Cost reduction strategies in the microchip industry

Computer Microchip Industry Analysis

The challenges for Smart Chips Company include staying current with the latest generation of technologies for their products, continually refining the new product development and introduction process, and continually brining new innovation into both products and processes over the long-term. Each component in their value chain needs to be designed so that innovation, costs reduction and greater long-term integration can be achieved. Value chains have the potential to be the most potent differentiator for any organization by unifying many different, often disparate functions and systems over time, enabling greater productivity in the process (Porter, 1986).

Analysis of Smart Chips Company Strategy

The value chain is the most critical strategic asset the company has, as it unifies its suppliers, manufacturing and quality management organizations, resellers and distribution channels. The value chain needs to continually be improved upon and managed to a set of metrics to ensure its performance improved over time, leading to higher levels of corporate productivity (Jayanthi, Roth, Kristal, Venu, 2009).

For the value chain to work at Smart Chips Company, first there needs to be a common set of objectives and benchmarks for time-to-market specific tasks and coordinated activities. These factors are crucial to the company's long-term success. The level of tacit and implicit knowledge sharing must also be very significant across all members of the value chain as well. Studies indicate that the greater the level of knowledge transfer, the greater the ability of a firm to compete on intelligence, not just price (Jayanthi, Roth, Kristal, Venu, 2009). In studies of the Toyota Production System (TPS) indicate that this transition away from competing purely on price to competing on intelligence and knowledge can be achieved through tight coordination of value chain processes and responsibilities over time (Dyer, Nobeoka, 2000). The Smart Chip Company needs to actively pursue a knowledge sharing strategy across their value chain, defining key performance indicators (KPIs) to measure the impact of this strategy on reducing time-to-market and increasing product quality. Using knowledge transfer as a competitive strategy to further accelerate the value chain's performance is crucial for any enterprise to attain and surpass time-to-market objectives (Salomon, Martin, 2008).

In addition to implementing knowledge management systems and strategies throughout the value chains to make them more efficient, the focus also needs to be on measuring and managing performance. Creating more of a focus on enterprise performance management and then linking that to optimizing manufacturing is how the Smart Chips Company can also become more competitive (Jayanthi, Roth, Kristal, Venu, 2009). This performance focus needs to permeate their strategies to make them more effective at time-to-market and cost reduction through the more effective use of knowledge.

Conclusion

The value chains of companies competing in very rapidly paced industries such as semiconductors and microchips need to be highly synchronized and rely on knowledge, not price, as their primary competitive determinant. With a value chain more focused on creating efficiency and speed through knowledge sharing, the Smart Chips Company can retain more of their gross margins and be more profitable. Coupling this with a strong emphasis on performance management, the company can also over time create much greater levels of accountability and performance as well.