E xcellent IT infrastructure makes Intel the link that defines the strength of the PC industry's supply chain. Moore's law, which holds that microprocessors will double in power and halve in price approximately every 18 months, has powered Intel's unswerving ascent for more than a decade. Intel, ever mindful of cofounder Gordon Moore's oft-cited axiom, has released a torrent of increasingly powerful microprocessors. In response to each new chip, software developers offer increasingly complex applications, sophisticated spreadsheets, snazzy desktop publishing suites and multimedia shoot'em-up video games. And eagerly receptive PC customers have responded to each wave of innovation by obligingly snapping up the latest PCs, giving Intel a more than fourfold increase in annual revenues between 1992 and 1997. Intel is at the heart of the PC value chain. Hundreds of raw-materials suppliers, component manufacturers, assemblers and resellers depend on its continued success. In the past, Intel's success was clearly attributable to its relentless product innovation -- a factor that remains paramount to PC industry prosperity.
Lately, however, Intel's supply chain practices with both suppliers and customers have taken a much more conspicuous role in the PC value chain.
Although Intel remains the undisputed leader of PC microprocessor manufacturers, competitors such as Advanced Micro Devices, and Cyrix, are making a bid for chunks of Intel's market share. Until recently, Intel's industry dominance allowed it to be somewhat lax about its supply chain. "Intel was like a monopoly," says Roger Kay, senior research analyst with International Data Corp (IDC) in the US. "If it had told its suppliers to show up at the loading dock with orders written on toilet paper with crayon, they would have done it." But tougher competition and customers, who in the last couple of years have demanded just-in-time delivery, prompted Intel to develop industry-leading supply chain practices with both suppliers and customers.
Today PC makers are aggressively eliminating slack from the supply chain through build-to-order manufacturing. Industry-leading Dell Computer is the prime exemplar of this trend. Making PCs-to-order eliminates unwanted stockpiles of components and finished product. But it also demands all participants in the PC value chain -- including Intel -- coordinate and integrate supply levels, manufacturing capacity, inventory and logistics data. The enemy of an efficient supply chain is excess inventory, and in the fast-changing PC market almost any inventory seems like too much. A PC maker's worst nightmare is an overstock of yesterday's PC du jour languishing on warehouse shelves. Such situations force PC makers to sell their dated models at discount prices and forfeit profits. "All of our [customers] are trying to operate with essentially zero inventory," says Alan Baldwin, vice president of the planning and logistics group, which is a part of Intel's technology and manufacturing group in the US. "They need just-in-time delivery from us and real-time feedback from the marketplace." Aiming to accelerate delivery speed while reducing inventory and costs in the PC supply chain, Intel established an extranet to communicate real-time inventory levels and demand to suppliers and customers. The chip maker also implemented an enterprise resource planning system to improve inventory control, product delivery and business integration, setting up an intranet to speed procurement cycles. (Note: Intel declined to specify brand names of any technology it uses other than its own.) Keeping Suppliers Ready, Willing and Able Before Intel could satisfy its customers' just-in-time demands, it needed to make its own production capacity responsive to demand fluctuations and tighten links to its suppliers. It assessed the strength of its supply chain at the product development level by analysing each supplier's ability to provide requisite quality and quantities of materials and equipment. Intel's manager of strategic programs, Mary Murphy-Hoye, says the company's ongoing effort to innovate often means signing on emerging companies with breakthrough products.
Reliance on such youthful suppliers can present logistical challenges: "What if [a company is] used to making 1000 widgets but we need a million when we go into production?" she poses. To help its suppliers develop products in harmony with Intel's production needs, the company installed new Web-based tools that allow suppliers to study product drawings and specifications as Intel engineers draft them. Protective security measures, including password access and encryption, ensure that sensitive data is restricted to appropriate vendors.
Intel also uses the Web to post policies and guidelines for companies seeking the certificates of compliance that Intel issues to eligible suppliers. By providing information and forms over the Web, Intel automated most aspects of the formerly paper-intensive certification process.
