Comment by smachiz | Hacker News Reader

Comment by smachiz | Hacker News Reader

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Not really true - depending on volume.

In almost all certainty they have volume commitments out months - and have for at least two years.

JIT stopped being a reality a while ago.

If you know you're sitting on 2 months of inventory, and you're getting shipments that are equal to 1 month of capacity every month, and it takes 3-5 weeks by sea, it's a perfectly reasonable thing to do still.

Also, depending on their contracts, they may not pay the vendor until they receive the goods at their location, so the sea freight shipment doesn't have a cost for time value of money.

If you're sitting on a buffer, time value of money doesn't matter - and only gets worse by spending more money to get it sooner if you can only produce say 5k cars/week - doesn't matter if you get parts sooner you can't use.

With semiconductor manufacturing, you are in a dance where customers need products now but your lead times can be weeks or months. This has always been true, even pre-pandemic. Customer demand forecasting is a huge deal in this space, since they still pursue "lean planning" and "JIT production" as much as possible to out-compete on delivery times and volumes.

Inventory costs are necessarily minimized in this framework, with all the supply hiding further back in the chain. Once the products are done, they're packaged and shipped; there is basically no buffer. So you don't have resilience of that sort, though you do have a significant off-ramp (in terms of the products still in process) to help adjust to market shocks if necessary.

Instead of this kind of inventory-buffer plan common in Western economists' and analysts' assumptions, you have instead resilience in the relationships between you and your customer and the stability that confers. Because the supply chains are so long and complex between semiconductor manufacturers and their customers, it pays to keep good relations with your supplier (and with your customer). So account managers and supply planners are very careful not to cancel orders or adjust delivery dates so as to maintain that congenial relationship. This is the main lesson higher-ups learned from their time spent playing the Beer Game[1].

Source: worked in Infineon's logistics and supply chain department

[1] https://beergameapp.com/

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