Integrated Supply Chain
Confidential | October 12, 2004 © 2004 IBM Corporation
Building the on demand supply chain: Innovation that Fuels Growth
An IBM Case Study
Patrice Knight, vice president, ISC Business Transformation PortfolioOctober 12, 2004
Integrated Supply Chain
Building the on demand supply chain | An IBM Case Study © 2004 IBM Corporation2
An enterprise whose business processes–integrated end-to-end across the company and with key partners, suppliers and customers–can respond with flexibility and speed to any customer demand, market opportunity or external threat.
On Demand Business–A Definition
RESPONSIVE VARIABLE FOCUSED RESILIENTKEY ATTRIBUTES
A robust supply chain is essential for an on demand business.
Integrated Supply Chain
Building the on demand supply chain | An IBM Case Study © 2004 IBM Corporation3
ReinventionCost Cutting
True external electronic collaboration withsuppliers and partners
Development of better functional skills and increased inter-business unit communication
Static supply chains with business unit andgeographic “silos”
2002200120001999199819971996199519941993
We’ve been transforming both our company and our supply chain for the last ten years from a cost center to an engine of innovation and growth.
Revenue: $64B Net income: $3B
Profit DriverCost CenterDrives value primarily by saving money and increasing cash conversionStill primarily product focused
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Fragmented and not mission criticalDistributed & hard-wired to business unitsPockets of integration in functional silos No client-facing processes No common processes or leveraging experience A corporate staff function
Integrated Supply Chain
Building the on demand supply chain | An IBM Case Study © 2004 IBM Corporation4
Financial Results
OperationalResults
Client Facing Results
GENERATED
$700M+ CASH
$7BCOST ANDEXPENSESAVINGS
20%IMPROVEMENTIN SALES FORCEPRODUCTIVITY
INVENTORY AT THELOWEST LEVELS IN
YEARS3095% ON TIME
DELIVERY
CUSTOMER USE OF WEB-BASED SERVICES RESULTED IN
$207ME-SUPPORT COSTREDUCTION IN 3Q03
DSO REDUCEDBY NEARLY
DAYS2
IBM: $89B REVENUE $33B PROFIT $7.6B FREE CASH FLOW #2 IN CUSTOMER SATISFACTION
And we achieved some impressive 2003 results.
Integrated Supply Chain
Building the on demand supply chain | An IBM Case Study © 2004 IBM Corporation5
Single aligned objectives•Sales agreement to sell available supply•Supply chain provides visibility to shortfalls•Shared accountability for customer service
Contention from competing objectives (sales / supply chain)
Capability to balance world-wide cross-brands
Supply locked in local buckets
Rapid resolution of short term imbalances – Sense and Respond
Long-term supply imbalance focused – slow to identify
Single aligned decisionMultiple points of risk-taking decision-making
One trusted view of demand and supply by all participants
Limited shared visibility
ToFrom
Applied to the demand/supply process, on demand requires changing fundamental behaviors within the enterprise.
Integrated Supply Chain
Building the on demand supply chain | An IBM Case Study © 2004 IBM Corporation6
Automate web-based self-service systems
Virtual teams support sales teams improved productivity by 20%
Regional competency centers support of common, global business processes
Integrate end-to-end order fulfillment processes and systems
Optimized SourcingVariable cost structureAssets owned by partner50% reduced mfg. sites, sqft
IBM continues to:• Interface with customer•Develops products•Manages strategic suppliers•Maintain quality stds
Centralized D/S planning
Balance Demand and Supply with Sense and Respond Conditioning
Lowest inventory levels ever/improved turnover
On time delivery best in history
Maintain margins in competitive environment
Industry-standard products to create on demand ops for IBM’s supply chain:
Selectica: Cross-brand and platform configuratorSiebel: Standardized CRMWebSphere Business Integration: ties together legacy applications & dataSAP R3: Cross-brand, touchless order flowB2B: Seamless supplier & client relationshipsi2: Integrated supply and demand planningDB2: Trusted data sourcesSaR: Sense and Respond
Global operations across all IBM
50% fewer suppliers;10 strategic partners
Include e2e total supply chain HW/SW/Services
e-Procurement infrastructure extends beyond enterprise for seamless data mgmt
Professionals spend majority of time on supplier evaluation and market intelligence
Fulfillment Manufacturing Procurement Enabling Technology
Competitive advantage comes with integration and having a focus on Integrated Demand/Supply Conditioning.
Integrated Supply Chain
Building the on demand supply chain | An IBM Case Study © 2004 IBM Corporation7
Provide supply-side early visibility to customer demands
• Linked to IBM Signature Selling process
• Recognizes order progression: opportunity=>order
• Support IBM and joint supplier decisions for supply
• early risk/opportunity management
Sales Process Alignment links demand conditioning visibility to essential customer order indicators.
