Intel’s supply chain is tasked with the manufacturing and supply of millions of chips worldwide. That is a lot of chips!
The company itself is currently the second largest chip manufacturer, but it was the undisputed king of chips at the time of this story.
In this supply chain story, we review how Intel overcame the hurdle of pricing and supply chain cost through innovative thinking, enabling them to compete better and improve customer satisfaction.
What was the problem for Intel?
Intel, although one of the largest chip makers in the world, had a serious problem on its hands. It had introduced a new chip, but its customers weren’t willing to pay so much for it.
The company initially sold its chips at premium prices, but the competition was now at play, and its competitors were selling way cheaper. This made it difficult for Intel to continue enjoying their premium pricing.
The company had to find a way to reduce the cost of the chip significantly, and all eyes were on its supply chain. However, there was an issue.
Intel’s supply chain already cost about $6 per chip, while they were selling for $100. The company was poised to sell its new chips at $20, but that meant the supply chain cost had to come down even further.
What was the challenge with Intel’s supply chain?
Intel had done a good job bringing down costs in other areas, but its supply chain was the biggest obstacle.
It could not make service trade-offs on the production of the chips because it needed it to be the best out there. The company could not reduce its duty payments and had brought the chip packaging down to the minimum requirement.
The only option was to cut costs on an already-optimized supply chain.
After much deliberation and analysis – you can read the importance of supply chain analysis here. The only leverage it could see at that time was with its inventory.
Intel decided to reduce its inventory cost but had to be careful to avoid negatively affecting the cycle and lead times.
What was the solution for Intel’s supply chain?
Intel chose to change their inventory management model. It switched to the make-to-order inventory. However, how was intel’s supply chain going to handle this?
The company began its first operation by using a manufacturer in Malaysia, and through the law of repetition, they were gradually able to map out the value and eliminate inefficient processes. Through this, they were able to reduce cycle time incrementally.
The company applied two key supply chain management strategies: inventory management and outsourcing its supply chain. These strategies worked in their favour leading to a most pleasing outcome.
What was the outcome?
Intel’s supply chain was able to cut down the chip assembly window from 5 to 2 days. Its supply chain cost went down to $1 from $6, giving them an edge over their competitors.
Moral of the Story?
There are few takeaways from this intel’s story.
1. Supply chains play a significant role in competition. In fact, modern day competition is typically between supply chains.
2. Never be afraid to innovate. Innovation is the lifeline of any business.
3. Be open to exploring new strategies in your supply chain.
Obinabo Tochukwu Tabansi is a supply chain mastro and writer with a decade of experience working in different facets of the supply chain. Today he is living his passion for writing on all things supply chain. His blog, Supply Chain Nuggets, is Africa’s fastest-rising supply chain blog, helping professionals, business owners, and curious minds navigate the supply chain complexities on the continent.
