The Intel Supply Chain Challenge Jim Kellso Senior

The Intel Supply Chain Challenge Jim Kellso Senior Supply Chain Master Intel Corporation January, 2008 Intel Confidential

“The reasonable man adapts himself to To be an Unreasonable Person? the world; the unreasonable one persists in trying to adapt the world to himself Therefore all progress depends on the unreasonable man. " - George Bernard Shaw Intel Confidential

How and Why to be an Unreasonable Person? Some assertions: –Progress comes from desire to create change— unreasonable people –Improvement comes from Innovative change which is focused on real business problems –Innovation just doesn’t happen…it needs care, feeding and DIRECTION Intel Confidential

An Insatiable Appetite for Innovation Throughout our history, we’ve transformed the world: Intel Confidential

Agenda –A little more about Intel –Intel’s Supply Chain Network – “Changing” Environment and Strategy –The process of Directed Innovation –The outcomes of the process –The Results –Questions Intel Confidential

Contract Manufacturer Capital Equipment Supplier Distributor Fab Wafers Sort Die Assembly Units Test Distributor OEM/Disti/Retail Units OEM Fabricator Indirect Material Supplier Intel Confidential Customer’s Customer Supplier’s Supplier Intel’s Supply Network

Capital Equipment 17 Fabs—soon Supplier 6 Distributor Assembly / Test sites—soon to be 7 (Viet Nam) Fab Sort Assembly 100, 000 Products 95, 000 to be 18 ( first Contract Manufacturer fab in China/Asia) Test Distributor OEM/Disti/Retail Wafers Die Customers Unique Units 70, 000 Genuine Intel Dealers Indirect Material 60, 000 Wafer Supplier 270 Customer’s Customer Supplier’s Supplier Intel’s Supply Network starts / week New Product Versions Intel Confidential OEM Fabricator

Intel’s High Volume Fabrication & Assembly/Test Sites Ireland IFO/F 24 Oregon Colorado Fab 23 FO, F 20, D 1 C D 1 d China Israel Mass. Shanghai A/T Fab 8/18/28 Fab 17 China Chengdu A/T California D 2 Arizona Fab 12/22/32 New Mexico Fab 11/11 X China Dalian Fab 68 Costa Rica San Jose A/T Malaysia Penang A/T Kulim A/T Intel Confidential Viet Nam Philippines Ho Chi Minn City Cavite A/T Viet Nam A/t

CPLG Vision / Mission Customer Fulfillment, Planning and Logistics Group CPLG Vision – Agile fulfillment capability that is easy for customers and maximizes shareholder value. CPLG Mission – Increase customer and Intel success by optimizing supply and demand, and delivering valued supply chain solutions. 2007 focus areas – Customer: Enable the field to win customer trust. – Inventory: Optimize Intel’s Inventory pipeline levels/mix to deliver customer satisfaction and maximize Intel’s profitability. – Execution: Drive efficiency in all areas of the Supply Chain. – Foundation: Strengthen our foundation through increased knowledge, skills and capabilities. Intel Confidential

A little about CPLG – Approximately 3500 employees world wide – Includes customer service, planning and logistics operations – Responsible for ~3 billion dollars of inventory – 500 million dollars of transportation spending annually – Major facilities in Penang, Manila, China, Costa Rica, Amsterdam, California and Arizona. – Hubs in Shanghai, Shenzhen, Hong Kong, LA and Miami, Tokyo Intel Confidential

Our Supply Chain Strategy: Build a High Velocity Supply Chain Intel Confidential

Metric Driven Supply Chain structure Supply Chain Metric Say “Yes” to Customer's Upside, Pull-Ins, Swap requests in 1 Biz Day Improve Customer Committed Dock Date (CDD) Order Fulfillment Quality DPM Percentage of CPU SKUs with 2 -6 wks of Finished Goods Inventory Pipeline Inventory % Mix Forecast Variability Reduction per quarter on strategic, volume families. % of CPUs & Chipsets SKUs on new Item and BOM Nomenclature Helping Intel’s Customers Go Faster Intel Confidential

Challenge: Meeting Demand Optimizing Supply Intel Confidential

Complexity Today – Simplification Critical for Future Intel Confidential

Contract Manufacturer Capital Equipment Supplier Distributor Fab Wafers Sort Die Assembly Units Test Distributor OEM/Disti/Retail Units OEM Fabricator Indirect Material Supplier Customer’s Customer Supplier’s Supplier Long throughput cycle in semiconductor industry Semiconductor manufacturing TPT varies between 2 -4 months Intel Confidential

Challenge: Fulfilling Demand while Optimizing Inventory and Factory costs Supply Demand Factory Costs/Output Intel Confidential

The key challenges Complexity driven by: Customer Products Market Platform strategy Made more difficult by need for affordability/profitability Intel Confidential

Supply Network Research Vision –Supply Network becomes a competitive advantage. –Virtually connected with suppliers and customers. –Meet aggressive goals to reduce cycle time and costs. –Positive impact on bottom lines of Intel and its customers. –Supply chain is HIGHLY RESPONSIVE Intel Confidential

Inventory vs Service Level Tomorrow’s Efficient Frontier Service Level Today’s Efficient Frontier How Do you Get There: Productivity Improvement AMB: Lead Time Demand Forecast Variance Supply Variance 2008 65% 2007 45% 2006 19% 17 woi 22 woi Inventory Intel Confidential 28 woi

What’s next? Intel Confidential

Paul Said it in the Q 2 07 BUM: The Business Strategy Expand our business through proliferation of what we do best: –Keep leveraging the current market in CPU’s –Develop and deploy to the new market of connected devices All fueled by the continuous growth the internet Intel Confidential

Extending Intel Architecture … Ultra Low Power Sufficient Performance Extreme Integration ~$10 B Performance/Watt User Valued Features ~$10 B 2011 Unit TAM > 900 Million Units Ultra MID CE Low-Cost PC PLATFORMS Notebook Desktop Common Element: The Internet 3/16/2018 July Intel Confidential BUSINESS UPDATE MEETING Q 3 2007 INTEL CONFIDENTIAL – INTERNAL USE ONLY Server

Common Factors Increasing complexity Inability to predict— –Demand –Supply Because we can’t really ever predict GREAT –Need for speed –Need for later differentiation –Have to be FAST and LEAN Need to satisfy customers Need to relate the capabilities together so that we align inventory, planning and customer expectations together Intel Confidential

Characteristics of an Excellent Supply Chain An excellent supply chain: 1. Supports, enhances, and is an integral part of a company’s competitive business strategy 2. Leverages a distinctive (not necessarily unique) supply chain operating model to sustain competitiveness 3. Executes well against a balanced set of operational performance objectives/metrics 4. Focuses on a few business practices that reinforce each other to support the operating model and best achieve operational objectives * L. Lapide, “The Four Habits of Highly Effective Supply Chains”, Harvard Business Review Supply Chain Strategy Newsletter, HBSP and MIT-CLT Intel Confidential

This is what we have to build to support the low cost pc supply chain…… Intel Confidential

Intel Confidential