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Global Supply Chain of the Intel Corporation

Thesis · June 2017

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GLOBAL SUPPLY CHAIN OF THE INTEL CORPORATION

Written by:

Robert W. Miles, z5170931

ZBUS8302, Logistics Management, 2017

Assignment 4: Essay 2

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TABLE OF CONTENTS
Introduction:................................................................................................................................................. 3

Analysis of the Supply Chain Structure of Intel Corp ................................................................................... 3

Intel Company Overview .......................................................................................................................... 3

Structure of Supply Chain ......................................................................................................................... 3
Strategies Inherent in Intel’s Supply Chain .................................................................................................. 4

Management Approach............................................................................................................................ 4
Internal and External Accountability ........................................................................................................ 5
Expectations and Capabilities................................................................................................................... 5
Vulnerabilities Associated with Intel’s Supply Chain.................................................................................... 6

Supply & Demand Issues .......................................................................................................................... 6

Slave Labour & Material Sourcing ............................................................................................................ 6
Mitigation of Vulnerabilities ......................................................................................................................... 7

Supply & Demand Issues .......................................................................................................................... 7

Slave Labour & Material Sourcing ............................................................................................................ 8
Conclusion .................................................................................................................................................. 10

References .................................................................................................................................................. 11

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INTRODUCTION:
Intel Corporation has one of the most resilient and robust supply chains in the world. In an analysis of
the top 25 supply chain of 2016, it was listed by analysist firm Gartner as number 4 because of its
expanding markets, product development and increased visibility. (Blanchard, 2016) Their management
approach, internal and external accountability, expectations and capabilities for their supply chain
represent a model not only for the Information, Communications and Technology (ICT) industry, but also
for any other industry or company seeking to make their mark in history.

ANALYSIS OF THE SUPPLY CHAIN STRUCTURE OF INTEL CORP

INTEL COMPANY OVERVIEW

Intel Corporation was founded in 1968 and has grown to be the world’s leader in design and
manufacturing of semiconductors. Intel now has over 600 facilities in 63 countries and over 106 thousand
employees worldwide. About 98% of the cloud runs on Intel products and about 90% of the worlds super
computers are Intel based. (Intel 2016, p. 6) Intel Corp is segmented into the following groups: Client
Computing Group (CCG), Data Center Group (DCG), Internet of Things Group (IOTG), Non-Volatile Memory
Solutions Group (NSG), Intel Security Group (ISecG), Programmable Solutions Group (PSG), All Other and
New Technology Group (NTG). (Reuters 2017)

Each group is responsible for a different microprocessor market segment. Intel’s core assets include:
“silicon and manufacturing leadership; architecture and platforms; software and services; customer
orientation; acquisitions and strategic investments; and leadership in corporate responsibility.” (Intel, 2016,
p. 8) In addition to manufacturing a majority of their own products, Intel utilizes many third-party
foundries, board-level sub-contractors and a wide variety of external vendors to augment their capacity
and perform products testing.

STRUCTURE OF SUPPLY CHAIN

Intel Corp’s semiconductor supply network is a multi-tiered supply chain with multiple layers controlled
by the same organisation. This supply chain is comprised of more than 19,000 suppliers in over 100
countries. These suppliers provide everything from direct production materials to the tools and machines
required in assembly and manufacturing. There are also suppliers of logistics, packaging, office materials
and even travel services. (Intel 2016, p. 49)
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 The first tier of the supply chain is that of mining and manufacturing the bare silicon wafers. The
manufacturing stage consists of hundreds of different steps and takes an average of 10 weeks as the wafers
are divided into integrated circuits. Once the integrated circuits are manufactured, they are then sent to an
E-test and Sort which determines if each integrated circuit functions as intended. After this sorting, all the
circuits are inventoried as work-in-progress and then sent to the Assembly/Test phase. Here the integrated
circuits are separated into their individual chips and packaged. Once packaged, the chips are then inventory
warehoused until they are shipped to the customers. (Jeffery 2005, p. 3-4) This process, from E-test to
shipping to customers takes an additional 10 weeks on average. Although the entire supply chain takes
approximately 20 weeks, more than 50% of Intel’s orders are met within 4 weeks due to an incredible
forecasting and inventory management process.

STRATEGIES INHERENT IN INTEL’S SUPPLY CHAIN

MANAGEMENT APPROACH
Intel’s strategy is to actively manage the supply chain to help reduce the risk and improve the quality.
Through the use of assessments and audits and capability building programs, Intel continues to make the
supply chain more resilient and responsible. Figure 1 shows some of the governance strategy of Intel, and
how certain functions are integrated horizontally across the whole supply chain. The crisis management
function is embedded in all levels of the supply chain management structure.

