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

Intel Confidential 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 the unreasonable one persists in trying to adapt the world to himself Therefore all progress depends on the unreasonable man." Therefore all progress depends on the unreasonable man." - George Bernard Shaw - 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 OEM/Disti/Retail Supplier’s Supplier Customer’s Customer DistributorFabSort Assembly Test Units DieWafers Units ContractManufacturer OEMFabricator Capital Equipment Supplier Indirect Material Supplier Distributor Intel’s Supply Network

Intel Confidential OEM/Disti/Retail Supplier’s Supplier Customer’s Customer DistributorFabSort Assembly Test Units DieWafers Units ContractManufacturer OEMFabricator Capital Equipment Supplier Indirect Material Supplier Distributor Intel’s Supply Network 17Fabs—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 70,000Genuine Intel Dealers 60,000Wafer starts / week 270 New Product Versions

Intel Confidential IrelandIFO/F24 Israel Fab 8/18/28 Oregon AFO, F20, D1C D1d CaliforniaD2 Colorado Fab 23 ArizonaFab12/22/32 New Mexico Fab 11/11X Mass. Fab 17 Costa Rica San Jose A/T Malaysia Penang A/T Kulim A/T China Shanghai A/T Philippines Cavite A/T China Chengdu A/T Intel’s High Volume Fabrication & Assembly/Test Sites China Dalian Fab 68 Viet Nam Ho Chi Minn City Viet Nam A/t

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

Intel Confidential Challenge: Meeting Demand and Optimizing Supply

Intel Confidential Complexity Today – Simplification Critical for Future

Intel Confidential OEM/Disti/Retail Supplier’s Supplier Customer’s Customer DistributorFabSort Assembly Test Units DieWafers Units ContractManufacturer OEMFabricator Capital Equipment Supplier Indirect Material Supplier Distributor 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 Demand Supply 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 Service Level Inventory Today’s Efficient Frontier % 45% 65% 28woi22woi17woi How Do you Get There: Productivity Improvement AMB: Lead Time Demand Forecast Variance Supply Variance Tomorrow’s Efficient Frontier

Intel Confidential What’s next?

Intel Confidential 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

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

Intel Confidential 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 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 An excellent supply chain: * 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