Unreasonable Innovation: Driving Progress in Intel's Supply Chain

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

2. To be an Unreasonable Person? “The reasonable man adapts himself to 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

3. 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

4. An Insatiable Appetite for Innovation • Throughout our history, we’ve transformed the world:

5. 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

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

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

8. Ireland IFO/F24 China Shanghai A/T Colorado Fab 23 Israel Fab 8/18/28 China Chengdu A/T Mass. Fab 17 Oregon AFO, F20, D1C D1d California D2 Costa Rica San Jose A/T Arizona Fab12/22/32 New Mexico Fab 11/11X Malaysia Penang A/T Kulim A/T Philippines Cavite A/T Intel’s High Volume Fabrication & Assembly/Test Sites China Dalian Fab 68 Viet Nam Ho Chi Minn City Viet Nam A/t

9. 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.

10. 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, Californiaand Arizona. • Hubs in Shanghai, Shenzhen, Hong Kong, LA and Miami, Tokyo

11. Our Supply Chain Strategy: Build a High Velocity Supply Chain

12. Metric Driven Supply Chain structure Helping Intel’s Customers Go Faster

13. Challenge: Meeting Demand and Optimizing Supply

14. Complexity Today – Simplification Critical for Future

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

16. Supply Demand Factory Costs/Output Challenge: Fulfilling Demand while Optimizing Inventory and Factory costs

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

18. Supply Network ResearchVision • 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

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

20. What’s next?

21. Paul Said it in the Q2 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

22. Ultra Low Power Sufficient PerformanceExtreme Integration Ultra Low-Cost PC MID CE Common Element: The Internet Extending Intel Architecture … Performance Performance/Watt User Valued Features ~$10B ~$10B ~$10B PLATFORMS 2011 Unit TAM > 900 Million Units Notebook Desktop Server July 2007 BUSINESS UPDATE MEETING Q3 2007 INTEL CONFIDENTIAL – INTERNAL USE ONLY

23. 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

24. Characteristics of an Excellent Supply Chain An excellent supply chain: • Supports, enhances, and is an integral part of a company’s competitive business strategy • Leverages a distinctive (not necessarily unique) supply chain operating model to sustain competitiveness • Executes well against a balanced set of operational performance objectives/metrics • 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

25. This is what we have to build to support the low cost pc supply chain……