Optimizing Capital Investment Decisions at Intel Corporation

Karl G. Kempf (), Feryal Erhun (), Erik F. Hertzler (), Timothy R. Rosenberg () and Chen Peng ()
Additional contact information
Karl G. Kempf: Decision Engineering Group, Intel Corporation, Chandler, Arizona 85226
Feryal Erhun: Management Science and Engineering, Stanford University, Stanford, California 94305
Erik F. Hertzler: Technology Manufacturing Engineering, Intel Corporation, Chandler, Arizona 85226
Timothy R. Rosenberg: Financial Enterprise Services, Intel Corporation, Chandler, Arizona 85226
Chen Peng: Management Science and Engineering, Stanford University, Stanford, California 94305, chenpeng@alumni.stanford.edu; currently at Google Inc., Mountain View, California

Interfaces, 2013, vol. 43, issue 1, 62-78

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.

Keywords: capital-intensive industries; capacity expansion; dual sourcing; expedited equipment lead times; option contracts; forecast revision; stochastic programming; Monte Carlo simulation; isoprofit analysis (search for similar items in EconPapers)
Date: 2013
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://dx.doi.org/10.1287/inte.1120.0659 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:orinte:v:43:y:2013:i:1:p:62-78

Access Statistics for this article

More articles in Interfaces from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().