Background of fab COO research

Our research shows that realistic measurement of fab cost must capture every dollar spent on analysis, planning, designing, financing, permitting, building, equipping, initiating, staffing, managing, certifying, operating, supporting, correcting, maintaining, repairing, upgrading and, finally, decommissioning a facility over its entire lifespan. Not unexpectedly, we have also found that such costs and overall facility productivity are closely related. However, in practice, in spite of industry cost-of-ownership (COO) programs, many of these cost/productivity elements are overlooked or inadequately defined. Over the long run, a comprehensive facilities lifecycle cost-of-ownership (LCOO) approach is needed to ensure profitability. This is especially true for traditionally lower-margin industry segments; but as margins begin to shrink in presently high margin products, it will become an industrywide concern.

Leveraging facilities LCOO requires looking at two sides of the ledger. The initial cost side is at least well quantified. The other side encompasses productivity, but is not always well defined. For example, many semiconductor firms treat facilities and real estate as largely undifferentiated "cost centers" and assume that by applying sufficient resources, high productivity and rapid capacity expansion can be achieved almost anywhere. That is bolstered by worldwide availability of seemingly attractive fab sites featuring good infrastructure elements like water and power, combined with incentives and inducements from eager communities and governments. If productivity were the same at all sites, then site analysis and selection would be simple: Pick the location with the best combination of (apparent) costs, features and incentives.

However, we find that productivity, lifecycle (as opposed to initial) costs and risk profiles vary widely with location. An LCCO model analysis of a candidate greenfield site, anywhere in the world, requires input for expected productivity, infrastructure quality, company (and its products) and risks. Results often show that sites offering large financial incentives produce suboptimal or negative rates of return on investment or moderate returns with high risks. We have found a genuine worldwide shortage of financially attractive and low-risk sites that offer infrastructures that can support the combination of high productivity and low LCOO needed to permit the new generation of fabs to earn high returns on investment with low risk.

Our findings are borne out by recent industry experience with apparently low-cost sites. During the past three years, the industry experienced "show stoppers" in places like Thailand and Malaysia and, to some extent, in developed countries like the United States. Each of these cases resulted in sizable financial losses even without including full lifecycle costs. One lesson is that productivity and competence (at any level of costs) cannot be assumed, a priori, for an untested infrastructure that may not be able to support state-of-the-art fabs. Indeed, many apparently low-cost sites were found to include high risks, hidden costs, poor productivity and other surprises. Thus, site and facility decisions are ever more critical; they are not just "cost" problems, but productivity, cost and risk opportunities. With the scale of such operations, such decisions can impact a company's overall productivity - and the bottom line.

The idea that the productivity impacts of infrastructure can be systematically assessed and quantified is not new. The more astute semiconductor firms' players implicitly or explicitly presume that costs, productivity and risks can vary widely at different fab sites, and that has been generally beneficial. However, by using a "profit center" approach with the LCOO model, it is possible to maximize facility returns and minimize site and facility risks. For each candidate site and facility, a semiconductor firm will benefit by investing substantial research and analysis effort needed to do the following: Take a global, system-level view of costs and productivity; estimate total LCOO for specific programs and products "up front"; quantify risk exposure; and adopt facility selection, development and operations strategies to lower long-term costs and risks and to enhance productivity.

Systematically taking these factors into account allows a semiconductor company to optimize profitability and lower risks, rather than just controlling costs. FHI's approach to these problems in LCOO assessment began with the development of a set of tools, techniques, metrics and models founded on a proprietary database of established state-of-the-art 200 mm fab sites. The model differs from traditional site analysis models in estimating differences in productivity as well as differences in costs and risks at each site for different companies and products. Candidate 200 mm sites or facilities were then benchmarked directly against that worldwide LCOO database for direct comparisons. The model is now being extended to 300 mm sites as specifications for 300 mm facilities become available. Preliminary results indicate that 300 mm facilities are inherently more sensitive to these productivity and risk factors than 200 mm facilities runnig similar geometries.

COO is not new. Decades ago, the U.S. government recognized that some military systems cost several times the original price over their useful lifetimes. Today, all kinds of businesses are applying COO methods, notably in information system total cost-of-ownership (TCO). Obviously, that is driven by growing reliance on costlier systems, so it is hardly surprising to find the most capital-intensive industry, semiconductor manufacturing, using well-developed COO methods. However, there is a need to go much further.

Most of the work to date has focused "inside the box" - that is, within a given wafer fab. Sophisticated COO techniques for individual pieces f equipment (tools) underlie most high-value procurement or upgrade decisions. Semiconductor Equipment and Materials International (SEMI) has published COO standards, and there is at least one commercial product (from Wright Williams & Kelly) based on those standards. However, much of this has been done internally by individual semiconductor companies, creating differing proprietary approaches that make company-to-company comparisons troublesome. Also, incorporation of certain "soft" factors (like operator skill or management strategies) varies widely.

There is a recognized need to develop more "systems-level" COO capabilities. Some commercial products now operate at sub-unit, department or plant levels. While a good start has been made, there are clear needs in fab-level simulation and COO analyses - and in harmonizing results obtained from differing approaches.

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