#Lessonsfromthebest : Make-to-Order

Intel, one of the world's largest computer chip manufacturers, needs no introduction. Nevertheless, despite introducing the low-cost "Atom" chip to market, the company had to drastically reduce supply chain spending. Supply chain costs for units selling for $100 were bearable at about $5.50 per chip, but the price of the new chip was a fraction of this, at about $20.

 

Intel needed to somehow reduce the expense of the Atom chip's supply chain but had just one area of leverage — inventory.

 

The chip had to work, so Intel could not make any trade-offs for service.

 

The only alternative was to try to lower the inventory levels, which had been held very high up until that point to accommodate a nine-week order period. The only way Intel could find cost savings in the supply chain was to push down this processing time and thereby reduce inventory.

 

Intel decided to try what the semiconductor industry considered an unlikely supply chain strategy: make to order.

 

The company launched a pilot project in Malaysia, using a distributor. Through an iteration process, they were gradually searching for and eliminating inefficiencies in the supply chain to incrementally reduce order cycle time.

 

Further initiatives to improve the situation included:

• Cutting the test window for chip assembly from a five-day schedule to a two-week, two-day process

• Introduction of a formal planning SOP

• Switch to a vendor-managed inventory model wherever possible

 

Intel eventually drove the order cycle time for the Atom chip down from nine weeks to just two by its incremental approach to cycle time improvements. As a result, the company achieved a supply chain cost reduction for the $20 Atom chip of more than $4 per unit — a much more palatable rate than the initial $5.50 figure.