Vol. 42, No. 6, November–December 2012, pp. 517–527 ISSN 0092-2102 (print)  ISSN 1526-551X (online) http://dx.doi.org/10.1287/inte.1120.0637 © 2012 INFORMS Optimizing Inventory Levels Within Intel’s Channel Supply Demand Operations Brian Wieland, Pat Mastrantonio Channel Supply Demand Operations, Intel Corporation, Folsom, California 95630 {brian.j.wieland@intel.com, pat.mastrantonio@intel.com} Sean P. Willems School of Management, Boston University, Boston, Massachusetts 02215, willems@bu.edu Karl G. Kempf Intel Corporation, Chandler, Arizona 85226, karl.g.kempf@intel.com Intel’s Channel Supply Demand Operations (CSDO) organization is responsible for satisfying the boxed proces- sor demands of Intel’s vast customer network of distributors, resellers, dealers, and system integrators. In 2005, CSDO began a multiechelon inventory optimization (MEIO) project to improve its efficiency and effectiveness by optimizing inventory levels and locations across CSDO’s end-to-end supply chain. This paper describes the project plan, workflows, and results. One year after implementation, total inventory levels were reduced by more than 11 percent; in addition, service levels of products modeled using the MEIO process were eight points higher than products not modeled using this process. The MEIO process continues to be in place at Intel and has resulted in sustained reductions in inventory levels, average service levels exceeding 90 percent, and more than an order-of-magnitude reduction in the number of expedites. Key words : multiechelon inventory optimization; supply chain application. History : This paper was refereed. Published online in Articles in Advance October 25, 2012. F ounded in 1968, Intel introduced the world’s first microprocessor in 1971. Today, it is the world’s largest chip maker and a leading manufacturer of computer, networking, and communications prod- ucts. Intel employs more than 80,000 people world- wide and produces more than 10 million chips each week. Although it sells microprocessors directly to the largest computer manufacturers, such as Dell, Hewlett Packard, and Lenovo, its Channel Supply Demand Operations (CSDO) organization is respon- sible for satisfying the branded boxed CPU demands of Intel’s vast customer network of distributors, resellers, dealers, and local integrators. Intel’s boxed processor shipment volume represents approximately 20 percent of its total CPU shipments. In 2005, CSDO began a multiechelon inventory optimization (MEIO) project to improve the efficiency and effectiveness of its end-to-end supply chain. This paper describes the CSDO supply chain, the MEIO project, and the project’s sustained results. CSDO Supply Chain Overview The CSDO supply chain begins after wafer fabrication and assembly-test factories have completed the pro- duction of finished microprocessors. Therefore, CSDO is managing a series of boxing and distribution activ- ities in the supply chain. At any given point in time, CSDO sells 100–150 stock-keeping units (SKUs). SKUs are differentiated by microprocessor characteristics and are targeted to the desktop, workstation, lap- top, and server markets with appropriate execution speed, power consumption, and multipin packaging for those markets. To produce finished SKUs, a three-echelon sup- ply chain (CW1, CW2, and CW3) transforms the fin- ished microprocessors and converts them to saleable products (see Figure 1). The first echelon, CW1, rep- resents finished microprocessor inventory at vari- ous assembly-test factory warehouses. At CW1, the microprocessors have completed all microprocessor 517