Intel works with both materials and equipment suppliers. Materials suppliers -- providers of such goods as chemicals, silicon wafers and solder -- ship products weekly and even daily to Intel's factories, which use a manufacturing resource planning system to manage inventories. With faxes, the Internet or electronic data interchange (EDI), Intel can automatically signal suppliers when to send new shipments. Intel's inventory replenishment model requires suppliers of such low-cost or frequently used materials as solder and bolts to maintain adequate inventories at Intel's manufacturing plants. "We call it the bread-man model," Murphy-Hoye says, comparing it to a baker who, as customers buy bread, continually adds fresh loaves to the shelves. "We say to our suppliers, we're going to help you understand our needs, and your responsibility is to keep the bins stocked." No company wants excess inventory. But so long as 100 per cent just-in-time manufacturing and delivery remains an (unattainable) ideal, says Murphy-Hoye, somebody along the supply chain has to hold reserves. Intel is in the enviable position of being able to require its suppliers to hold inventory until it's needed on the factory floor.
Yet, Intel works to balance its own inventory reduction goals with its suppliers' business needs. Because some suppliers initially balk at holding inventory for Intel, the chip maker helps ease their risk by showing them how to improve their own inventory -- and demand-forecasting methods. Periodically, Intel dispatches Star Trek-inspired "away teams" of Intel personnel from IS and business units to provide free onsite consulting to improve inventory management, production capacity, production cycle times and quality control standards. Even after it provides consulting services, Intel doesn't restrict its suppliers from using its methods with competitors. "It's in our best interest for our suppliers to have more than one customer," Murphy-Hoye explains. A supplier that has a diversified customer base is more likely to enjoy sustainable success and is less vulnerable to industry ups and downs; that benefits the entire supply chain. And today, Murphy-Hoye says, "you're only as good as your supply chain." That commitment to efficiency also extends to the company's IS practices. Because Intel modifies its product line at least every 18 months, manufacturing plants and the IT that supports them must be nimble. To support fleet-footed manufacturing, Louis Burns, Intel's vice president and director of IT, has instituted a "copy exactly" strategy for systems that support 18 manufacturing, testing and assembly sites on three continents. Identical architecture and applications support ordering and production planning at every site. By having the same servers and operating systems at each location, Burns says, the company can maintain, upgrade and quickly add functionality to systems much more easily than it could if it were hampered by a heterogeneous environment.
Helping Customers Anticipate Market Needs Intel's customers -- for the most part PC makers known as original equipment manufacturers (OEMs) -- number in the thousands, and many do business globally.
Because they assemble their finished products from many components with limited shelf life, OEMs assume the highest risk associated with inventory obsolescence. In order to avoid being saddled with outdated PCs, OEMs are moving toward build-to-order systems that allow them to configure PCs according to individual orders. Such systems demand access to accurate, specific and timely details of Intel's inventory, pricing and shipment schedules, says Sandra Morris, Intel's director of Internet marketing and e-commerce. To accommodate OEM needs, Intel uses the Web to disseminate the vital inventory and production data that forges sturdy links with its customers. A handful of large customers use EDI, but most OEMs check the status of their Intel orders and shipments by phoning or faxing the company's customer service department.
Intel processes tens of thousands of those status requests each week. By the end of 1998, however, Intel will replace that cumbersome process with customised Web pages for most OEMs. In addition to the status reports on their orders, OEMs will have up-to-date access to Intel's product pricing and availability. In other words, this innovation will provide small- and medium-size customers with the same shipping and ordering data their larger competitors obtain through EDI. Furthermore, Intel plans to distribute spreadsheet-based tools that will enable customers to analyse their own demand trends based on their transactions with Intel.
The customer extranet is tied into Intel's back-end order and shipment databases, which are, in turn, fed in real time by the company's order-entry system. Ensuring security for those personalised Web pages posed the trickiest IS challenge, Burns says. In order to protect the privacy of its customers, Intel had to ensure that each distributor and dealer would see only the data that applied to its own business. When IS was unable to locate an off-the-shelf application that fitted the bill, it had to create its own. The improvements Intel has made to its supply chain are paying off. The company used to require at least 24 hours to confirm orders through an overnight batch system. Today, after IS replaced a legacy mainframe order-taking system with client/server technology, Intel is able to confirm delivery dates as orders are placed.
Although he declines to provide specific numbers, Baldwin asserts that satisfaction ratings from quarterly surveys of Intel's 50 key customers are much higher than last year's marks.
Lance Van Hooser, director of supply chain integration and architecture for worldwide procurement at Dell Computer, is one of Intel's satisfied customers.
He says that the more effectively Intel matches production and delivery of its microprocessors to Dell's demand, the more Dell's efficiency improves. As supply chain communication of inventory, shipment and promise-to-delivery scheduling data approaches real-time communication, excess inventory problems will abate, and costs at every link will fall. Van Hooser confirms the value of Intel's strategy. "By optimising the supply chain, we all win," he says.