Figure 1 – Supply Chain Responsibility, Governance & Management

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INTERNAL AND EXTERNAL ACCOUNTABILITY
Intel maintains stringent standards for itself and all the suppliers in their supply chain. For example
while putting their own assembly and test facility through the internationally recognized audit process,
Electronic Industry Citizenship Coalition (EICC) Validated Audit Process (VAP), they determined that they
were not meeting the Health and Safety standards. (Intel 2017) The finding has already been addressed due
to the transparency and leadership.

Intel’s suppliers are held accountable through the use of a variety of tools such as their “Program to
Accelerate Supplier Sustainability (PASS), the Supplier Report Cards (SRC), assessments and audits, and
targeted action plans.” (Intel 2016, p. 51) The PASS helps the suppliers to develop responsibility through
annual compliance commitments, transparency and capability building. By the end of 2016, 83% of the
supply chain suppliers had met all the PASS requirements and 100% of the high-risk supplier sites had been
audited. Each supplier within the supply chain is graded based upon productivity (product availability, cost
and, quality), sustainability (ethics, finances, diversity, environmental and human rights), technology and
customer satisfaction. There are over 300 different areas that the audits cover, and these audits are
performed by both Intel personnel as well as independent organizations such as EICC. When the audit come
across compliance gaps that require more time to rectify, then Targeted Action Plans are put in place, and
reviewed quarterly until all the findings are satisfactorily addressed.

EXPECTATIONS AND CAPABILITIES

Intel seeks to have clear expectations for all its suppliers. There is an expectation that the suppliers meet
Intel’s Code of Conduct as well as the EICC Code of Conduct. Each supplier is also expected to develop their
own corporate responsibility strategies, policies and procedures. These expectations are reinforced through
regular communication and ongoing training events. Even with clear expectations, many issues arise within
the supply chain that are symptomatic problems and require additional training, infrastructure and tools.
(Intel 2016 p. 50) Intel provides online resources such as webinars, face-to-face workshops and direct
engagement. Intel provides regular feedback to its suppliers on their performance, and how they are
tracking against the stated expectations. “In November 2016, Intel and Dell co-hosted an executive round
table in Taiwan” along with 13 shared suppliers. The results for this, first-of-its-kind meeting, were a
greater awareness of sustainability, the establishment of goals to combat the high workplace turnover, and
a more efficient use of the available tools and processes.

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 Intel continues to work with industry associations to establish standards across the semiconductor
industry; organizations such as the EICC, Semiconductor Industry Association, and SEMI. These associations
are also developing auditing processes, conducting training and ensuring compliance.

VULNERABILITIES ASSOCIATED WITH INTEL’S SUPPLY CHAIN

While there are many different vulnerabilities that are naturally associated with supply chains, the two
that will be focused on are as follows: the volatile demand with the related risks of excess inventory and
stock-outs; and the loss of business and reputation due to association with forced and bonded labour and
“conflict materials”. Current and proposed mitigations of these vulnerabilities will be stated below and then
addressed in the following section.

SUPPLY & DEMAND ISSUES

As previously mentioned the total time for the Intel supply chain is on average 20 weeks, and despite
these long lead-times, over half of the orders are fulfilled within 4 weeks. The demand for semiconductor
components is extremely volatile especially since it only has a life cycle of approximately 1.5 years. The
rapid drops in demand can leave companies with excessive inventory at the end of the product life,
whereas the rapid rise in demand can lead to stock-outs and lost revenue as consumers turn to the
competition. (Jeffery 2005, p. 3-4)

SLAVE LABOUR & MATERIAL SOURCING

As more and more companies grow their supply chains throughout the world, it has become much more
difficult to keep track of any abuses. Ben Schiller states that drawing the organizational chart for the
manufacturing process is difficult enough, but determining whether or not any of the employees in any of
the chains of subcontractors and middle men are forced labour is harder still. (Schiller 2016). The
reputation of many companies such as Nestle, have been tarnished because of the supply chain’s
involvement in “modern slavery” and child labour. (Kelly 2016) Even though KnowTheChain,’s report shows
Intel Corp as the third best overall company when it comes to understanding forced labour, it still only
ranks 59/100, meaning there is a lot of work left to do. (KnowTheChain 2016, p. 6)

Another issue with Intel’s supply chain is that of material sourcing. As with most of the electronics
industry, Intel’s products utilize tin, tantalum, tungsten and gold (3TG) for most of the manufacturing
processes. These metals are known as “conflict mineral” and are reported by the US Department of Labor,

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to be partially mined by children and in the mines/companies possessed by military officers and/or armed
groups in the Democratic Republic of the Congo. (USDOL 2014, p. 10)

MITIGATION OF VULNERABILITIES

SUPPLY & DEMAND ISSUES

Large inventories allow companies to “buffer fluctuation in production and demand, increase order fill
rate and achieve higher customer satisfaction; but on the other hand, keeping inventory involves costs and
risks.” The trend since the 1980’s as been toward “zero inventories.” Which although that is not literal, it is
the concept that companies are motivating their “workers and management to apply continuous
improvement techniques to reduce inventory levels.” (Sonnet 2005, p. 11-12) The problem with a large
inventory in the microprocessor industry is the rate of obsolescence is only about 1.5 years. (Jeffery 2005,
p. 3) Although there is an attempt to reduce inventory, the problem is that the overall cost of stockout is
much higher than that of the inventory related costs.

