New Metrics, New Opportunities - Measuring what matters

Measuring what matters:
New challenges and new opportunities for
Semiconductor companies
Michael D’heur, Founder & Managing Director, shared.value.chain
SSIA Supply Chain Management Forum, Singapore, 21. July 2016
Page 1 Measuring what matters | SSIA SCM FORUM 2016 | 21 July 2016

Hello, my name is Michael D’heur
«16+ years of
experience in
Management-,
Process- and IT-
Consulting»
«Helping international
clients to improve
global value chains
(products & supply
chains)»
«Thought
Leader, Author
and Researcher
on Global Value
Chains»
«14 different
Industries, 25+
international
projects around
the globe»
«Operating Model Architect»
@SharedxValue
#ssiascmforum
#scm, #metrics
#svcm

ConsolidationNew customers
Digitalisation Legislation

To capture growth most companies have linear
business models
Business
Model
Operating
Model
Capability
Model
Society
Environment
Society
Environment
“RESOURCES” “PROFIT” “CUSTOMERS”
TAKE MAKE DISPOSE

Volatility in the Market
Global Value Chains
Ecological Crisis
(Storms, Draughts, ...)
Profit versus
Purpose?
Constrained Resources
Financial Crisis
(Lehmann, Euro, ...)
Technology
“How do we manage to create value?”
Supply Chain ‘Scandals’ &
Trust Issues
What is the right Value Creation Strategy?

...and we don’t mind the critics

Waste
Inequality Overshoot
Social Unrest
Pollution
Climate change

The world is changing at a rate at
which the systems, structures and
cultures built over the past century
can no longer keep up.

The outlook is not very promising...

Deforestation for Palm Oil
Most global businesses run supply chains that destroy societal and
environmental value, in the pursuit of profit
Tom
Aninda
Siswee
Percy
My defining moment in Borneo, Indonesia (2010)

Measuring what matters | SSIA SCM FORUM 2016 | 21 July 2016

I have decided to work to find better ways of doing it...

...to help companies deliver the ‘Triple Bottom Line’
ECONOMIC
SOCIETAL
ENVIRONMENTAL

«Sustainable
Value Creation
as Foundation of
Business!»
Cost
Efficient
Competitive
Innovative
Trusted
Versatile
Creating
Triple
Value
Collaborative
Transparent
„8 TO BE GREAT“
ATTRIBUTES OF SUSTAINABLE BUSINESSES WE HELP TO BUILD CAPABILITIES
We are a mission-driven advisory
and implementation firm, that helps
companies to achieve sustainably
better performance
Companies can achieve better
results in an environment of
constant change, fast transitions
and unplanned disruptions
Companies benefit through
application of sustainable practices
in their core business, considering
economic, ecologic and societal
opportunities
We help businesses achieve sustainably better
performance

A more realistic perspective – SYSTEMIC VIEW
Business
Model
Operating
Model
Capability
Model
Society
Environment

2nd tier
Suppliers
1st tier
Suppliers
1st tier
Customers
2nd tier
Customers
SOURCE MAKE DELIVER
PLAN
RETURN
Value Creation Strategy
(Product, Value Chain, Communication)
Enterprise Architecture
(Organisation, Reporting,
Systems)
Stakeholder
Collaboration
Sustainable
Business Planning
Supplier & Partner
Networks
Sustainable Cost
Reduction
© shared.value.chain
HR / Talent
Development
Philantrophic
Engagement
Financial
Controlling
Community
Development
Cradle-to-CradleCo-Creation
Sustainable Operations
Sustainable Products
A Companies Strategy Is Manifested in the Value Chain
It is the Biggest Lever for Sustainable Value

Hotspots in the Semiconductor Value Chain
Smelter FE: Wafer
production
BE: Assy &
Test, Package
Logistics
EMS / ODM Planning
& Fulfilment
ChannelsCustomer UseProduct Disposal / Return
1
3 5 1 5 6
2
1 5 5
1 755 8
4 6 6 7
AB B
B
C C
CD
E E E E
EEE
F F
F
F
F
G
G G
G
GG
H H H
H
H
A
Product
Development
Supply Chain
Idea Specification
Product Design &
Optimization Component Selection Testing Product Launch
1 32 2 3 7 3 7
1
1 5 7
GED
Capital
Equipment
Capital
Equipment
Capital
Equipment
Key MetricsHot Spots
Quickly changing customer preferences: Observe and track quickly changing customer preferences in order to remain a competitor in the market, while
increasing output to fulfill rising demand from a growing middle class.
Necessity for Innovation: Continually innovate products in order to create products that are competitive and will generate the highest possible profit.
Scarce Resources: Carefully plan use of limited raw materials, including precious metals, to ensure a stable supply of material and to avoid environmental
degradation and sourcing scandals (RoHS &REACH).
Sustainable sourcing : Ensure health and safety of workers, avoidance of controversial sourcing, ...
Energy Consumption, Efficiency and Emissions: Limit and measure use of energy produced from fossil fuels and utilize latest technologies to reduce
GHG emissions and their consequent contribution to climate change.
Production of E-waste: Adopt an e-waste collection, recycling, and re-use plan for products at end-of-life to reduce amount of waste going to landfills,
while following relevant legislation like the WEEE Directive.
Turnover
Delivery Performance
Inventory Turns
Governance: Sourcing
Human Capital
Emissions
Energy, Waste, Water
F
1
2
3
4
5
6
A
B
C
G
E
D
A
4 4
Raw Material
Mining
3 4
A GD

How do we get
started and measure
performance?

