For the Intel manufacturing and supply chain to execute and deliver product to our customers, we require goods and services from a diverse and wide range of suppliers around the globe. These goods and services encompass a) manufacturing equipment that includes Fab/Sort (F/S) and Assembly/Test (A/T) tools including associated spares and in some cases services for installing and maintaining these tools; b) materials that include F/S and A/T production materials as well as materials for supply chain packaging and shipping; c) capacity subcontracting; d) warehousing subcontractors; e) freight forwarders and integrators; and f) miscellaneous, an array of other relatively minor goods and services that are vital to our functionality—for example, the laundering of clean room or "bunny" suits.

Our environment within the total supply chain is both complex and dynamic with old risks morphing and new risks appearing over time generating an infinite number of things that can go wrong at any given moment. We cannot control risks such as natural disasters, but we can minimize their impact by having proactive plans in place. Other risks we can control, but we first must identify them in order to put proactive mitigation measures in place, such as capacity options to reduce equipment lead-time [1]. The challenge, given finite resources, becomes what to focus on at any given time. This requires constant vigilance and discipline to implement and monitor the effectiveness of controls across the supply chain so we may effectively manage significant risk areas. If we don't do this well, the consequences could be serious and costly resulting in an interruption of goods and services flow within the supply chain.

Once risk areas are identified and prioritized, dealing with them is a matter of using world-class tools and methods for creative supplier and logistics management. Figure 1 highlights various tools and methods that Intel employs to help mitigate risks in both the pre- and post-buy phases of the procurement cycle.

Figure 1: Risk mitigation tools and methods
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In this paper, we highlight several high-risk areas that Intel currently mitigates and showcase the tools and methods used to address those risks. We first look at the specific tools used to deal with procurement risks and the support continuance risks posed by high-risk suppliers.Then, methods used to address currency fluctuation risks when buying equipment are explained. For the remainder of the paper we focus on how risk management may be effectively applied across the supply chain to minimize logistics risks.

Reducing Procurement Risk Through Internet Negotiations

More than five years ago, Intel Corporation decided to introduce Internet negotiation tools and processes. Intel's intent was to determine what benefits such tools would bring into our strategic sourcing efforts, especially in the area of cost savings, and how we could use these new tools and processes to complement traditional negotiation methods at Intel. In addition to cost savings, Intel improved process efficiencies [2] through reducing risks inherent to the sourcing process.

Internet negotiations at Intel comprise two capabilities: eRFX and On-line Negotiation Events or ONEs. Other companies sometimes refer to ONEs as eAuctions. eRFX is the on-line execution of RFX; i.e., Request for Proposals (RFP), Quotes (RFQ), or Information (RFI). ONEs have been used at Intel since 2002. eRFXs, on the other hand, were introduced at Intel in 2006, and are really just establishing a foothold in the Corporation.

Before providing ONE and eRFX details, it is important to discuss the program infrastructure that has made Internet negotiation tools successful at Intel. Experts (White Belts) exist at the Internet Negotiations Program Office and within each of the Materials organizations. Formalized continued training and regular forums to discuss key lessons of recently completed events are fundamental components of the program. White Belts generally work directly in the Materials organizations they support. A strong White Belt community is critical in ensuring a successful Internet Negotiations program as it is the true caretaker of the program. Black Belts possess the highest level of expertise and are less common within the organizations because of the extra requirements, such as the ability to support ONEs or eRFXs across different commodities in various Materials organizations. Both sets of experts assist in reviewing market conditions and respective specific supplier bases. They act as resources for event setup and as strategic sourcing consultants. Successful ONEs are optimized by the strategies employed for each event as guided by these experts (see the section on On-line Negotiation Events later in this section).

As stated, eRFX is the on-line execution of RFX. eRFX introduces many efficiencies into the traditional RFX process. Among these efficiencies are standardized or customized templates, the ability to copy (and modify) past events, automated scoring, more accurate supplier responses, a data repository, audit trails, and the ability to easily evaluate multiple responses.

The use of standardized templates, customized templates, and even the use of past eRFX events (changing and improving specific items as necessary) to create a new eRFX eliminates or reduces time spent developing a standard RFP, as traditionally completed by a commodity manager or buyer. When developing an eRFX, the scoring of potential supplier responses can be automatically executed with the proper upfront planning amongst the commodity team. In fact, the process enforces this discipline in upfront planning. This eliminates after-the-fact discussions over scoring rules and allows for quick and efficient eRFX scoring. Additionally, suppliers are not able to provide incomplete eRFX responses. This ensures all suppliers provide complete responses, which eliminates the need to compare incomplete RFXs against fully completed RFXs, as is sometimes common with traditional RFXs.