“Stockouts of top of the line products cause high losses due to the high margins, but this effect is
balanced by the weak competition in that market segment. Conversely, stockouts of value products
cause relatively low losses due to the lower margins, but this effect is balanced by the high number of
sales lost to the aggressive competition existing in that segment.” (Sonnet 2005, p. 63)

The biggest question of a stockout is whether or not the customer will react by simply postponing the
sale or if they will buy from the competition. Either way, the analysis shows that Intel should aim to have a
customer satisfaction over 90% which will help in times of market fluctuation.

To address the volatile demand of the semiconductor industry, and in particular Intel’s supply chain,
Mariah Jeffery produced some thorough research. In her dissertation she determined to develop “a
method for determining and controlling inventory levels.” (Jeffery 2005, p. 4) However in her final analysis
she found that each policy has a trade-off between minimizing cost and minimizing variability, and that
there is no policy that best achieves both objectives. Jeffery showed that moderately variable products do
not benefit from updating the inventory projection models more frequently (than the monthly rate),
whereas highly variable products generally need tighter control. Jeffery’s conclusion for the Intel decision-
makers, was that they would have to choose between the desire to minimize variability compared to cost
and the amount that could be invested in forecasting.

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 In order to significantly improve cost without statistically increasing variability from the current
monthly-based policy, the biweekly frequency-based policy or the biweekly-to-weekly control chart-
based policies … are all good options because while cost is significantly decreased compared to the
monthly policy currently in place at the case organization, variability is not significantly increased. If cost
minimization is the most important goal and more variability can be tolerated, the monthly-to weekly
control chart policy … is a good option, because it results in the second lowest overall cost of the …
policies, it performs well for both moderately and highly variable products, and it produces moderate
variability compared to the other low cost policies (Jeffery 2005, p. 74)

SLAVE LABOUR & MATERIAL SOURCING

Intel Corp has taken an active and integrated approach to combating forced and bonded labour. They
have explicitly set the expectations for themselves and their suppliers in their Anti-Slavery and Human
Trafficking Statement (Intel 2017). Since 2014 they have also paid $3.5 million in recruitment fees of
workers in their supply chain by requiring that none of their suppliers charge workers for recruitment.
Through actively investigating the triggers for forced and bonded labour, in 2016 they identified 116
priority and major violations of their own expectations among 35 suppliers. (Intel 2016, p. 54) They are
actively working with each of those suppliers to remedy these violations with a goal that “minimizes or
eliminates the possibility of a vulnerable worker being in a forced and bonded labor situation.” Not satisfied
with simply combatting forced labour in their own supply chain, Intel co-hosted a workshop with Dell,
Google, Hewlett Packard Enterprise, Marvell and NVidia in Singapore, Taiwan and Malaysia to address
slavery and human trafficking. Intel’s overall approach is based upon outside standards such as the United
Nations’ Guiding Principles on Business and Human Rights. (Intel 2016, p. 18, IHRB 2016)

Figure 2 – Intel’s Approach to Managing Human Rights

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 Two of the greatest difficulties are: firstly that since the supply chain is multi-tiered, there is not as much
visibility, and secondly tracing the multiple levels of recruiting agents. To combat this Intel will be requiring
several of its key suppliers to map out the journeys of all their foreign workers, see if there are any risks,
and then develop their own plans to mitigate the significant risks. (Intel 2016, p. 54)

Since the time that Intel became aware of the link between 3TG mineral extraction and the conflict in
the DRC, they responded by requiring the smelters and refiners in their supply chain to meet a third-party
audit program. In addition to participating with initiatives such as Conflict-Free Sourcing Initiative (CFSI) and
the European Partnership on Responsible Minerals (EPRM), Intel has also collaborated with other
companies, industries, governments and civil societies to address this issue of responsible mining.

