Logistica

Applied Materials Uses Operations Research to Design Its Service and Parts Network
Alper Sen ¸
Department of Industrial Engineering, Bilkent University Bilkent, Ankara, 06800, Turkey alpersen@bilkent.edu.tr

Deepak Bhatia
Service Parts Planning, Applied Materials 2821 Scott Blvd, MS1785, Santa Clara, CA 95050, USA deepak.bhatia@amat.com

Koray Do˘an g
Solvoyo Co. 77 Franklin Street Suite504 Boston, MA 02110, USA koray.dogan@solvoyo.com

Applied Materials, Inc. is the global leader in nanomanufacturing technology solutions, with a broad portfolio of innovative equipment, service and software products. The company supports its customers worldwide with an extensive service and parts network of over 100 locations. At the end of 2006, the company decided to evaluate and rationalizeits network design in North America. A detailed optimization model (with 50,000 parts) was set up to develop a network and distribution strategy. To our knowledge, this is the first large-scale multi-echelon network design model that incorporates safety stock inventory costs with proper consideration of lead time and risk-pooling effects. Using the model, Applied Materials was provided with variousimprovement recommendations to reduce cost while maintaining or improving the service to customers. The recommendations included simplifying the distribution network through consolidating depot locations for certain customers and skipping an echelon for certain others, leading to a projected inventory reduction of $10 million. The company is currently acting on these recommendations and hasalready eliminated five depots. It is estimated that $5.24 million of inventory reductions in the first year of implementation can be attributed to these changes in the network and total savings during this period are $1.1 million. Keywords: industries: semiconductor, service; facilities–equipment planning: location.

Introduction
This paper describes a network design project that was undertaken atApplied Materials for its service and parts network in North America. The objective of the project was to rationalize and evaluate the existing network in North America and provide senior management of the service and parts division a number of alternative designs to reduce supply chain costs such as holding inventory and transportation. Applied Materials is the world’s largest supplier of productsand services to the global semiconductor industry. Its products include equipment, service and software for the fabrication of semiconductor chips, flat panel displays, solar photovoltaic cells, flexible electronics and energy–efficient glass. In 2007, Applied Materials recorded revenues of $9.73 billion. Its major customers are global semiconductor manufacturers. Geographically, 20% of the orders comefrom North America, while 11% and 69% of the orders come from Europe and Asia, respectively.
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Applied Materials Uses OR to Design its Service Network

The semiconductor equipment that the company manufactures are critical to the successful operations of its customers and it is thus important to have this equipment running at all times. In order to provide spare parts and service tocustomers in the event of equipment failures and for scheduled maintenance, the company has an extensive spare parts distribution network. The network consists of more than 100 locations around the globe. Three continental distribution centers (CDCs), one each in North America, Asia, and Europe, constitute the backbone of the network and are primarily responsible for procuring and distributingspare parts to depots and customer locations. Various depots in close proximity to customer sites provide faster service. The company also manages consigned inventory in the stock rooms in facilities of its leading customers under agreements called Total Parts Management (see EDGE (2000)). At the end of 2006, the company decided to evaluate and rationalize its existing service and parts network and...