Optimizing Capital Investment Decisions at Intel Corporation

  • Authors:

  • Karl G. Kempf;Feryal Erhun;Erik F. Hertzler;Timothy R. Rosenberg;Chen Peng

  • Affiliations:

  • Decision Engineering Group, Intel Corporation, Chandler, Arizona 85226;Management Science and Engineering, Stanford University, Stanford, California 94305;Technology Manufacturing Engineering, Intel Corporation, Chandler, Arizona 85226;Financial Enterprise Services, Intel Corporation, Chandler, Arizona 85226;Management Science and Engineering, Stanford University, Stanford, California 94305, chenpeng@/alumni.stanford.edu/ currently at Google Inc., Mountain View, California

  • Venue:
  • Interfaces
  • Year:
  • 2013

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Abstract

Intel Corporation spends over $5 billion annually on manufacturing equipment. With increasing lead times from equipment suppliers and increasing complexity in forecasting market demand, optimizing capital investment decisions is a significant managerial challenge. In response to this challenge, we developed a capital supply chain velocity program for ordering, shipping, and installing production equipment. At the core of this velocity program is a new and additional procurement framework that enables Intel to purchase options from its equipment suppliers for a faster delivery of some equipment. The framework seamlessly combines statistical forecasting with Monte Carlo simulation and stochastic programming to determine the number of options Intel should procure and exercise, and it includes built-in scenario and sensitivity analysis capabilities to support Intel’s contract selection, options reservation, and equipment procurement decisions. The velocity program and the framework provided Intel with hundreds of millions of dollars in cost savings and at least $2 billion in revenue upside during a recent period of global economic crisis.