Intel’s mitigation approach is through identification and validation. Each year they continue to survey
and identify the smelters and refiners who are a part of the supply chain. So far 263 of the smelters and
refiners or approximately 92% have been identified as “conflict free” (See Figure 3). After the smelters and
refiners have been identified, Intel then compares them to the list of facilities that have received a
“conflict-free” designation from the Conflict Free Smelter Program (CFSP) and other third-part auditing
programs. (Intel 2016, p. 56) When a smelter or refiner is not a part of these auditing programs, Intel visits
the suppliers and encourages them to participate. They have visited over 107 smelters and refiners since
2009. Finally, in order to help ensure that any raw material coming from DRC or the surrounding areas is
“conflict-free”, Intel engages with a variety of International programs such as: International Tin Research
Institute’s Tin Supply Chain Initiative (iTSCi), the Better Sourcing Program (BSP), and the U.S. Department of
State and U.S. Agency for International Development Public-Private Alliance for Responsible Minerals Trade
(PPA).

Figure 3 – Smelters and Refiners Compliance Summary

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 KnowTheChain’s ICT report praises Intel Corp by declaring the following concerning the “conflict
materials”: “Intel’s traceability process for conflict minerals includes, among other activities, surveying its
suppliers, on-site visits of smelters and refiners, and on the ground review of the minerals trade in the
Democratic Republic of Congo. Intel also continually engages refiners and smelters by offering them
training and monitoring their progress toward achieving conflict-free operations.” (KnowTheChain 2016, p.
12)

CONCLUSION
To summarize Intel Corp’s supply chain strategy: Intel decision makers will need to choose between the
desire to minimize the variability compared to the amount invested in forecasting. Their decision should be
weighted on the side of customer service/additional inventory due to the significantly higher costs of
stockout in comparison to inventory related costs. Intel must continue their current strategy of auditing
and mapping out their supply chain in order to eliminate forced and bonded labour and “conflict materials”
within their entire supply chain. As a leader in the microprocessor industry they should also continue to use
their influence to reduce forced and bonded labour and “conflict materials” throughout the world.

Intel Corp’s supply chain model should be studied and copied by any business that wishes to find the
best balance between productivity and sustainability.

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 REFERENCES
Blanchard, D., 2016, ‘Top 25 Supply Chains of 2016’, Industry Week, accessed 12 June 2017,
<http://www.industryweek.com/supply-chain/top-25-supply-chains-2016>

EICC Coalition, Validated Assessment Process, accessed 12 June 2017, <http://www.eiccoalition.org/standards/vap/>

IHRB Briefing, 2016, Forced Labour.

Intel Corp, 2016, 2016 Corporate Responsibility Report, accessed 12 June 2017,
<http://csrreportbuilder.intel.com/PDFfiles/CSR-2016_Full-Report.pdf>

Intel Corp, 2017, Intel Chengdu, China Site, EICC VAP – Finding Summary¸ accessed 12 June 2017,
<https://www-ssl.intel.com/content/www/us/en/supplier/eicc-vap-chengdu-audit-summary.html>

Intel Corp, 2017, Intel Corporation Anti-Slavery and Human Trafficking Statement, accessed 13 June 2017,
<https://www-ssl.intel.com/content/www/us/en/policy/policy-human-trafficking-and-slavery.html>

Jeffery, M.M. 2005, Achieving cost-effective supply chain agility for the semiconductor industry, University of Central
Florida.

Kelly, A., 2016, ‘Nestlé admits slavery in Thailand while fighting child labour lawsuit in Ivory Coast’, The Guardian,
accessed 13 June 2017, <https://www.theguardian.com/sustainable-business/2016/feb/01/nestle-slavery-
thailand-fighting-child-labour-lawsuit-ivory-coast>

KnowTheChain, 2016, ICT Benchmark Findings Report, accessed 13 June 2017 < https://knowthechain.org/wp-
content/uploads/2016/06/KTC_ICT-External-Report_Web_21June2016FINAL_Small.pdf>

Mangan, J., Lalwani, C., Butcher, T., Javadpour, R., 2012. Global Logistics & Supply Chain Management Rev. Ed., John
Wiley & Sons, West Sussex, UK.

Reuters, 2016, Profile: Intel Corp (INTC.O), accessed 12 June 2017,

<http://www.reuters.com/finance/stocks/companyProfile?symbol=INTC.O>

Schiller, B., 2016, ’20 Tech Companies Ranked on How Much Slave Labor They Use’, Fast Company, accessed 13 July
2017, <https://www.fastcompany.com/3061292/20-tech-companies-ranked-on-how-much-slave-labor-they-use>

Sonnet, M. C., 2005, Cost of Stockouts in the Microprocessor Business and its Impact in Determining the Optimal
Service Level, Massachusetts Institute of Technology.

"United States: Intel Reports on Advances and Achievements in 2015 Corporate Responsibility", 2016, MENA Report.

United States Department of Labour, Bureau of International Labor Affairs, 2014, List of Products Produced by Forced
or Indentured Child Labor, accessed 12 June 2017, <https://www.dol.gov/ilab/reports/child-labor/list-of-goods/>

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