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AnyLogic > Case Studies > Managing the Bullwhip Effect in Semiconductor Supply Chain: A Case Study of Infineon Technologies AG

Managing the Bullwhip Effect in Semiconductor Supply Chain: A Case Study of Infineon Technologies AG

Technology Category

Functional Applications - Inventory Management Systems
Infrastructure as a Service (IaaS) - Backup & Recovery

Applicable Industries

Automotive
Semiconductors

Applicable Functions

Logistics & Transportation
Warehouse & Inventory Management

Use Cases

Demand Planning & Forecasting
Supply Chain Visibility

Services

System Integration
Testing & Certification

The Challenge

Infineon Technologies AG, a global top 10 semiconductor company, faced significant challenges in managing the volatility in demand and the bullwhip effect in their supply chain, especially during the COVID-19 pandemic. The semiconductor industry is characterized by capital intensity and high demand volatility, which is highly dependent on innovation cycles. The bullwhip effect, a phenomenon where order fluctuations are amplified as they move up the supply chain, was a major concern for Infineon. During the pandemic, the demand for automotive semiconductors dropped significantly due to reduced commuting, leading to excess inventory. However, when the market rebounded, the increased demand coincided with a global computer microchip shortage, exacerbating the bullwhip effect.

The Customer

MCM (Machine Centers Manufacturing)

About The Customer

Infineon Technologies AG is one of the world's largest semiconductor manufacturers, with a workforce of over 50,280 people worldwide. In 2021, the company reported revenue of more than €11 billion. Following the acquisition of the US company Cypress Semiconductor Corporation in April 2020, Infineon became a global top 10 semiconductor company. The company operates in an industry characterized by high capital intensity and demand volatility, with demand being highly dependent on innovation cycles and prone to the bullwhip effect.

The Solution

To address these challenges, Infineon's supply chain engineers decided to apply system dynamics tools to study the bullwhip effect. They aimed to understand the impact of end-market scenarios on the bullwhip effect throughout the supply chain. The engineers identified end-market demand recovery scenarios, created a system dynamics supply chain model in AnyLogic, tested the model using historical data, and conducted a sensitivity analysis to identify parameters with the most significant impact on results. The supply chain model included four echelons: OEMs, Tier-1 supplier, Tier-2 supplier, and Semiconductor supplier. Each echelon was modeled to pass inputs through several control loops before outputting to the next stage. The model assumed that the semiconductor supplier reserves were infinite, guaranteed by the silicon supplier.

Operational Impact

The application of system dynamics tools and the creation of a supply chain model provided Infineon with valuable insights into managing the bullwhip effect. The model showed that the amplitude of demand and its oscillation in the supply chain varied according to the recovery scenario and behavioral parameters of the individual echelons. It also revealed that upstream members of the supply chain suffered the most from disruption and that restoring equilibrium might take longer. The model emphasized the importance of collaboration and trust in managing the bullwhip effect. Communication in terms of ordering behavior, inventory coverage, and lead time could improve the situation. As a result, Infineon developed a VMI KPI improvement concept to provide more insight into downstream/upstream root causes.

Quantitative Benefit

The incoming demand for the semiconductor echelon exceeded end-market demand by about 40% during the recovery phase.
The demand drop during the crisis was amplified more upstream in the supply chain.
The inventory level at the semiconductor echelon only recovered slowly due to capacity restriction and high demand from the downstream echelon.