Texas Instruments, Engineering the World
By Anthony Edgecomb and
Zhenfei Wu
Originally an Dallas based oil company
from 1930-1951, Geophysical Service Inc. invented the reflection seismograph,
giving way to a growing manufacturing, research and development sector. To get
out from under a name that seemed to restrict the brand to geophysics, the
manufacturing and R&D sector became Texas Instruments Inc. (TI) in 1951,
founded by Eugene McDermott, Cecil H. Green, J. Erik Jonsson, and Patrick E. Haggerty.
In 1958 employee Jack Kilby invented the first integrated circuit – revolutionizing
the electronics industry (Texas Instruments Timeline). For the discovery, Kilby won the
Nobel Prize in Physics, National Medal of Science, and National Medal in
Technology. The industry skyrocketed from $24 billion to $1,175 billion over a
span of 40 years.
Today the name is most recognizable to
the public as an education technology firm developing calculators and portable
learning aids. However, in the manufacturing world the name is synonymous with
electronics innovation. TI manufactures over 100,000 products including 10
billion semiconductors each year which are used in an extensive range of
devices from wireless phones and gps-watches to cars and computers (TI
Innovation).
Although in past decades a majority of the company’s electronics chips have
been used in computers, in recent years, distribution has been nearly 50% in
communication devices while only 30% have been allocated to computers.
The nature of the electronics and
technology industries pose some threats to TI. Inventory is a high risk
investment in these industries due to the turnover of new products. To reduce
the risk of inventory obsolescence, TI maintains inventory levels that would
only satisfy 90 days of demand. This low level of safety stock contains its own
set of risks. TI’s early semiconductors were produced in a fabrication
facility, assembled, tested, and packaged in a second facility, then shipped to
their end user. It was a simple process. As the products have evolved the
process has gotten exceedingly more complex, often utilizing four to six
facilities. According to CSCMP’s Supply
Chain Quarterly, there is an eight month lead time from sourcing materials
to getting the product to the end user (Delivering the Goods). With an eight month lead time 90 days
of inventory leaves very little margin for error, so TI uses a tool called
CETRAQ to measure and compare suppliers. CETRAQ is a scorecard that measures:
cost, environmental, technology, responsiveness, assurance of supply, and
quality. For the past fourteen years, TI has seen great success using CETRAQ to
evaluate suppliers every six months to reduce risk to their supply chain (How TI uses CETRAQ).
Managing risk is not the only thing that
differentiates Texas Instruments’ supply chain from the competitors. TI also
wins with distribution. With more than 3,000 customers worldwide, TI uses a
distribution network that connects four main regional distribution hubs to 70
small hubs. While TI owns these distribution centers, they hire specialized
third-party logistics providers (3PLS) to manage and operate them. Some product
does not move through the DCs, however. A smaller portion of goods are shipped
directly from factories to customers or to a warehouse near customers’
factories as consignment.
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