One of the world’s largest manufacturers of computer chips, Intel needs little introduction. However, the company needed
Posted: Fri May 20, 2022 6:45 am
One of the world’s largest manufacturers of computer chips,
Intel needs little introduction. However, the company needed to
reduce supply chain expenditure significantly after bringing its
low-cost “Atom” chip to market. Supply chain costs of around $5.50
per chip were bearable for units selling for $100, but the price of
the new chip was a fraction of that, at about $20.
The Supply Chain Cost Reduction
Challenge:
Somehow, Intel had to reduce the supply chain costs for the Atom
chip but had only one area of leverage—inventory.
The chip had to work, so Intel could make no service trade-offs.
With each Atom product being a single component, there was also no
way to reduce duty payments. Intel had already whittled packaging
down to a minimum, and with a high value-to-weight ratio, the
chips’ distribution costs could not be pared down any further.
The only option was to try to reduce levels of inventory, which,
up to that point, had been kept very high to support a nine-week
order cycle. The only way Intel could find to make supply chain
cost reductions was to bring this cycle time down and therefore
reduce inventory.
The Path to Cost Reduction:
Intel decided to try what was considered an unlikely supply
chain strategy for the semiconductor industry: make to
order. The company began with a pilot operation using a
manufacturer in Malaysia. Through a process of iteration, they
gradually sought out and eliminated supply chain inefficiencies to
reduce order cycle time incrementally. Further improvement
initiatives included:
Supply Chain Cost Management Results:
Through its incremental approach to cycle time improvement,
Intel eventually drove the order cycle time for the Atom chip down
from nine weeks to just two. As a result, the company achieved a
supply chain cost reduction of more than $4 per unit for the $20
Atom chip—a far more palatable rate than the original figure of
$5.50.
Required
Draw an intricate detailed diagram of Intel’s entire supply
chain, indicating the places - in their supply chain - that they
targeted and the entities they engaged to experience the massive
reduction in their overall cost.
Intel needs little introduction. However, the company needed to
reduce supply chain expenditure significantly after bringing its
low-cost “Atom” chip to market. Supply chain costs of around $5.50
per chip were bearable for units selling for $100, but the price of
the new chip was a fraction of that, at about $20.
The Supply Chain Cost Reduction
Challenge:
Somehow, Intel had to reduce the supply chain costs for the Atom
chip but had only one area of leverage—inventory.
The chip had to work, so Intel could make no service trade-offs.
With each Atom product being a single component, there was also no
way to reduce duty payments. Intel had already whittled packaging
down to a minimum, and with a high value-to-weight ratio, the
chips’ distribution costs could not be pared down any further.
The only option was to try to reduce levels of inventory, which,
up to that point, had been kept very high to support a nine-week
order cycle. The only way Intel could find to make supply chain
cost reductions was to bring this cycle time down and therefore
reduce inventory.
The Path to Cost Reduction:
Intel decided to try what was considered an unlikely supply
chain strategy for the semiconductor industry: make to
order. The company began with a pilot operation using a
manufacturer in Malaysia. Through a process of iteration, they
gradually sought out and eliminated supply chain inefficiencies to
reduce order cycle time incrementally. Further improvement
initiatives included:
Supply Chain Cost Management Results:
Through its incremental approach to cycle time improvement,
Intel eventually drove the order cycle time for the Atom chip down
from nine weeks to just two. As a result, the company achieved a
supply chain cost reduction of more than $4 per unit for the $20
Atom chip—a far more palatable rate than the original figure of
$5.50.
Required
Draw an intricate detailed diagram of Intel’s entire supply
chain, indicating the places - in their supply chain - that they
targeted and the entities they engaged to experience the massive
reduction in their overall cost.