There are many ‘most sustainable companies’ – the
question is what is said and what is done (and measured)
Source: svc Research
Industry group leader
(Dow Jones
Sustainability Index, 2015)
Among the 400 global most
sustainable companies
(Newsweek Green Ranking, 2015)
Among the 500 most
sustainable large companies in
the world (Newsweek, 2016)
Among the most sustainable
companies (Dow Jones
Sustainability Index, 2015)
Among the 500 most sustainable
large companies in the world
(Corporate Knights, 2015)
Sustainability is an integral part
of our history, present and future
(Company CSR Report, 2015)

Only a few Semiconductor companies clearly report on
material sustainability issues

Measuring performance should consider all dimensions
of value creation in the core business?
Source: shared.value.chain
Sustainable
Value
Creation
Profitability
Forecast Accuracy
Delivery Performance
Total Supply Chain Cost
Working Capital
Product Lifecycle
Management
Intellectual Property
management
...
Greenhouse Gas Emissions / Carbon Footprint
Energy Management in Manufacturing
Water & Waste management in manufacturing
...
Sustainable Sourcing
Human Capital Development
Employee Health & Safety
Corporate Philanthrophy
Shared Value
Slavery / Human Trafficking
Board independence
Diversity
...

• Expectations of Shareholders
• Expectations of Board Members10,000 Mtr.
• Expectations of Management Teams
• Business- and Sustainability Strategy
• Business-, Operations-, Capability Model
5,000 Mtr.
• Functional / Business Unit Targets
• Operations Strategy
• Operations Scorecard
1,000 Mtr.
• Day to day business performance
(Yields, Wafer starts, ...)
0 Mtr.
• Continuous Improvement & Benchmarking
• Improvement Projects500 Mtr.
Determining what matters, depends how high you fly
100,000
Mtr.
• Expectations of Stakeholders (Society, Regulators, Legislators,
NGOs, Public Institutions, ...)

To make expectations measurable we translate them
into performance standards
Abstraction
Level
External
“Standards”
Internal
“Standards”
100,000 Mtr. SOCIETY
• SDG
• UNGC
• ILO
• Code of Ethics
10,000 Mtr. INDUSTRY
• DJSI, SASB, CDP
• EICC
• Integrated
Reporting
• Code of Conduct
5,000 Mtr. COMPANY
• Industry
associations
• 3-5 year Strategy
• Balanced scorecard
• Materiality approach
1,000 Mtr PROCESS
• Quality: ISO, ...
• Process: SCOR
• Accounting: SASB
• Operational strategy
and SC Scorecard
• Budget / Annual
Operating Plan
500 Mtr PROJECT
• LEAN, SixSigma
• Kaizen
• Project metrics
0 Mtr TASK • OEE
• Work Control
Procedures

Business
Model
Operating
Model
Capability
Model
SUSTAINABLE VALUE SCORECARD
PROCESS
STANDARD
Industry best
practices and
performance
INVESTMENT
STANDARD
REPORTING
STANDARD
ACCOUNTING
STANDARD
Industry level
material issues
Measurement should consider different perspectives

Economic
Societal
Ecological Efficiency
Governance
Measuring material issues in Semiconductor
Environ-
mental
Revenue
Cost
Strategy & Roadmap
Emissions
Shared value
Human capital
Service
BUSINESS MODEL AND INNOVATION
LEADERSHIP AND GOVERNANCE
ENVIRONMENTAL IMPACT OF VALUE CREATION
Greenhouse Gas Emissions & Chemicals
Energy Management in Manufacturing
Waste & Water Management in Manufacturing
Managing a global skilled workforce
Recruting and developing talent
Employee Health & Safety
Sustainable sourcing
Labour practices & human rigths
Intellectual Property Protection
Product Portfolio & Lifecyle Management
Innovation Management
Product Quality
Working Capital
Supply Chain Cost
Perfect Order Fulfilment
Delivery Performance, Flexibility
Community engagement
Building of strong local clusters
Climate strategy
Source: shared.value.chain, APICS SCC, SASB
COGS
Market
Share CapEx
Cost of
Capital

Source: shared.value.chain (based on SCOR Model, SASB, DSJI and other metrics)
Current KPI Future KPI / Opportunities
Company
Performance
Performance
Elements
Drivers: ...
Driver:
Market /
Competition
Driver:
Sustainability /
Legislation
Driver:
Digitalisation
Economic
Revenue
Service
Cost
Societal
Governance
Human Capital
Shared Value
Environmental
Strategy / Roadmap
Emissions
Ecological efficiency
Sample Structure of a Sustainable Value Scorecard

