November 20, 2024
Shop NowIn the past few years, expenses related to silicon wafer manufacturing have been on the rise. While manufacturers still experience positive revenues, even more so today as more public incentives are allocated in these sectors, driving down costs is a priority at semiconductor fabs, increasing production and reducing environmental impact.
For starters, many semiconductor fabs have sold their production for this year in advance, so high silicon prices pose a real risk to their already-existing contracts. Moreover, reduced revenue may affect the existing inventions, which are crucial to developing more fabs to meet the world’s rising demand. So, what solutions are there?
Let’s explore the impact digital solutions could have.
Over the past few years, expenses related to semiconductor production have been on the rise. Cost efficiency worries many semiconductor fabs, as several factors continue escalating the inflation of wafer materials’ prices.
Geopolitical conflicts have strained international commerce, making it harder for manufacturers worldwide to obtain the materials they need to produce wafers at an affordable price. Even silicon, which used to be the most affordable choice because it was widely available, has increased in price in recent years.
Additional factors driving up prices include supply chain disruptions, from which the industry has yet to recover since the COVID-19 pandemic, and the growing demand for tech devices such as smartphones, PCs, and cutting-edge technologies like artificial intelligence (AI) and the Internet of Things (IoT).
Even though yearly revenues are strong and have been rising, many manufacturers are looking for higher margins to attract capital, which is essential to fostering the innovation required to end the chip shortage.
So, what can semiconductor manufacturers do to improve their revenue?
Many semiconductor manufacturers have resorted to improving labor efficiency to reduce the impact of rising material costs, and a simple way to do it is by incorporating digital tools.
According to industry experts, semiconductor factories lag far behind businesses in numerous other industries that have advanced more in terms of applying cutting-edge technologies and digitizing operations. While being late, jumping into the trend of innovation now could be the secret to reducing indirect labor costs.
So far, efforts in the area have been made to optimize the efficiency of manufacturing. This includes mobile dashboard applications that enable production analysis and could speed up work procedures and make them more flexible. More sophisticated digital solutions have also been explored, such as:
However, one area that has not been fully utilized is the potential of digital tools to reduce indirect labor costs. This includes the work done by engineers, technicians, back-office employees, R&D, and other departments that support manufacturing but do not directly transform raw materials into final goods.
This separation makes sense since indirect labor costs at semiconductor companies are much harder to measure than direct costs. But what can be done to reduce these costs—and what are they?
The cost of labor that is not directly associated with the creation of goods or the provision of services is known as an indirect labor cost. It refers to the compensation given to employees whose labor makes it possible for others to manufacture goods and render services.
In contrast to direct labor costs, indirect labor costs are more difficult to link to particular units. Supervisors, accountants, security personnel, and cleanup crews are some of the types of personnel that affect indirect labor costs.
Indirect labor usually accounts for a sizable amount of the cost base at semiconductor factories. McKinsey estimates that it represents roughly 18 to 20 percent of annual manufacturing costs. Although engineering accounts for a significant portion of these expenses, operations management and support also contribute significantly.
The challenge of reducing indirect labor costs lies in the fact that productivity is harder to analyze in this type of labor. Because many productivity drivers are hard to measure, semiconductor fabs struggle to estimate the possible impact of cost-cutting initiatives.
Because of that, it’s fundamental to first establish methods for identifying value drivers by gaining a solid understanding of all job functions. Only then can manufacturers start to identify initiatives to improve efficiency and reduce workloads.
With a solid understanding of these indirect labor areas and their challenges, manufacturers can start exploring solutions involving implementing digital solutions to cut work in their key areas.
AI-powered project management tools, for instance, can help engineers work more efficiently. AI can evaluate team performance, resource allocation, and project schedules in real time. Based on past data and project requirements, it can anticipate possible delays or bottlenecks, automatically notify pertinent team members, and recommend the best way to allocate resources or reorganize the team.
Another important sector that could benefit from digital solutions is the research and development efforts conducted by manufacturing fabs.
According to studies, semiconductor R&D budgets are increasing by roughly 6% a year in an effort to lessen the complexity of development processes, such as testing, verification, and coding.
This has made fabs dependent on larger, more expensive software groups to handle R&D tasks. One of the most widely used digital solutions, advanced analytics, can help control costs.
Many semiconductor fabs have already used advanced analytics. Still, their efforts have mostly been directed toward making engineering tasks like chip design more efficient. However, using data analytics in other areas, like determining the causes of protracted development periods and subpar products, could help reduce R&D costs considerably.
Digital solutions driven by AI can potentially revolutionize the semiconductor manufacturing industry. AI streamlines administrative workflows and fosters better engineering teamwork and collaboration by improving communication, automating repetitive tasks, or offering actionable insights.
This is crucial to reducing indirect labor costs and, potentially, keeping prices accessible even as inflation keeps making materials more expensive. As changing times expect us, we’re always attentive to industry news that can foster productivity while keeping our wafer’s quality top-notch.
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