Liquid Crystal Display - Essay Example

1. Introduction A liquid crystal display (LCD) is a thin, flat display device made up of numbers of color or monochrome pixels arranged in front of a light source or reflector. The technology has been used for displays in various equipments including pocket calculators, wrist watches, notebooks and televisions. LCDs allow displays to be much thinner than those which use cathode ray tube (CRT) and consume much less power. Being a complex technology, the LCD industry has several knowledge bases including electrical machinery, electron, materials, optics, chemistry, and physics. It is a high cost industry with significant investment required for new entrants. Major portion of the modern LCD industry is currently dominated in the regions of Taiwan, Korea, Japan, and China. Japan had a leading position in the global TFT-LCD industry before 1995. However, as the competition intensified, other manufacturers in Taiwan and Korea entered the market. Taiwan soon achieved a very strong position in the industry with large demand from local notebook PC manufacturers. Currently, the global TFT-LCD panel production capacity and the TFT-LCD supply chain are heavily concentrated in Taiwan, Korea, Japan, and China. The following essay will take a brief look at the LCD industry with a focus on the LCD TV. The essay will start with a brief discussion on the how the industry came into being and then a look at the future demand forecasts. As the essay is primarily supply chain focused, the next section will discuss the supply chain as well as the value chain which offers a better overall picture of the industry. The will be followed by a discussion on some of the recent trends in the supply chain as well as how the industry dynamics is redefining the whole electronics supply chain. 2. Background of LCD Development Although properties of liquid crystals were discovered as early as 1880s by Friedrich Reinitzer, the interest in the development declined due to lack of practical application. Kawamoto (2002) points to the fact that the modern history of liquid crystals is dominated by development of electronic displays made of liquid crystals. These developments started in 1962 when Richard Williams discovered electro-optical effect by generating stripe-patterns in a thin layer of liquid crystal material by the application of a voltage. By applying an electric field perpendicular to the surface of the glass, he observed the appearance of a regular pattern in the area where the electric field was applied. This phenomenon is now known as 'Williams domain' and Kawamoto (2002) describes it as a forerunner of the LCD. The works of Williams led to the discovery of dynamic scattering mode (DSM) in 1964 by George H. Heilmeier working at RCA. Further scientific work improved the application and led to the birth of LCD technology. The discovery led Heilmeier to believe that a wall-sized flat-panel color TV was just around the corner (Kawamoto, 2002). However, it took another quarter of century for the LCD TV to finally become a reality. This was more due to the organisational lack of interest then technical issues. Kawamoto (2002) points to the works of Heilmeier where he indicated how LCD was considered as a threat to the other RCA's products and was thought of as a distraction to their main electronic focus. However, the potential of LCD had already created a major interest worldwide. In 1970, Sharp launched its research on LCDs for pocket calculators and introduced them in 1973 with tremendous success. RCA had developed a digital watch in 1968 but commercialisation would require further research. Suwa Seiko, a well known Japanese watch maker, started its own programme on watch development based on LCD and launched the product with great success. Both the products based on LCD - pocket calculators and wrist watches - found great commercial success. LCD panels had already been considered around this time and in 1985, Sharp seriously got involved in research and development of LCD panels. After various developments Sharp finally announced the 14-in colour thin film transistor liquid crystal display (TFT-LCD) unit on June 24, 1988. Other major industries were already involved in the research of LCD but after the launch, electronics giants such as Toshiba, IBM, and NEC now stated focusing on the liquid crystal display and the industry was born (Kawamoto, 2002). 3. Future Demand Forecast A conference report by Displaybank (2007) forecasts that demand for LCD panels will pick up at a yearly rate of 14.2% from 340 million units in 2007 to 520 million units by 2011 (see fig. 1). The conference further highlighted the need for new investment of $60 billion over the next five years from 2008 through 2011 to respond to the steady upsurge in demand for LCD TVs. It should be noted that manufacturers have already spent a total of $92.6 billion on the industry over the past ten years. It has been pointed that the industry will not keep pace with the upward trend in demand for large-format LCD panels without an additional investment in the coming years and a new investment of $60 billion is required from 2008 to 2011 in an effort to make up for the shortage. It is obvious that a large part of the industry's ability to meet the future demand will be its efficiency in managing its supply chain. Although vertical integration usually forms an important part of an organisation's strategy, in case of LCD industry, a major portion of the manufacturing process is outsourced. The next section will look at the industry's supply chain and then the overall value chain. (Million units) Fig 1: LCD Demand Forecasts, 20072011 (Source: Displaybank, 2007) 4. Supply Chain and Value Chain of the LCD Industry The electronics industry is very fast moving and has been dominated by concepts such as 'just in time' manufacturing. The manufacturers obviously do not want to order or pay for significant amount of inventory in advance. A forecast of high demand in 1999 and 2000 led to an excess inventory of more than $13 billion