How to keep your leverage while single sourcing custom system siliconRaul Perez
It can be a high wire walk to be able to keep your leverage in negotiating with a chip supplier while also committing to be single sourced on a custom silicon component. In an ideal world, one could have multiple sources for a custom chip. But in reality the engineering team’s time is a highly priced asset for your system company that cannot be spent in duplicate effort such as validation and debug of multiple duplicate components, writing duplicate drivers, etc… Luckily, it is possible to maintain great leverage for your negotiations while simultaneously obtaining redundancy of supply, and minimizing engineering duplicate efforts. Nothing in this article is meant to be legal advice and I am not an attorney; you should hire an attorney to draft contracts and drive your legal strategy throughout the negotiations.
1. Engineering and GSM need to stay synchronized and work very closely. It’s important that all of the cross functional teams within engineering who are stakeholders are accounted for, and participate in the Concept and Requirements phase for the vendor selection process to be effective. Determining who the real stakeholders are is one of the most vital tasks of the silicon manager. One must make sure that starting at the Concept phase the process is not restricted to the “idea people” and is instead also open to engineers who will be tasked with developing the product all the way to production. Make sure to include the people that will do all the development work including test engineering, reliability, and other teams that may not be as visible during the early stages of the development, but who are legitimate stakeholders that will need to have test interfaces, materials or tests and other items that will be important to mass produce the system. Explicit sign off from all parties must be sought, and a ticket system such as Jira must be in place to track all items for the process phases. The silicon manager should be driving this entire process, and he/she determines in consultation with the team, who are the stakeholders whose sign off is necessary to close the phase and proceed to the next.
2. Be clear and tackle early on what are your pricing, legal, support, engineering, assurance of supply, and any other requirements that are important for you BEFORE awarding the business to a supplier. Once the Concept phase is kicked off, all teams are working towards the main outcome of the Requirements phase which is supplier selection, and is offered as the Basic Vendor Selection Package in our website. Maximum leverage is exerted at the supplier selection point, so GSM needs to make sure they get early agreements in place (LOA’s, MOU’s, etc…) at this time that will ensure they obtain the pricing and other legal agreements that they need, and set the stage for later negotiations that may include SLA, MSA, SOW, and other commercial or engineering agreements. Detailed legal negotiations are usually needed in parallel to the chip development to avoid large delays in kicking off the engineering development, but the main understandings should be captured and signed off by the system company and the chip supplier at the supplier selection milestone on the Requirements Phase exit as a condition of awarding the business. The legal discussion will usually take many months after the business has been awarded to the chip supplier. Early agreements should capture that if a supplier were to renege on the agreements made as part of the business award, that this will cause significant impacts to the system company’s overall schedule, as re-engaging the other supplier(s), and duplicating the work already done in collaboration with the selected supplier is a non-trivial delay to the schedule of the program.
3. Need to have an excellent cross functional alignment starting at Concept phase. I touched on this in point (1). Cross functional collaboration is very important, and often lacking in big and small companies alike. The silicon manager needs to make sure to sniff out any legitimate stakeholders, and to also eliminate those who are not direct stakeholders to avoid an overly complex sign off. If someone can’t write down a requirement that impacts the chip development, they are not a stakeholder.
4. You MUST perform a silicon proposal review BEFORE awarding the business to a supplier. During the silicon proposal review, the system company should review the following with the supplier:
- Description of all deltas required for each silicon subsystem block to be able to meet the system requirements.
- Explain who will implement the change and have that person available to present the information themselves, show some schematics and describe the change in detail.
- Explain IP re-use and IP process porting (if any), and process and device qualification status.
- Team members’ brief bios and relevant projects that support experience in the area to which they have been assigned in the project.
- Schedule and price estimate. Make sure assumptions are clearly stated.
- Line by line response to the Concept requirements stating whether the requirement can be supported, and stating technical and schedule risk.
- Provide proposal on how to unblock FW dev while custom silicon is unavailable.
- Provide detailed description of the chip verification methodology to be used for DV and AMS. This should include review of sample test benches and models.
The silicon manager should make sure that the Supplier is aware that the silicon proposal review process includes other suppliers, and try to avoid the suppliers from learning who the other bidders are.
5. The silicon manager must ensure the selection process is fair, that there is true cross functional agreement and that no one monopolizes the supplier selection process due to their higher standing in the organizational hierarchy. One of the main challenges the silicon manager faces at vendor selection is that everyone involved has a strong opinion, and many want to monopolize the supplier selection. It is very critical that communication with the suppliers under consideration is restricted, and to inform the system company team members to refrain from engaging with the supplier sales team or any other supplier team members during the selection process. If a supplier were to learn that they are likely going to be selected this will reduce the system company’s leverage, and may create a situation where the GSM team is unable to negotiate what is needed for the business award agreements. Supplier sales teams work hard to establish “relationships” within the system company teams, and they will use those relationships to extract information to help them in negotiating. It is especially important to shield engineering from supplier sales teams, as engineering may not have developed the sophisticated communication skills and counter measures needed to effectively deflect sales people who are well skilled in subversion from within, flattery and other methods to elicit information out of engineers. It is important to also help the chip supplier sales force communicate the opportunity to their management, and have clear dates when answers will be provided to them. The sales force at this supplier selection stage is your advocate to sell the opportunity internally, so they need to be supported appropriately by the GSM and silicon management teams with frequent and meaningful updates–this will also help reduce the attempts to extract info from your system engineering team.
System company executives are also important in this process as they grant the final approval. But it is important that they don’t publicly or privately give special access to one chip supplier over the others. If the perception of favoritism were to develop, this will have a direct impact on the willingness of suppliers to participate in the bidding and selection process, and will encourage bad behaviors from the suppliers who perceive themselves to be favored by system company executives.
6. Respect your agreements, even the spirit of them. The supplier selection process is a big resource commitment for all parties involved. Once the business award has been granted, GSM must refrain from continuing to shop around the opportunity to other suppliers, even though in all likelihood the business award agreements didn’t grant the supplier exclusivity. Suppliers talk to each other, and they know what you are doing. While it is understandable why GSM may want to continue the supplier search even after business award, since it is tasked with assurance of supply and continuous cost reduction, this is more harmful than beneficial when working on custom silicon projects. The assurance of supply risks can be mitigated by including as part of the selection criteria, dual foundry, and dual assembly and test sites–this will ensure that you have redundancy of supply on a custom silicon component while largely shifting the overhead of duplicate validation to your supplier. Price reduction schedules can also be negotiated at the supplier selection milestone as part of awarding the business.
There is a lot of work ahead to develop and integrate into the system this custom silicon for both system and chip supplier engineering teams, and if GSM continues to shop around the opportunity this undermines silicon management’s ability to get the chip supplier to commit the full resources needed to develop the custom silicon project with optimal engineering and schedule risk.
Developing custom silicon can have huge benefits from an economic, engineering and market perspective for system companies, but it takes a structured and detailed approach to ensure proper take off and a successful landing. Don’t hesitate to contact us at email@example.com for any further questions, or help you may require.