Intel Supply Chain Strategy | semiconductor chip Shortage | Global crisis Supply Chain Case Study

5 Minutes Learning

16 Nov 202109:16

Summary

TLDRIn 2007, Intel Corporation faced the challenge of reducing supply chain costs for their low-power Atom processor chip, targeting affordability for emerging markets. With an initial price of $20 per unit and supply chain expenses at 40% of the unit cost, Intel needed a radical approach. They adopted a 'make to order' strategy, reducing order cycle time from nine weeks to two, and supply chain costs per chip to under $1. Through initiatives like the 'Just Say Yes' program, Intel improved customer responsiveness and demand forecasting. The 'Low-Cost Supply Chain Project' led to a significant cost reduction, enabling Intel to deliver Atom chips at a more competitive rate, boosting their potential to double their business.

Takeaways

🌟 Intel Corporation, a leading semiconductor manufacturer, aimed to reduce the supply chain cost for its Atom chip to meet affordability targets.
💡 The Atom chip was a low-power processor designed for mobile devices, consumer electronics, and light computing, with a significant impact on Intel's unit economics.
💰 Traditional Intel processors had a supply chain cost of 5.5% of the unit price, but for the Atom chip, this was initially 40% higher than the target due to its lower price point.
🚀 Intel aimed to ship 20 million Atom processors in the first year, recognizing the potential for a large market in emerging economies.
🛠 The 'Make to Order' strategy was adopted to streamline the supply chain, reducing order cycle times and inventory levels.
🔧 Intel launched the 'Just Say Yes' program to improve customer responsiveness, reduce order fulfillment delays, and enhance overall customer satisfaction.
📈 The initiative focused on improving order change response times, committing to delivery dates, reducing inventory, and automating processes to increase efficiency.
📊 A team led by Mr. Kelso was tasked with creating a low-cost supply chain, aiming to deliver 900 million units annually at reduced costs while improving customer service.
🕒 The order cycle time for the Atom chip was reduced from nine weeks to just two weeks, significantly cutting supply chain costs per unit.
📉 The supply chain cost reduction for the Atom chip was more than four dollars per unit, making it more affordable and competitive in the market.
📚 The script emphasizes the importance of innovative supply chain strategies and customer-focused initiatives in achieving business goals and cost reductions.

Q & A

What was Intel Corporation's task regarding the Atom chip?
-Intel Corporation was tasked to reduce the supply chain cost of the Atom chip to meet affordability targets before the product launch.
What was the average selling price of Intel's traditional processors?
-Intel's traditional processors were sold for around $100 per unit on average.
What was the introductory price of the Atom chip, and what was the expected future price?
-The introductory price of the Atom chip was $20, which was expected to fall to $10.
What percentage of the unit cost did the supply chain and inventory costs constitute for Intel's traditional processors?
-The supply chain and inventory costs for Intel's traditional processors were 5.5 percent of the unit cost.
Why was the supply chain cost for the Atom chip significantly higher than for traditional processors?
-The supply chain expenses for the Atom chip were higher due to its low introductory price, making the supply chain costs 40 percent of the unit cost, which was not justifiable compared to the high cost of traditional processors.
How many Atom processors did Intel expect to ship in the first year of its launch?
-Intel expected to ship around 20 million Atom processors in the first year of its launch.
What was the annual revenue potential for Intel in the devices represented by the Atom chip?
-The devices represented an annual revenue potential of $10 billion or more for Intel.
What was Intel's strategy to reduce supply chain costs for the Atom chip?
-Intel's strategy included implementing a 'make to order' model, reducing order cycle time, and decreasing inventory levels.
What was the 'Just Say Yes' program aimed at achieving?
-The 'Just Say Yes' program aimed to improve business processes based on real customer needs, focusing on quick and positive responses to change order requests, reducing inventory levels, and improving internal efficiency.
What was the objective of the 'Low-Cost Supply Chain Project' led by Mr. Kelso?
-The objective was to create the ability to deliver up to an additional 900 million units a year at lower product costs by 2012 while increasing customer service.
What was the final order cycle time for the Atom chip after the supply chain improvements?
-The order cycle time for the Atom chip was reduced from nine weeks to just two weeks.
What was the achieved supply chain cost reduction per unit for the Atom chip?
-Intel achieved a supply chain cost reduction of more than four dollars per unit for the twenty-dollar Atom chip.

Outlines

00:00

💡 Intel's Atom Chip Supply Chain Cost Reduction Challenge

This paragraph introduces Intel Corporation's mission to reduce the supply chain costs of their Atom processor chip to meet affordability targets. The video script begins with a call to action for viewers to engage with the content and subscribe to the channel for more case studies. Intel, a leading multinational semiconductor manufacturer, was developing the Atom chip in 2007, which had a significantly lower unit cost compared to their traditional processors. The challenge was to bring down the supply chain costs from 5.5% to align with the Atom's introductory price of $20, expected to decrease to $10. The script outlines the importance of this initiative for Intel's market expansion into mobile devices and consumer electronics, with a potential annual revenue of over $10 billion. The key strategy identified to reduce costs was to decrease inventory levels by shortening the order cycle time from nine weeks.