by 2001 (Jorgensen, 2004). As the technology moves on, stock piles such as these result in loss and wastage for the manufactures. Also, as the demand for latest products keeps changing, lack of fabrication plants does not allow the manufacture on large scale of an expensive consumer electronics item that has become the latest fad. Thuermer (2004) mentions that because of the high cost of producing TFT-LCDs (ranges from $2-3 billion) manufacturers are reluctant to create the factory lines to produce them ahead of demand. Wang, Liu and Wang (2007) point to the fact that TFT-LCD monitor supply chain constructs three layers. The upstream layer consists of main components such as crystal, color filter, drive IC, transparent electrode, glass substrate, polarizer, and back light. The midstream layer consists of components such as high-voltage plate, circuit plate, case, and LCD panel and finally, in the downstream layer, TFT-LCD manufacturers produce and sell LCD monitors to the customers through various distribution channels. A supply chain model is composed of activities that obtain raw materials and parts and embodies them into a manufacturing operation smoothly and economically. The Value chain notion on the other hand, as introduced by Michael Porter, has a larger focus and looks at every step from raw materials to the eventual consumer. The goal is to deliver maximum value to the end user for the least possible total cost. Supply chain management therefore forms a part of value-chain analysis. Also the value chain analysis offers better understanding of the manufacturing process as it provides an overall picture. Chiang and Trappey (2007) describe the value chain of the LCD industry and mention that the industry value system is mainly composed of the supplier's value chains, the panel production's value chain, the system integrator's value chain and the brand manufacturer's value chain. Raw materials and components such as liquid crystal materials, glass substrates, polaroids, color filters, photomasks, and driver IC are part of the supplier value chain. In the panel production's value chain, the processes are divided into three sub-productions - array, cell, and module. The product's overall design, final assembly and system testing form a part of the system integrator's value chain. The brand manufacturer leads the value chain and is responsible for handling the sales network of products. The brand manufacturer also takes responsibility for research and development and innovation of new product lines. Chiang and Trappey (2007) further discuss the business model suitable for each value chain. There are three common business models of production which may be applied depending on the nature of production. Make-to-stock (MTS) is applied to goods which are produced in large quantities and executes production on basis of sales forecast. Products are produced before any orders are received and held as inventory and shipped when the order is received. This model therefore suits mass production of standardised products. The build-to-order (BTO) model is where the company purchases raw materials with longer lead times. After the order is received, the project is executed based on specifications of the customer and hence the customers are usually involved in the product design team. The third business model, configuration-to-order (CTO), is in-between MTS and BTO and applied to mass customised products. Company will manufacture or purchase components and pre-assemble sub-systems before receiving customer orders. Once the order is received, the company begins to configure particular combinations into the final-products. In case of supplier's value chain, Chiang and Trappey (2007) believe that as it takes longer to deliver substrates and color filters as LCD's standard parts, MTS is the suitable model for the suppliers. CTO model may be more suitably applied to backlighting modules, driver IC, and polaroids. However, if the product is based on customer's special requirements, BTO business model is adopted. As array and cell are compatible parts for different LCD designs, MTS is a suitable model for panel factory's value chains. However, if these are to meet customer's special requirements, then CTO or BTO is adopted depending on customer's specifications. The system integrator is responsible for collaborating with suppliers for parts and outsourcing required assemblies. The system integrator then integrates the parts and performs tests on the final product. Chiang and Trappey (2007) recommend that if products are made in small batches to meet special specifications, it is suitable to adopt BTO model. CTO model may be applied for products in selected modules such as mobile phones. However, if the company produces the highly standardised products such as LCD TVs, then MTS model is suitable. 5. Recent trends in supply chain Outsourced Richards (2008) discusses a report by Display Search, which mentions that 80% of the new generation flat panel monitors that are being sold are not made by the manufacturer. The report mentions that OEM outsourcing of LCD monitors rose to 80% of the total supply while LCD TV OEM outsourcing increased to 23%. This trend is expected to grow further, especially for TV manufacturers as they continue to pressure suppliers to reduce costs. Some of the brands that are moving to outsource are Sony, Philips, Pioneer and Toshiba. The outsourcing of LCD TV is expected to grow to at least 35%. The report highlights that the continued pressure on suppliers will erode the margins and will raise concerns for supply chain participants whether they will benefit from the growth of the market. Collaborations As technology becomes more and more expensive, another trend that is seen in the LCD-TV industry is that of collaborations. Williams and Nystedt (2008) point to the trend of collaboration in recent months of major companies sharing investment. One example is that of between Hitachi, Canon, and Panasonic who forged an agreement to share the cost, burden, and benefits of developing and