Example AVNET: Evaluation of performance at
Company level (APICS SCOR + Mixed Items)
PERFORMANCE
• Economic:
– Cost
– Assets
• Services:
– Reliability
– Responsiveness
– Risk Mitigation
• Ecologic:
– Environmental
– Social
Source: AVNET, 2013

When building a sustainable value scorecard it is also
important to consider key industry drivers
Market & Competition
• High volatility, high risk
• Low demand visibility
• Capital demand
• Market consolidation
• Massive Chinese
Investment Program
• ...
Digitalization
• Internet of Things
• Wearables
• Omnichannel
• Industry 4.0 - Man-
Machine Integration
• ...
Sustainability
• Sustainable Development
Goals
• COP21 – Climate Action
Plan / Carbon Regulation
• Circular Economy
• Global workforce &
migration
• Customer concerns.
Increased demand across
industries drives
concerns about resource
scarcity, climate change,
impact of pollution,
environmentla/societal
externalities
• ...

Today’s paradigm: GDP growth is good by definition...
In the current economic
paradigm, growth is good
‘by definition’....

Clean TechHuman Capital
Sourcing Water Stress
Source: MSCI, 2016
Source: MSCI, 2016
Source: MSCI, 2016
Source: MSCI, 2016
Investment research
takes a close look at the
risks and opportunities
for Semiconductor
companies

Middle management is the catalyst to translate the
ambition of sustainable value creation into reality
3 major reasons for failure 3 ways of making it work
Connect sustainable
value expectations to
corporate strategy
Link expected
outcomes to
incentives and metrics
See it as a journey,
with interim
milestones
No clear link to
corporate strategy
Death by middle
management
Premature declare of
vistory

Thank you! Please join the conversation

Adams-Lehmann-Straße 56
80797 München
Tel. +49 89 461 331 868
Mobil +49 170 768 58 61
mdheur@sharedvaluechain.com
http://bit.ly/1G1vpcm
We help companies to achieve sustainably better performance
Diplom-Kaufmann
Michael D‘heur
Founder & Managing Director
Springer Gabler;
Deutsch; Published Oktober
2013.
More Information:
http://bit.ly/1fTcrWg
Springer International;
Englisch; Published April 2015.
More Information:
http://bit.ly/1fTcrWg
http://linkd.in/1NtS3ch
http://on.fb.me/1xsHxzO
http://bit.ly/1HePpFy
Join the Conversation
www.sharedvaluechain.com
@SharedxValue
Media Partners & Publications
Thank you! Please join the conversation

8 Steps to get started towards sustainable value creation
Get buy-in from management
Determine the importance of sustainable value
creation, based on your company, industry,
culture and ambition.See the opportunities!
Assess value creation approach
Assess the current impact of your company's
value creation approach. Review risks and
opportunities of sustainable value metrics for
your company.
Determine the material issues
Consider multi-stakeholder inputs to
understand what matters. Determine what can
be influenced by your company.
Set ambitious targets
Set ambitious, but realistic targets. Tie metrics to
incentives and the performance management
system. This will make it standard practice.
1
2
3
4
Agree measurement standard
What and how you measure, will drive behaviour.
Process, data collection, weightings and a good mix
of quantitative and qualitative metrics are key.
Build a blended scorecard
Review where the industry is converging on
metrics.Start with the metrics you have and
append new metrics step by step
Always demonstrate the value
Understand the hard and soft benefits of using a
sustainable value scorecard. Make others
understand the tangible and intangible value as well
Communicate progress, build trust!
Engage in peer reviews and benchmarking.
Communicate achievements consciously internally
and externally. At all times: no greenwashing!
5
6
7
8

Main metrics Other metrics
Intellectual property protection; % revenue
from products with sustainability attributes; %
of portfolio with circular product designs, ...
Perfect order fulfilment, On time delivery
against request, On time delivery to commit,
Order fulfilment cycle time / lead time, SC
flexibility up/down, ..
Line item on time in full, Supply continuity (line
down), Material liability, excess, obsolete, scrap,
Value at risk
Inventory turns / Working capital, Asset turns,
Total SC management cost, Cash-to-cash
cycle time, ...
Cost of goods sold, Purchase Price Variance,
SG&A expenses, Return on assets, Return on
working capital, ...
Employee Health & Safety, % of 3TG conflict
free materials, ...
% of materials with critical materials,
Legal/Regulatory fines related to EHS issues, ...
Recruting/managing global skilled workforce,
...
% of foreign nationals, diversity, locations, ...
% of revenue with products that solve societal
challenges, ...
% of products with declarable susbstances
Greenhouse Gas Emissions, ... Global Scope 1 emissions, Total PFC emissions
In production: Energy/Water(Waste
management
At system level: Processor energy efficiency
Total energy consumed, % grid electricity; %
renewable electricity, Water withdrawn, water
recycled, % in regions with high water stress
Amount of hazardous waste, recycled waste, %
going to landfillPage 38 Measuring what matters | SSIA SCM FORUM 2016 | 21 July 2016
Economic
Societal
Ecological
Efficiency
Governance
Environ-
mental
Revenue
Cost
Strategy &
Roadmap
Emissions
Shared value
Human capital
Service

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