Modeling supply contracts in semiconductor supply chains

Abstract

Semiconductor manufacturers face high demand uncertainty due to volatile and rapidly changing technology development as well as inaccurate customer forecasts. The paper first presents a description of contract clauses used in semiconductor supply chains, obtained through a literature review and a field study. The paper then presents a review of the literature on studies in supply chain contracts focusing on flexibility contracts and capacity option contracts. Finally, the paper presents models to study contract flexibility and capacity reservation options for a semiconductor manufacturer supplier and a buyer. The purpose of the models is to compare a representative standard flexibility contract currently used in semiconductor supply chains and a capacity options contract.