Network performance of an organization, a good network

Network design decisions plays an important role and
can have a huge impact on the performance of an organization, a good network
design can help an organization in identifying optimal supply chain
configuration (Chopra and Meindl, 2010). This paper describes the current distribution
network of ASML, and suggests using qualitative as well as quantitative methods
to analyze and optimize regional distribution network, also determine new
location for global distribution center. Scope of this paper is limited to
providing factors that can be used to optimize ASML’s regional warehouse
network and suggesting a method which can be used to identify suitable location
for global distribution center.

Structure
of this paper: The first
section provides introduction to ASML, the second section provides problem
description, the third section provides brief description about regional and
global distribution network of ASML, the fourth section discusses network
optimization factors that can help ASML in designing an optimal regional
distribution network, also proposes to use gravity method this method can be
used to identify a new location for global distribution center, the fifth
section discusses trade- off principles for ASML, finally section six provides
the conclusion of this paper.

1.      
Introduction to ASML:

ASML is an original equipment manufacturer of lithography
systems for the semiconductor industry (ASML, n.d). A lithographic equipment is one the most expensive equipment in
a semiconductor fab. Therefore it is necessary for ASML customers that the
“litho” tool stays up for production. ASML has very tight SLA’s1
with its customers for system availability. In order to meet  these SLA’s ASML has designed its warehouse
network which is spread over multiple locations like Europe, North- America and
Asia. ASML has approximately 52 distribution centers located worldwide including
one global distribution center which is located in Korea (ASML,n.d).

2.      
Problem Description:

Due to the rapid growth of ASML’s business and increasing
volume of materials being handled, regional distribution network has not been analyzed.
Network design is currently performed on an ad hoc basis without professional
tooling or process. Under strategic
planning, ASML is considering to optimize its regional distribution network and
plans to open a new global distribution center which can satisfy customer
demands and reduce transportation time (Chopra and Meindl, 2010). ASML would like to analyze and  optimize its regional distribution network by using
professional methods which use network design principles and  wants to determine new location for its global
distribution center.

3.      
Description of distribution network of ASML

              Figure 1. Description of goods movement from
suppliers to customers: Service and spare part               
                              shipment

A
Lithography tool is the central equipment which is used in Integrated Circuit
(IC) manufacturing process. A lithography tool is very expensive, modern state
of art EUV tool can cost up to €100 million or more. The “litho” tool is
supposed to operate 24X7 in order to meet customers expectation of chip production.
As the litho tool is one of the most important tool in chip manufacturing
process, it also becomes a bottleneck during its downtime, wafers cannot be
processed without being exposed on a litho tool. Therefore, it is very
important that the tool is available for approximately 99% of time. SLA with
customers for tool availability are 99 %. In order to
meet these availability SLA’s, ASML stocks service and spare parts locally in
local warehouses which are located near customer locations. By keeping critical
service and spare parts close to customer location ASML reduces the risk of
long or extreme long downtime at the customers (ASML,n.d.).

ASML uses multi-echelon network planning which allows
centralization of stock to optimize supply chain costs and service levels. A local  warehouse is 
used to meet local demand SLA < 2 hours, whereas regional warehouses are used for low usage and expensive parts. A GDC2 has two functions; a) It serves as a replenishment hub for local warehouses, stocking in GDC is based on supplier lead-time and expected usage. b) It is also used as an emergency hub where extremely expensive or low usage parts are stocked. In an event of an emergency shipment parts are available within 48hrs to the customer (ASML,n.d.). In the current network, service and spare parts are shipped from factories which are located in different locations like United States, Netherlands, Taiwan to GDC  which is located in Korea. Service and spare parts are then shipped from GDC to local warehouses. These local warehouses supply parts to the customer. In case of emergency shipment service parts are directly shipped from GDC to local customer. As service and spare parts are very expensive ASML uses air freight to transport these parts to GDC from different factories. From GDC parts are transported by special freight trucks to the customer. Package carriers like DHL and DB schenker  are used to transport these parts from intermediate location to the final customer (Chopra and Meindl, 2010). Few examples of ASML's Service level agreements with its customers to supply spare parts when the machine is down are: ·         for a USD3 response time is 2 hours (in fab) or 24 hrs (dispatch, in case of emergency shipment), USD = system not able to expose wafers; ·         XLD 4 guarantee 24X7 coverage, and 1% DTWP5.   4.       Network optimization models and factors that can help ASML in designing an optimal regional  distribution network, also help identifying new location for global distribution center The goal when designing a supply chain network is to maximize the firm's profits whilst satisfying customer needs in terms of demand and responsiveness (Chopra and Meindl, 2010). At highest level the performance of a warehouse network must be evaluated along two dimensions: a) customer requirements that are met; b) Cost of meeting those customer requirements (Chopra and Meindl, 2010). (Chopra and Meindl, 2010) suggest factors that can be influenced by the structure of distribution network are: v  Response time v  Product variety v  Product availability v  Customer experience, v  Time to market v  Order visibility v  Returnability ASML has different customers with different SLA's, some customers have very tight SLA's, while some customers are willing to wait longer to receive service and spare parts. With introduction of NXE6 systems and for  customers who are using NXE systems, capacity of a warehouse must also be taken into consideration, because  ASML warehouse is used not only to store service and spare parts but also stores complete modules of machines before these machines are installed at customer location. Once the tools for NXE system arrives in the warehouse, the logistics demand for space goes up. All these tools and service parts must be stored in the local warehouse, before a machine is installed at the customer location. The newest model of NXE machine requires 20 truckloads carrying six containers and 170 crates. "To design an effective network a manager must consider all the factors described in the Figure 4 (table)" (Chopra and Meindl, 2010, pp 122) given below. This table (figure 2) as suggested in (Chopra and Meindl, 2010) describes framework for network design decision which will help ASML in designing right regional distribution network. Global or regional network design decisions are made in four phases as described below in Figure 2. The first phase of network design can help an organization framing high level of its supply chain. The second phase is to identify regions where distribution centres will be located as well as their roles and capacity. For phase three potential sites can be selected within each region where distribution centres will be located . In phase four precise location and capacity allocation for each distribution center can be selected (Chopra and Meindl, 2010). 1 Service Level Agreements 2 Global Distribution Center 3 Unscheduled down 4 Extreme long down (more than 48 hours) 5 Downtime waiting part 6 NXE platform is the industry's first production platform for extreme ultraviolet lithography (EUVL)