Applied Materials automates warehouse ops as AI accelerates chip demand

Applied Materials has modernized its warehouse distribution operations just in time to serve the rapidly transforming semiconductor industry for the AI era.

Beginning in June 2022, the Santa Clara, Calif.-based company’s worldwide operation team went live with its new 725,000-square-foot Logistic Service Center (LSC) in Austin, Texas, which houses a network of robots, RFID technology, and innovative “Goods to Person” technology to create a low to no touch automated workflow for warehouse management, earning the company a a 2024 CIO Award for IT leadership and innovation.  

Applied Materials, which employs 33,000 in 120 cities globally, is a major supplier of semiconductor equipment to chipmakers, making it a core partner in the semiconductor ecosystem.

The company’s modernized LCS eliminates the need for workers to walk around multiple warehouses to locate parts and place them in correct bins. Its innovative factory automation, RFID scanning, and consolidation of seven warehouses into one building has vastly improved the efficiency of components distribution and has sped up delivery to the company’s manufacturing division.

Among LCS’ major innovations is its Goods to Person (GTP) capability, also known as the Automated Storage and Retrieval System (AS/RS). The system uses robotics technology to improve scalability and cycle times for material delivery to manufacturing. Seamlessly integrating GTP with custom SAP software, which provides the backbone of Applied Materials’ project, ensures accurate and up-to-date information on inventory levels, stock movements, and order fulfillment, says Hari Lakshminarayanan, who, as managing director of IT solutions management at Applied Materials, led the LCS project.

Automating warehouse operations

The robots involved with LCS do not manufacture components; instead, their job is transporting bins and totes that contain a variety of parts, stacking them in a neat, logical way based on how often they are needed. This way, the robots can easily pick and deliver the most in-demand totes to the workstation, where human workers pick or put away the parts from a single work port, the company explains.

LCS has resolved many efficiencies plaguing Applied Materials’ expanding manufacturing process.

“The warehouses were getting distributed, which creates logistics complexity and inefficiencies in delivering to our manufacturing,” Lakshminarayanan says. “The key objective was to accelerate our delivery time, increase accuracy, optimize costs, and reduce the touch process.”

By leveraging RFID and auto scan technology, the project also eliminated manual entry and manual audits. With several million scans per month, this approach significantly improved accuracy, speed, and efficiency, ensuring that kits were audited with higher accuracy and minimized errors. The robots locate and transport the required items to the designated human-occupied ports swiftly and accurately.

It’s a major transformation from what was once a mostly manual process. Roughly 25 employees from all spheres of the company were involved in its design and execution but 10 IT employees and data scientists out of the company’s 1,000 IT employees built LCS.

“When you take a company like ours and take the number of processes that have been developed over 57 years, many of them manual, and you automate it, you can imagine the complexity of ensuring the automation is stable and scalable,” says Hari Jayaram, corporate vice president and CIO. “That’s the magnanimity of this particular project.”

The benefits of modernization

But it was no easy task. The modernization required about 100 people to handle pre-project site preparation for robotic automation and to set up the IT infrastructure, including the GTP technology, conveyance, sortation, RFID technology, sensors, and optimization techniques with artificial intelligence and machine learning, Jayaram says.

Working with third-party vendors, the City of Austin, and many contractors, as well as the constant alignment among multiple business units in Applied Material, was another key challenge. A core team of 25 IT pros and other business leaders who built LSC — vastly reducing human error and delays — achieved a 90% improvement in cycle times, according to the company.

Applied Material’s project is “all about automation and productivity, reducing the risk of errors, human or otherwise,” says Ashish Nadkarni, group vice president and general manager of worldwide infrastructure research at IDC. “It makes perfect sense for a supplier to the semiconductor manufacturer of AI chips.”

The Logistic Service Center, which went live in November 2022, reduced the campus footprint by 50%. It also alleviated space and resources constraints, improved inventory accuracy and efficiencies, and cut costs on labor, warehousing leasing, and transportation.

The GTP capability incorporates a grid of 70,000 bins that serve as storage units for parts and materials. This storage capacity ensures that items can be efficiently organized and accessed.

By integrating the robotic automation with its SAP-based warehouse management system, Applied Materials has been able to achieve real-time visibility and control over inventory management and auditing, Lakshminarayanan says.

The enhanced automated workflow, with robots picking, sorting, and handing off components, has vastly sped up the distribution process. Strategically positioned human-occupied ports give workers convenient access to the bins and enable seamless interaction between the operators and the automated system, he adds.

RFID also helps ensure the correct materials are sent to manufacturing, eliminating discrepancies and improving quality delivery. Gateways with RFID automate system transactions, reducing manual intervention and human errors, ensuring seamless material movement between buildings, according to the company.

Put-away productivity has increased eightfold, thanks to the automated warehouse workflow, and pick productivity has experienced a fourfold improvement, the company notes, adding that Applied Materials’ automated inventory and picking accuracy metric now exceeds 99%.

Change management: A step-by-step process

Lakshminarayanan says change management was a major challenge for Applied Materials’ implementation of LCS because each step in the automation process had to be executed individually and tested for some time to ensure stability.

The automation-related hardware and software challenges were fairly straightforward, he says, requiring predominantly adjustments to the speed of the hardware. Another important task was training the people who operate in front of the ports, and thus interact with the robotics.

But the greatest challenge was aligning the business units and business processes as the automation was turned on at each step of the journey, requiring a detailed project plan and substantial testing before moving on to the next step.

 “It was not a flip-over switch. We had to pick and choose which processes to automate and take it one step at a time in order to allow for a smooth transition,” Lakshminarayanan says. “It took months to stabilize and manage that expectation to business unit.

“The No. 1 objective is not to disrupt business, and we could not, and did not, lower that expectation. We met the expectation,” Lakshminarayanan says. “It was a very smooth transition. The ramp up took a little bit of time, but it was required to ensure steady operations.”