Optimizing Capital Investment Decisions at Intel Corporation
Intel spends over $5 billion annually on manufacturing equipment. With increasing lead times from equipment suppliers and increasing difficulty in forecasting market demand, optimizing capital investment decisions is a significant managerial challenge. A "Capital Supply Chain Velocity Program" was developed for ordering, shipping and installing production equipment. At the core of the Velocity Program is a new procurement framework, dual-mode equipment procurement (DMEP), utilizing dual sourcing and option contracts to optimize capital investments. DMEP seamlessly combines statistical forecasting with Monte Carlo simulation and stochastic programming, and includes built-in scenario and sensitivity analysis capabilities to support Intel's strategic, tactical and executional procurement decisions. The Velocity Program and DMEP have resulted in hundreds of millions of dollars in documented cost savings and at least 2 billion dollars in revenue upside for a manufacturing process transition during a period of economic crisis. The framework is now guiding Intel's decisions for manufacturing process transitions.