Further efficiencies are introduced with the use of a common data repository. An Intel engineer needing to submit a diagram as part of the eRFX is able to log into the document and place it there directly. Suppliers deposit their responses and any required attachments into the eRFX document as well. Additionally, potential suppliers may submit questions within the eRFX document for the entire commodity team to see and answer. With all these items being inserted, moved, and changed, a complete audit trail is not a bonus but a necessity. Commodity teams can view who logged on, when they logged on, and what they did. All actions by all parties are completely visible. Taken together, these capabilities enable the commodity team to send, receive, and evaluate more suppliers than they could evaluate using traditional RFX methods. Figure 2 shows a high-level depiction of this process.

Before delving into a more detailed ONE discussion, it is important to point out that Intel's ONEs are performed with only qualified suppliers. We do not allow just any provider of materials or services to participate in them. Equally important is that these ONEs are carried out with total cost factored on-line, or executed as price-only events with other total cost factors pulled in after the event. The total cost consideration is foremost in these events just as it is in traditional negotiations conducted at Intel.

Figure 2: eRFX–enables communication with multiple suppliers and multiple internal partners in a controlled auditable environment
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One of the main differences between ONEs and traditional negotiations is that a ONE is a single negotiation executed simultaneously with multiple suppliers (see Figure 3). Just as with eRFX, sourcing professionals are able to use templates or copy and modify past ONEs. This reduces some non-value added work and allows the commodity manager or specialist to concentrate on sourcing strategies. Actual negotiation time is reduced from days or sometime weeks (in traditional negotiations) to 20-30 minutes (for almost all ONEs at Intel) because of early-in-the-process work completed by both the commodity team and the suppliers. The actual event itself eliminates emotions from the negotiations by its very nature. Additionally, ONEs allow Intel's private market to dictate what price it can actually bear.

Figure 3: ONE–enables procurement professional to negotiate with multiple suppliers simultaneously thus shortening the negotiation timeframe
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Our benchmark studies have shown that we are usually able to achieve cost savings of between 7% and 24% per ONE executed over traditional negotiation methods. A word of caution here is necessary. ONEs are most successful in a supply unconstrained market with multiple potential sources of supply. The larger the number of bid participants, the better the opportunity to see true market dynamics. We saw this in the case of a recent furniture supply ONE where our supply base for the event included more than half a dozen qualified suppliers. In this case we were able to achieve cost savings of 50%. We are even able to achieve cost savings, albeit smaller ones, in a supply-constrained market. This is where our White and Black Belt experts come in: they help with specific event strategies based on commodity-specific market conditions in order to ensure success. In some cases, review by the program experts results in recommendations of executing traditional negotiations. As mentioned earlier, Intel's intent is not to use ONEs to replace traditional negotiations but to complement them. Although Intel achieves cost savings using Internet negotiations ONE tools and processes, it is essential to point out that the process efficiency benefits are equally important.

These tools and processes are not without some issues. A complaint among new users is that the tool itself is not completely user-friendly. There is some training required and some ramp-up time is necessary. However, after a couple of events (eRFX or ONE), the end user is able to start pulling together their own eRFX or ONE. Reliance on a White Belt diminishes dramatically after consistent use. We have seen this occur in many commodities. Another initial-user issue the Internet Negotiations Program Office encountered is initial resistance to its use, particularly in the case of eRFXs. This is because eRFX demands discipline in executing up-front work sometimes relegated to the latter portions of a traditional RFX. This issue is overcome after the user completes several eRFXs and realizes that the up-front work pays off in better, more efficiently executed eRFXs.

What experienced users find with Intel's Internet negotiation processes and tools is just the opposite of what one might expect when it comes to supplier relationships. Specifically, supplier management and supplier relationships must be stronger especially when it comes to executing ONEs with established and qualified Intel suppliers. The up-front work required of the commodity team translates to smoother execution of eRFX events or ONEs. This early work requires good communication with our qualified suppliers. In fact, a twenty-minute ONE event requires solid before-bid-day communication with these suppliers. We have to ensure suppliers know exactly what is being offered for bid, any portioned allocations (by month, quarter, or year), lots (by time or geography), and total cost factors. Suppliers need to be comfortable with everything, from how they will log into the system and post bids to how the commodity will be allotted (for winning bids, second-place bidders, etc.) to various clarifications regarding the bid process itself. In short, the ONE process requires discipline in up-front planning and solid communication with suppliers in order to be able to execute a 20- or 30-minute ONE. Internet negotiations at Intel do not guarantee large cost savings as we have seen in some supply-constrained, price-pressured market conditions where margins may already be compressed; however, they do guarantee discipline and therefore provide consistency and less variation in the sourcing process.