Supply Chain Cost Reduction

CASE STUDY: Intel Atom & The Need for Supply Chain Reduction

Intel is one of the most popular international brands that manufacturer microprocessors. One of the biggest names in technology, the company name is almost synonymous to computer chips. In late 2012, the company launched its new ultra-low-voltage, low-cost microprocessors known as the Intel Atom.

The supply chain cost per chip was at $5.50, which is acceptable for units sold at $100.00. The new chip, however, was priced at about $20.00. Intel realized the need to lower down the supply chain costs for the Atom chip. Needless to say, the chip has to deliver. This is why the company couldn’t afford any service trade-off at that time.

The chip is a single component, so there is no part of it or any part of the manufacture process that can be compromised to cut down costs. In terms of packaging, the company has already reduced it to the bare minimum.

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Inventory was the only area of leverage. Intel’s remaining option was to minimize the levels of inventory, which the company has been keeping very high up to that point. The inventory has to be managed strictly so as to attend to the nine-week order cycle. But the circumstances brought by the Atom chip have left the company with no choice but reduce inventory by shortening the cycle time.

Intel took a bold move in their supply chain solutions. They started out with a pilot operation tapping the service of a Malaysia-based manufacturer. Little by little, the company was able to identify and eliminate inefficiencies in their supply chain process. As a result, they were able to cut down the cycle time in manufacturing the chips.

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Other methods included in their strategy are: reduction of chip assembly test window, introduction of a formal sales and operations planning process, and the shift to an inventory model that is managed by a vendor.

Intel gradually reduced their cycle time from nine weeks to just two. In the end, they achieved as supply chain cost reduction of over $4.00 per unit for the $20.00 Atom chip.

At present, the company continues to grow as a topnotch provider of microprocessors. Through their smart supply chain strategies, they were able to establish a reputation as a leader in the industry.