Size Doesn't Matter to Intel
As the world's largest supplier of microprocessor chips to the PC industry, Intel's customers are many and varied. Ranging from multinational PC giants like Compaq and IBM to small fish "mom and pop" outlets, the needs of the company's clientele are just as diverse as the customer base itself. As is the case in the United States, Intel Australia's primary mission is to ensure that its customers are kept up to date with the latest product information, and are not burnt by high levels of unwanted inventory taking up valuable real estate in their respective warehouses. Unlike the US, however, the company's location operation faces many challenges that have required it to establish a supply chain management regime unique to the local market. "Australia is very similar to the US to a large extent. Obviously, Intel [Australia] doesn't have the manufacturing base that the US does and our customers tend to assemble products here more than pure, raw manufacturing," says David Bolt, general manager of Intel Australia. "We're an interesting mix of very large customers and hundreds of thousands of small customers. We're basically supplying the same technology to those two ends of the spectrum and obviously, cycle times and delivery of the technology vary depending on the size of the customer. The needs of the customers, however, are very similar."Bolt attributes much of Intel's supply chain management success to the advent of "just-in-time" (JIT) delivery mechanisms. With the IT industry well renowned as a hotbed of dynamic change -- especially in terms of product development cycles -- he says JIT has proved to be a boon for both itself and the customers it services. "[Just-in-time] is critical for the large customers where their issues are inventory management. Their product cycles tend to be longer, and they're working on large contract roll-out themselves. So just-in-time is critical for them from an inventory management point of view and from a cost point of view," Bolt says. 'This whole industry is going through a rethink about how to manage costs as it becomes more competitive. "Then again, the little guys tend to use just-in-time in a different way. They will make two or three calls a day to get components delivered to their little shop and that way they're not holding any inventory either. While it's important for the big guy [to have just-in-time inventory management] because they order by the thousands, it's important for the little guy because he doesn't have the financial strength to wear changing technology."-- Cass WarnemindeWelcome to Our Extranet In attempting to ensure its customer base is kept up-to-date with its latest product offerings and availability, Intel Australia utilises a comprehensive, yet simple, supply chain management strategy. For some time, the company has offered its high-profile US-based clients access to an Intel extranet facility that houses an array of product information, along with other mission-critical delivery data. Recently, the company's local customers have been granted access to the service, and according to a company executive, the availability of such a service has allowed Intel to effectively manage the supply needs of its clients, regardless of their size. "We're using technology for both very large customers and very small customers in different ways," explains David Bolt, Intel Australia's general manager. "Very large customers obviously need to check through the extranet the order status and just-in-time delivery schedules. They need to be able to track that very closely, so we have to give them access to that sort of dynamic information using Internet-based technologies."As the technology it produces continues to evolve, so too do the IT-driven vehicles Intel uses to support the flow of information through its supply chain. Adding to its extranet service, Bolt says the organisation has initiated a videoconferencing program designed to give its high-end customers access to physical Intel employees -- a move he believes will solidify its online approach to supply chain management. "In addition to the raw data [housed on the company's extranet], we're starting to roll out videoconferencing technology. While the electronic technology is great, sometimes you need to talk to somebody face to face. But that person might be overseas, so we're introducing videoconferencing as part of that extranet facility and then we've got the best of both worlds. If there's discrepancies in the data, they can talk to a real person. We're starting to implement that now and the first site has been installed already." For its smaller customers -- who Bolt says are usually more concerned with technological progression leaving them with a stock of unwanted inventory -- Intel has worked closely with its distributors to ensure that nobody is left out of the commercial loop. To help facilitate this, he says the company has come to rely heavily on the use of technology for the dissemination of product information and local availability.
"For our small customers, they're more interested in the technology transitions and they need to be able to get to data that lets them know when the technology is changing," he says. "We're working with our distribution partners to pass through that information. We supply many of the little guys through distributors rather than through a direct supplier relationship. But the data needs to be just as accurate from a distributor's point of view, so we work in partnership with the distributors to . . . provide a lot of the same data to the little guys. Technology is playing an important part in making it possible to actually deliver [our products] to a broad range of different customers." -- Cass Warneminde
Join the CIO Australia group on LinkedIn. The group is open to CIOs, IT Directors, COOs, CTOs and senior IT managers.