producing flat-panel displays. Another example is between Sharp and Toshiba who will buy screens and semiconductor chips from each other to keep their supplies steadier. Another major player Sony has plans to start buying LCD television display panels from electronics maker Sharp. An uncommon trend in the industry is the deal between manufacturer and supplier. In 2004, Chi Mei Optoelectronics (CMO) entered a deal with Corning - a glass supplier - for a supply of glass for manufacture of large-screen LCD TVs. Jorgensen (2004) highlights the rarity of such a deal in the electronic component supply chain where nobody wants to order in advance. However, as the market demand for LCD TVs is forecasted to rise, such deals are expected to increase. However, Jorgensen (2004) warns on the negative affects of such deal and points to the previous such deals in the electronics industry which have gone bad. Component suppliers for LCDs are therefore recommended to proceed with caution. On the bright side, such deals will ease the suppler anxiety and permit more risk being shared by the panel makers. As Thuermer (2004) mentions, a failing supply chain has largely been responsible for manufacturer inability to meet customer's demand and relative inflexibility of prices. Reshaping the electronics supply chain The rapid rise and fierce competition in the TFT-LCD industry is having its influence on the industry. However, Cassell (2006) mentions that the expansion is also impacting the wider electronics business such as semiconductor production and overall chip market. Cassell (2006) refers to the report by iSuppli which highlights the significant impact LCD-TV manufacturing is having on the global electronics supply chain. This include forecasts such as the revenue from sales of semiconductors for DTVs (includes LCD-TVs) will more than double between 2006 and 2010. Also by 2010, LCD-TVs are expected to represent nearly three quarters of total worldwide television manufacturing revenue which be an up from less than one-third in 2005. The report also foresees that contract manufacturers will produce 38 percent of LCD-TVs in 2010, up from 30 percent in 2006. With the worldwide shipments of LCD-TVs expected to rise to 126.9 million units in 2010, this will have a subsequent influence on the demand for components. LCD-TVs are inherently digital and have a higher semiconductor content compared to analog TVs. A rise in demand for LCDs is therefore having a significant influence in the global semiconductor manufacturing business. The panel is by far the most expensive component in an LCD-TV and the increasing demand for LCD-TVs are having a greater influence on the market for large-sized LCD panels. This because of the high value of the panels used within these televisions other then the fact that there is a rapid sales growth for LCD-TVs. Cassell (2006) further highlights the report by iSuppli indicating that by 2010, shipments of 40- to 44-inch display sets will pull almost even with those of 30- to 34-inch sets. Another significant fact highlighted in the report is that television brands are outsourcing LCD-TV production to contract manufacturers, mainly Original Design Manufacturers (ODMs). This has already been discussed previously in the essay. However, it should be noted that this was not done to a large degree in the past. The availability of ASSP chips however, has allowed contract manufacturers to build sets more easily and this has made outsourcing of design and manufacturing an attractive alternative to manufacturing. 6. Conclusion The LCD has come a long way from use in pocket calculators and digital watches to large flat-panel television displays. As the technology continues to evolve, the benefit will be passed on to the consumers. As competition between manufacturer intensifies, the manufacturers will have to focus on reducing the production cost and finding better manufacturing alternatives, in order to reduce the cost of manufacturing and hence the market price of the unit To efficiently mange the demand, manufacturers have to focus on more efficient supply chain management. For a complex industry such as this, vertical integration is not an obvious choice. However, confirmed supply deals and formation of cluster groups might offer a more viable alternative. Considering the huge investment required, sharing of cost between manufacturers along with reliable supply of parts will ultimately benefit all. 7. References Cassell, J., (2006) LCD-TV reshaping electronics supply chain, EETimes [online], Available from: http://www.eetimes.com/news/semi/showArticle.jhtml;jsessionid=CYP4WMNL1L24WQSNDLPCKH0CJUNN2JVNarticleID=193402718&pgno=1 [Accessed 21 March 2008] Chiang, T. and Trappey, A.J.C., (2007) Development of value chain collaborative model for product lifecycle management and its LCD industry adoption, International Journal of Production Economics, 109 (1-2), 90-104. Displaybank (2007) LCD Industry to Need New Investment of $60 Billion from 2008 through 2011, Displaybank [online] Available from: http://www.displaybank.com/eng/info/news/press_show.phpid=2281 [Accessed 21 March 2008] Jorgensen, B., (2004) LCD supply chain: reservations welcome, Electronic Business, 30 (11), 39-40. Kawamoto, H., (2002) The History of Liquid-Crystal Displays, Proc. IEEE [online], 90 (4), Available from: http://www.ieee.org/portal/cms_docs_iportals/iportals/aboutus/history_center/LCD-History.pdf [Accessed 21 March 2008] Richards, D., (2008) 80% of Flat Panel Screens Outsourced, Smarthouse [online], Available from: http://www.smarthouse.com.au/Home_Office/Monitors_And_Screens/F5L8R3E7page=1 [Accessed 21 March 2008] Thuermer, K. E., (2004) Waiting for Your Plasma TV, World Trade, 17 (8), 32-34. Wang, S.J., Liu, S.F. and Wang, W.L., (2008) The simulated impact of RFID-enabled supply chain on pull-based inventory replenishment in TFT-LCD industry, International Journal of Production Economics, 112 (2), 570-586. Williams, M. and Nystedt, D., (2008) Companies Collaborate for Cheaper, Better LCDs, PC World, 26 (3), 28-28 Read More