Integrated Supply Chain
Building the on demand supply chain | An IBM Case Study © 2004 IBM Corporation8
Shift from many machine types and models to fewer common sales building blocks
• Aggregate more accurate demand forecast at Sales Building Block level
• Order backlog visibility in Sales Building blocks
Customer order fulfillment flexibility• Configure to order
• Custom configurations for enterprise customers
• Supply substitutions defined between Sales Building Blocks to maximize• Demand conditioning efficiency (shift market to available supply)
• Customer satisfaction (shift order to available supply)
Demand side activities reconfigure product structures for supply.
Integrated Supply Chain
Building the on demand supply chain | An IBM Case Study © 2004 IBM Corporation9
Demand decisions include Procurement visibility to supply shortages / excesses
Procurement and supplier engage development to introduce industry and supplier technology roadmaps
Product early life and emerging technology supply visible within demand planning and generation
Supply side activities ensure early and on-going involvement of procurement and suppliers in demand decisions.
Integrated Supply Chain
Building the on demand supply chain | An IBM Case Study © 2004 IBM Corporation10
Shorten distance between supply chain events and resolution• Focus on end-to-end processes with shared objectives
• Sense and respond to synchronize demand and supply
Integrate supply chain participants – customers to suppliers
Reduce fixed costs and drive flexibility in infrastructure
Implement common global processes & technology• Effective enterprise transformation and return on investment
Realize returns on Labor-based component of the supply chain
Tend to the culture, emphasize talent and improve skills
In the on demand world, competitive supply chains must deliver on the promise of market value.
Integrated Supply Chain
Building the on demand supply chain | An IBM Case Study © 2004 IBM Corporation11
Core demand planning enhancements increase overall forecast quality
Key innovations in monitoring actual demand trends
• Statistically-based trend analysis – objective event identification
• System-level trending and commodity/Sales Building Block views
Sense and respond to unanticipated demand and supply events
Analytics and data mining provides capability to monitor and assess demand trends.
Integrated Supply Chain
Building the on demand supply chain | An IBM Case Study © 2004 IBM Corporation12
Event-driven behavior
Based on defined business rules
Automated event detection
Monitoring and notification
Event / effect data management
Decision and learning analytics
Automated response
Workflow management
IT architecture and framework
Sense & Respond requires critical changes to culture and behaviors. It’s not just about technology.
Sense & Respond considers dimensions and how they work together within a business context to improve supply chain performance.
Integrated Supply Chain
Building the on demand supply chain | An IBM Case Study © 2004 IBM Corporation13
Demand and Supply integration provides business value.
Integrated Supply Chain
Building the on demand supply chain | An IBM Case Study © 2004 IBM Corporation14
When we did this, we improved synchronization across the supply chain and drove business results.
Integrated Supply Chain
Building the on demand supply chain | An IBM Case Study © 2004 IBM Corporation15
Greater efficiency– Server volume growth contained with minimal spending increases yielding ~10%
productivity gains– Procurement "hands free" transactions up from 78% to 90%– Logistics volumes up 31%, costs down 21%
A more variable cost structure– Fixed spending for high volume systems manufacturing down 33% over 3 years – Logistic warehousing from 100% owned to 100% vendor managed
Improved responsiveness and flexibility– Ability to respond to shifts of hardware demand inside quarterly lead time by up to 50%– Customer fulfillment e-Applications reduced annual calls from clients by over 600,000,
saving 2.9M– Reduced number of non-strategic suppliers by 80%
Better business process controls– Reduced escapes (maverick buying) from a high of 35% to less than 0.2%– Acceptable business controls (audits) from 85% to 95%+
The on demand model is giving us:
Integrated Supply Chain
Building the on demand supply chain | An IBM Case Study © 2004 IBM Corporation16
1. Procured Parts/ServicesYear-to-Year price take downsCost efficiency/avoidance actionsIndustry cost takedowns
2. Design EfficienciesUtilizing industry standard partsCommon across system platformsUsing IBM semiconductor tech
3. Manufacturing EfficienciesOutsourcing flexibilityLow cost / tax jurisdictionsProcess improvementsLeveraging fixed capacityReduce inventory & warranty costs
4. Services & General ProcurementInternal software v purchaseConsolidation of supply baseMigration to core suppliersLeverage globallyE2E travel managementServices labor cost managementOptimize outsourced (contractor) skills vs. internal supply; Manage IBM "bench" skillsPreferred suppliers/rates
5. Customer FulfillmentCommon processes and tools“Touch less” processesFreeing up sales reps from process tasks
6. Integration of Acquisitions
At the same time, we continue to drive down costs. Cost “take outs”for us are a daily way of life.
Integrated Supply Chain
Building the on demand supply chain | An IBM Case Study © 2004 IBM Corporation17
Reinvention
One integrated and fully-enabled organization (ISC) that hasre-invented IBM operations
Revenue: $89B Net income: $7.6B
Business OptimizationProfit DriverGoes beyond products to servicesExtends success past financial metrics
Impacts customer satisfactionImpacts sales team productivity
Fully synchronizes supply and demandIgnite growth
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Future2003
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What’s Next?
Integrated Supply Chain
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