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International Air Cargo Forum and Exposition September 2006 Greg Skrovan Intel Corporation Intel Transportation Supply Chain

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The Intel you think of…

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The Intel that is a…

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Intel Supply Chain <ul><li>Intel Supply Chain characteristics </li></ul><ul><li>10 fabrication plants , located in Ireland, Israel and USA </li></ul><ul><li>7 Assembly Test factories in Asia and Costa Rica </li></ul><ul><li>14 Distribution Centers throughout the world, including four retail boxing lines </li></ul><ul><li>The manufacturing cycle of a typical Intel product includes at least one round world trip </li></ul><ul><li>Intel ships ~ 1.9 million shipments per year averaging 550 kilos per day </li></ul><ul><li>Intel Supply Chain has ~ 2,500 people in 14 countries . </li></ul>Supplier Fabrication Plant Assembly Test Boxing, Storage and Cross docking Customer

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The Intel Network Europe America Asia

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Intel’s Influence in the Supply Chain <ul><li>Leader in internet negotiations; used for virtually all freight contracts and negotiations. </li></ul><ul><li>Instrumental in establishing the High Tech Shippers Coalition as a forum for influencing governmental policies. </li></ul><ul><li>Helping to establish direction for RosettaNet proliferation through leadership in RosettaNet consortium. </li></ul><ul><li>An original founder of Technology Asset Protection Association (TAPA) and active in leadership positions in all geographies. </li></ul><ul><li>Transportation Materials & Manufacturing Engineering group has patented thermo-forming solutions that have saved millions in freight and packaging costs. </li></ul><ul><li>Intel was ranked number 11 of the “Top 25 Supply Chain Companies” by AMR Research in 2005. </li></ul>

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Freight Spending and Geo Demand <ul><li>Imbalance between billings and consumption drives freight costs </li></ul><ul><li>Air cargo represents 78% of freight spending </li></ul><ul><li>59% of freight spends originate in Asia (~20% from China 3PL’s) </li></ul><ul><li>Challenges: </li></ul><ul><ul><li>Align the “right service / mode” to the Business Unit needs </li></ul></ul><ul><ul><li>Comprehend total landed costs in supply chain decisions </li></ul></ul>

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Network Complexity <ul><li>Emerging Markets: </li></ul><ul><li>Increase in smaller orders to more remote locations. </li></ul><ul><li>Unstable logistics infrastructures. </li></ul><ul><ul><li>Security risks </li></ul></ul><ul><ul><li>Delivery reliability </li></ul></ul><ul><ul><li>IT / systems </li></ul></ul><ul><ul><li>Accessibility to tier 2 cities </li></ul></ul><ul><li>Global Freight Profile: </li></ul><ul><li>Trade imbalance impacting costs and delivery reliability. </li></ul><ul><li>Higher fuel costs passed through to shippers. </li></ul>Intel Global Freight Profile by Weight 8

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Emerging Markets <ul><li>Latin America (LAR) </li></ul><ul><ul><li>LAR sourced primarily via Miami 3PL (84% of 3PL volume) </li></ul></ul><ul><ul><li>Direct shipments to LAR limited to MNC’s only </li></ul></ul><ul><ul><li>Direct shipments expected to increase by 50% ‘05 to ‘06 </li></ul></ul><ul><li>China </li></ul><ul><ul><li>Lift capacity remains major issue </li></ul></ul><ul><ul><ul><li>Linearity in uplift capacity (3X demand to supply Sept-Dec) </li></ul></ul></ul><ul><ul><li>Limited landing rights in China </li></ul></ul><ul><ul><li>U-turn requirements for intra-China shipments </li></ul></ul><ul><ul><li>Non-direct flights between Taiwan and China </li></ul></ul>

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Challenge to the Air Cargo Industry <ul><li>Constantly seek out new ways to improve reliability </li></ul><ul><ul><li>Global consistency with materials handling; i.e. Emerging Markets </li></ul></ul><ul><ul><li>Practice Business Continuity religiously; terror, hurricanes, etc </li></ul></ul><ul><ul><li>Face complexities and challenges as opportunities to get better, not as immovable barriers that halt progress or raise costs </li></ul></ul><ul><ul><li>Adequate and affordable lift capacity from growth and emerging markets </li></ul></ul><ul><li>Cost efficiency and effectiveness </li></ul><ul><ul><li>Segmented services (one solution does not fit our BU needs) </li></ul></ul><ul><ul><li>Fuel efficiency and environmental awareness </li></ul></ul><ul><ul><li>Seamless inter-modal capabilities with customer transparency </li></ul></ul><ul><ul><li>Educate shippers on ways to make your life easier (bid timing, etc) </li></ul></ul><ul><li>Work as an industry to create breakthrough innovations, standards and leverage your collective power. </li></ul><ul><ul><li>Increase collaboration with supply network partners </li></ul></ul><ul><ul><li>Industry associations / leverage your positions government, regulations. </li></ul></ul>

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Back-up

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Intel Supply Chain Vision Mission: Increase customer and Intel success by optimizing supply and demand, and delivering valued supply chain solutions Vision: Agile fulfillment capability that is easy for customers and maximizes shareholder value.

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Global Transportation & Logistics Outsourcing Vision - TransPerfection “Perfecting the Business of Global Transportation” Establishing Cutting-Edge Transportation Management Systems Providing the Right Service at the Right Cost at the Right Time Evolving a Culture of Controls Ensuring Clean, Visible Data for Value-Add Information Investing in the Growth of our People Mission: Deliver a Supply Chain Advantage to Intel by:

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Supply Network Trends – Environmental Scan D.A.R.T. Board D istribution A vailability R egulations T echnology Distribution Availability of Logistics Supply Regulatory Requirements <ul><li>Air Freight Capacity: Capacity constraints impact delivery performance and drive costs up. </li></ul><ul><li>Fuel: High fuel prices and lack of management strategies impact distribution decisions. </li></ul><ul><li>Ocean Port Congestion: Increased ocean volumes causing long wait times at ocean ports (particularly in China, Japan & West Coast US). </li></ul><ul><li>Security: Challenge network reliability and shipment integrity (e.g., TSA). </li></ul><ul><li>Customs: EM challenges & inspection of cargo on PAX. </li></ul><ul><li>Environmental and Packaging: Requirements becoming more strict </li></ul><ul><li>Trucking Regulations: Affecting labor and profitability. </li></ul><ul><li>Lithium Ion Batteries: Restrictions could impact future shipments </li></ul><ul><li>RosettaNet: Enable “plug-and-play” startups and improve data quality. </li></ul><ul><li>RFID: Offers benefits for operations management and security. </li></ul><ul><li>Globalization: Growth in emerging markets challenges logistics capabilities, increases security risks, and drives up costs. </li></ul><ul><li>Inventory Management: Increased requests for consignment, leaner inventory models, SKU proliferation. </li></ul><ul><li>Network Complexity: Increased outsourced manufacturing, fragmentation of disti channel, direct- and drop-ship models, exponential lane pair growth. </li></ul>Technology

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Business Trend Summary- More intense, not new…. <ul><li>Trend 1: Market and service requirements growing </li></ul><ul><li>Trend 2: Supply Chain complexity accelerating </li></ul><ul><li>Trend 3: Increased customer expectation: responsiveness/expectations/power </li></ul><ul><li>Trend 4: Getting more difficult to manage affordability </li></ul><ul><li>Trend 5: Our growth is in emerging markets </li></ul>