2005 Supply & Demand Chain 100 Case Study  IBM / IBM Integrated Supply Chain

Profiles in Supply Chain Enablement: IBM transforms its own supply chain, moving from "push" to "on demand."

Profiles in Supply Chain Enablement: IBM transforms its own supply chain, moving from "push" to "on demand."

Company: IBM (Armonk, NY)
Company Size: Large
Company Sector: Manufacturing
Area(s) of Enablement: Order/Demand Capture, Sourcing, Procurement, Fulfillment/Logistics, Payment, Customer Relationship Management, Product Lifecycle Management, Supply Chain Integration & Infrastructure, Decision Support
Enabler: IBM Integrated Supply Chain (Poughkeepsie, NY)

SDCE 100 2005Case Study: IBM set out to revolutionize the very concept of a supply chain — to transform it into a force that drives efficiency, makes life easier for clients and improves their satisfaction with IBM as a strategic partner.

At the heart of this change is a fundamental shift in how the company operates — from a "push" model to a demand-driven business model. IBM calls this new approach the "on-demand business." From the start, the company had high expectations for this new on-demand supply chain. It would enable the company to gain market share, grow revenue and profit, improve cash flow and enhance customer satisfaction. At the same time, IBM expected to cut up to $2 billion from the nearly $40 billion it spends on its supply chain.

At IBM, the decision to re-think its supply chain was not taken lightly. Its supply chain is, after all, massive. IBM's supply chain incorporates 33,000 suppliers and 45,000 business partners worldwide. IBM offers 78,000 products with millions of possible configurations; orders more than two billion component parts a year; operates 13 manufacturing locations in nine countries; processes more than 80,000 import entries a year; ships more than two billion pounds of products annually, including 50 million spare parts; and, in North America alone, handles almost two million orders a year, and maintains 6.5 million client records, with an average of 350,000 updates every day.

The solutions that IBM elected to implement to achieve its goals included:

  • Siebel - Common opportunity and sales contact system to manage leads and target marketing

  • SAP - enable cross-brand, touchless order flow

  • Selectica - Deploy a cross brand configurator

  • i2 - Integrate supply/demand planning and provide accurate, responsive promise dates

  • Dassault Systemes - Integrated product development

  • IBM WebSphere - Cross brand shopping and middleware to tie the applications together

  • IBM DB2 - Repository for product data, pricing and client information
Opportunity to Cash

For IBM, the on-demand supply chain is integrated end-to-end across a company's entire operations — and with key partners, suppliers and clients — from opportunity to cash. The on-demand supply chain can sense and respond with flexibility and speed to any client demand, market opportunity, or change in the marketplace — no matter how frequent or sudden.

To build the foundation for its on-demand business, IBM did away with entrenched functional silos, bringing procurement, manufacturing, logistics and client support teams together from almost every division of the company. It created a single business unit, the Integrated Supply Chain (ISC) division, with 19,000 employees spread out across 56 countries worldwide.

Today, IBM's supply chain stretches from "opportunity to cash" — from raw materials at one end of the manufacturing operation, to the ongoing client support at the other end.

To reinforce its commitment to supply chain integration, IBM also overhauled its performance measurement and reward system unraveled its complex IT architecture and rolled out core strategic IT platforms to address every aspect of its business.

Timeline for the IBM transformation is as follows:

  • 1993-1995 - Process Design - Static supply chains with business unit and geographic "silos". The supply chain was fragmented and not mission critical, distributed & hard-wired to business units, pockets of integration in functional silos, no client-facing processes, no common processes or leveraging experience.

  • 1996-2000 - Process Deployment & IT Integration - Supply chain begins to drive value primarily by saving money and increasing cash conversion, but still primarily product focused.

  • 2000-2001 - Extended Enterprise - True external electronic collaboration with suppliers and partners.

  • 2002-2005 - On Demand, IBM Integrated Supply Chain formed as one integrated and fully-enabled organization (ISC) that has re-invented IBM operations as a competitive weapon.

Since 2002, IBM reports that it has achieved $20 billion in cost and expense savings, hit its lowest inventory levels in 30 years and generated more than $500 million in cash. In addition, the company saw its average payment terms improve by one day, which equals $108 million. In 2004, the company saw a 25 percent improvement in sales force productivity. Cycle time performance was up 16 percent, and the company achieved 93 percent on-time delivery and a 2 percent improvement in client satisfaction.

One of IBM's executives stated it this way: "The supply chain executives have garnered a lot of respect in the company in the last three years. When you produce these kinds of results, people start to notice you. Our 19,000 ISC employees are not just a cost center. They provide a competitive weapon for IBM, they provide an advantage to our shareholders, and they help us hit our quarterly earnings."

As next steps, the company is looking to implement a supply chain for its services organization, essentially a supply chain that manages employee skills and talent, just like it would manage tangible assets.

For more stories of successful supply chain implementations, read the "2005 Supply & Demand Chain Executive 100" article in the June/July 2005 issue of the magazine. Also watch the Today's Headlines section of SDCExec.com every Tuesday and Thursday for more in depth best practices drawn from this year's Supply & Demand Chain Executive 100.
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