier ERP package such as a Sage MAS 90/200 or Microsoft Dynamics GP. These lower tier ERP packages are generally effective at managing the financial reporting and capturing the expenses of an early stage R&D organization.

As R&D organizations grow into commercial sales and high volume manufacturing organizations, the need for business systems evolves. Those lower tier ERP solutions that were adequate during the R&D stage of the organization's life cycle were not designed to handle the complexity or industry specific needs of a commercial fabless organization. The ramp up of operations to full production mode often happens quickly, leading the supply chain operations team to look for short term solutions to get basic operations software in place, such as a web browser based operations tool from companies like Serus and Tensoft.

While these packages offer an entry point for basic supply chain management and WIP tracking, it's important to note that these 3rd party solutions have very limited integration capabilities to small business financials packages or lower tier ERP systems.

In fact, the underlying ERP, which remains the corporate financial system of record, still lacks the appropriate support for the unique needs of the fabless manufacturing industry, such as:

  • Complete Bookings, Billings, and Backlog Reporting. Orders are often to subject to multiple changes over their lifetimes. Sales order management, with shipping schedules, tracking historical order changes, partial fulfillment, rescheduling, etc., can be a complicated process. It's important to be able to track how all those changes affect booking and de-booking and view them against the current open backlog of orders - an aspect of order management that is not supported by applications like Quickbooks.
  • Reverse BOM management with yielded planning (MRP). The Reverse BOM concept has implications on both the inventory and financial side. On the inventory side, the potential downstream finished goods inventory that can be produced from a Wafer (or multiple wafers) and any planned or unplanned variants that may come out of that production work order – including multiple bins or grades of goods or fallout subject to future rework or retesting.
  • WIP valuation and reconciliation - On the financial side of the WIP picture, there is a standard cost estimation for a given production variant and its anticipated yield. Separate from that is the actual production lot cost based on the wafers issued, selected subcontractor routings, pay points and price agreements, and actual yields at each step. In a disconnected environment, to reconcile the value of WIP and to reconcile where any variance occurred while inventory is in WIP is a very difficult chore with lots of manual estimates and guesswork. However, with Dynamics AX, it is achieved automatically through real-time production sub ledger integration.

In a fabless environment, most supply chain transactions are being executed by partner foundries, fabs, assembly and test houses, 3PLs and distributors, so the fabless manufacturer depends heavily on the ability of its partners to provide timely and accurate communication (a topic for another day).

Why is ERP integration so critical for Fabless Semiconductor Manufacturers?

  1. Companies that maintain separate systems for financial and operations data find themselves struggling with several challenges. Most notably, during the period close process, it becomes a major hurdle to:
    1. Reconcile the on-hand inventory value with what is sitting in WIP as inventory in process (IIP)
    2. Open AP liability for services purchased and any earned value or overhead incurred on that WIP
    3. Analyzing standard cost variances and updating standards
  2. Additionally, lower tier financial packages tend to lack country localization or double-byte language capabilities, which means a company's international subsidiaries need to implement their own separate financial package.
  3. Finally, while maintaining separate systems, reporting on the data becomes a challenge because an additional reporting tool is necessary to report across the two databases, which, in turn, requires additional investment.

At some point - generally, when the product mix or volume increases - the financial close process gets more burdensome and fabless companies can no longer keep up with auditors' requests for information. At that point a fabless organization is forced to look into implementing a top tier, scalable ERP solution with fully integrated financial and operations management functionality designed for their industry-specific requirements.

The increasing recommendation of fabless industry veterans is to skip the cumbersome middle step of implementing separate financial and operations systems and opt straight for a true industry tailored ERP suite.

As a Dynamics AX partner to leading Semiconductor manufacturers, Armanino has developed a Microsoft Certified industry solution to meet the needs of high tech manufacturers.

With an understanding of the Semiconductor manufacturing industry, we've developed a Microsoft Certified solution to meet the needs of high tech manufacturers. This scalable ERP solution is used by industry leaders because of its familiarity, ease of use, speed to deploy, ability to quickly integrate with supply chain partners, low total cost of ownership, and its deep integration with other Microsoft tools and technologies like Excel, Lync, Outlook, Word, SharePoint, Enterprise Search, and SQL Business Intelligence – Reporting, Analysis and PowerView.

Learn more about implementing Dynamics AX or set up a demo. Our team would be happy to provide you with the information and resources necessary to identity the best solution for your fabless operations.

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