05:02

🛠️ Implementing a Make-to-Order Model and the 'Just Say Yes' Program

The second paragraph delves into Intel's innovative approach to tackling the supply chain inefficiencies of the Atom chip. The company adopted a make-to-order model, which significantly reduced the supply chain cost per chip to around $1.40, with a goal to further decrease it. Intel executives engaged directly with customers to gather feedback, leading to the 'Just Say Yes' program aimed at enhancing customer responsiveness and satisfaction. The program targeted several areas, including improving order change response times, reducing inventory, and implementing new performance metrics. A dedicated team led by Mr. Kelso was tasked with creating a low-cost supply chain that would allow for increased production and improved customer service by 2012. Through incremental improvements, Intel managed to reduce the order cycle time for the Atom chip to just two weeks, achieving a substantial cost reduction of over $4 per unit, making the chip more competitive in the market.

Mindmap

Keywords

💡Intel Corporation

Intel Corporation is an American multinational semiconductor manufacturing company renowned for its role in developing computer chips. In the context of the video, Intel is tasked with reducing the supply chain costs for its Atom processor chip to meet affordability targets. The company's traditional processors had a significantly different unit economics compared to Atom, which was priced much lower and thus required a radical approach to supply chain management to remain profitable.

💡Supply Chain Cost

Supply chain cost refers to the total expenses incurred in acquiring, producing, and delivering a product to the end consumer. In the video, Intel's traditional processors had a supply chain cost of 5.5 percent of the unit cost, which was justifiable due to their high price. However, for the Atom chip, which was priced significantly lower, the supply chain expenses were initially 40 percent higher than the affordability target, necessitating a cost reduction strategy.

💡Atom Processor Chip

The Atom processor chip is a low-power product line extension developed by Intel. It was designed for use in mobile devices, consumer electronics, and light computing, representing a significant shift in Intel's product offerings. The video discusses how Intel aimed to bring down the supply chain cost of Atom to make it more affordable, which was crucial for its success in emerging markets.

💡Affordability Target

An affordability target is a price point that a product must meet to be considered accessible to a certain market segment. In the script, Intel had to reduce the supply chain cost for the Atom chip to meet its affordability target, which was essential for the chip to be competitive in the market, especially considering its introductory price of twenty dollars.

💡Make to Order

Make to order is a supply chain strategy where products are manufactured only after a confirmed order has been received from a customer. Intel adopted this strategy for the Atom chip as an unlikely approach for the semiconductor industry. This strategy helped Intel to reduce supply chain inefficiencies and bring down the cost per chip, as seen in the video where they gradually sought out and eliminated inefficiencies to reduce order cycle time.

💡Order Cycle Time

Order cycle time refers to the duration from the placement of an order to the delivery of the product. In the video, Intel aimed to reduce the order cycle time for the Atom chip from nine weeks to just two weeks. This reduction was a key part of their strategy to lower supply chain costs and improve customer responsiveness.

💡Inventory Levels

Inventory levels represent the quantity of goods held in stock by a company. Intel traditionally kept high inventory levels to support a nine-week order cycle. However, to reduce supply chain costs for the Atom chip, Intel had to find ways to lower these inventory levels, which was one of the challenges addressed in their supply chain cost reduction efforts.

💡Just Say Yes Program

The 'Just Say Yes' program was an initiative launched by Intel in response to customer feedback about dissatisfaction with the order fulfillment process. The program aimed to improve Intel's ability to respond quickly and positively to change order requests, commit to delivery dates, reduce inventory levels, and streamline the supply chain process. This initiative was a significant part of Intel's strategy to enhance customer service and reduce supply chain costs.

💡Low-Cost Supply Chain Project

The Low-Cost Supply Chain Project was a specific initiative undertaken by Intel to radically reduce the supply chain costs for the Atom chip. Led by Mr. Kelso, a senior supply chain master, the project involved forming a team with the best people from Intel and setting a timeline of six months to achieve the cost reductions. The project's goal was to deliver up to an additional 900 million units a year at reduced product costs while increasing customer service.

💡Supply Chain Operations Reference Model

The Supply Chain Operations Reference Model (SCOR) is a framework for managing supply chain activities. In the video, Intel's team used a one-page document capturing the product flow through the stages of SCOR, focusing on plan, source, make, deliver, and return. This approach helped them to identify areas for improvement and cost reduction in the supply chain for the Atom chip.

Highlights

Intel Corporation, a leading manufacturer of computer chips, was tasked with reducing the supply chain cost of their Atom processor.

The Atom chip aimed to be affordable with an introductory price of $20, expected to decrease to $10.

Supply chain expenses for Atom were initially 40% higher than the affordability target.

Intel aimed to ship 20 million Atom processors in the first year of its launch.

The Atom chip was designed for use in mobile devices, consumer electronics, and light computing.

Intel sought to reduce supply chain costs without compromising the quality of service.

Intel's traditional processors had a supply chain cost of 5.5% of the unit cost, which was not feasible for Atom.

The 'Make to Order' strategy was adopted to reduce supply chain inefficiencies in the semiconductor industry.

Intel initiated a pilot operation in Malaysia to iteratively reduce order cycle time.

The 'Just Say Yes' program was launched to improve customer responsiveness and streamline the order fulfillment process.

The program aimed to commit to a delivery date within 24 hours and have products available within three days.

Intel's new supply chain design reduced the order cycle time for the Atom chip from nine weeks to just two.

Supply chain cost per chip was reduced to $1.40, with a goal to get it under $1 by 2010.

Intel executives visited customers to gather direct feedback and improve business processes.

The Low-Cost Supply Chain Project was initiated with a six-month timeline to achieve cost reductions.

A one-page document captured the product flow through the supply chain operations reference model.

Intel's incremental approach to cycle time improvement led to a supply chain cost reduction of more than $4 per unit.