Supply Chain

An important factor which differentiates ASML from its competitors is the significant contribution made by our suppliers in the development and manufacturing of semiconductor lithography scanners. At least 85 percent of the value of parts and modules of an ASML system are custom-made finished (sub) systems purchased from suppliers. This enables ASML to concentrate on its unique competences; design of the machine, system integration (software and hardware), service and support, sales and marketing. Many suppliers also handle part of the development of these integrated components, which include lens and laser systems. There are many advantages for ASML in working closely with an integrated supply base: it shortens cycle times, increases capability and quality, shares and spreads the risks of the market cycles, increases flexibility, ensures a competitive cost structure and, lastly, improves time-to-market and access to the most advanced technology.

The long-term sustainability of our supply chain is of great importance and ASML closely guards both the competitiveness of our suppliers as well as the environmental and social sustainability aspects of their business. This prompted ASML to adopt a supply chain strategy called Value Sourcing following the downturn in 2001. The strategy is based on the premise that ASML adds value to its customers through the added value provided by the ASML supply chain. Our suppliers benefit from this strategy; suppliers that are able to make permanent value-added and sustainable contributions not only improve their know-how and develop their relationship with ASML, but also improve their own competitiveness in other markets.

Of course, this integrated supply chain needs to be managed well. Developing and improving this network involves recognizing supply base risks across the organization, cross functionally, as well as deploying activities to reduce and manage these risks. ASML's risk management involves both risks pertaining to today's suppliers as well as those of tomorrow, i.e. ensuring the supplier has made timely preparations to provide tomorrow's technology.

To create a sustainable and competitive supply chain it is important that ASML's total supply chain is aligned with our customer requirements. This is why ASML communicates all relevant procedures and requirements to suppliers and contractors.

ASML for lasting relationship with suppliers

Value Sourcing is aimed at creating lasting relationships, where both parties are assured of the required product quality, on-time delivery, the agreed technology and market conform total cost during each stage of the product life-cycle. In selecting suppliers we assess their competences and capabilities on four aspects that are derived from the Semiconductor market requirements: Quality, Logistics, Technology and total Cost (QLTC). These four aspects play important roles and ensure that our suppliers carry on improving their technology base and are capable of continuing their high value-added work, while remaining worldwide competitive and profitable on the ASML account (see figure 4).

Sustainability is an integral part of the Quality aspect. The suppliers are encouraged to implement policy plans to maintain and improve the environment, health and safety and social responsibility.

The translation of the semiconductor market requirements to our supply chain is depicted in the following figure.

Risk management in the Supply Chain

Annual risk assessment

Part of the Value Sourcing strategy is an annual risk assessment, performed once a year, which involves product-related suppliers and key non-product related suppliers. In 2009, ASML performed this risk assessment on a total of 349 suppliers. The goal of this ‘Supply-Based Risk Assessment' is to identify risks related to the following:

• Long-term Material Availability

• Technology Capability and alignment with ASML's Roadmap

• Technology Availability

• Business Continuity (including financial stability)

• Performance of the Second Tier Suppliers (the supply base of our suppliers)

• Sustainability (environmental, social and health and safety aspects

Supplier profiles

Based on this assessment an overall risk profile of each supplier is generated. Out of the 349 suppliers, 38 product-related suppliers and 10 non-product-related suppliers were assessed as having a high risk profile with high spending. For these "Key Suppliers", ASML set up Supplier Account Teams (SAT) where both experts from ASML and from the supplier work together on identifying shortcomings between ASML customer-derived QLTC performance criteria and the actual ability of the supplier to meet these criteria. This is done within the structured process of SAT Supplier Profiles where gaps are discerned between the required and measured supplier performance, improvement plans are initiated and actively followed up. As we strive for long-term relationships, we encourage suppliers to spread risk and to be active in different markets. We require that our suppliers generate at least 75 percent of their total turnover from customers other than ASML, which has helped them weather semiconductor industry downturns. Many ASML suppliers use knowledge and expertise learned from ASML in other markets. This mitigates risk for both parties and enables the supplier to increase its share in other markets.