What real-time supply chain looks like

To breathe new life into logistics, IBM merged 30 supply chains supporting its brands into one global on-demand network.

By Bob Trebilcock, Editor at Large -- Modern Materials Handling, 9/1/2006

In the early '90s, IBM veered off course. One of the areas Big Blue explored to right the ship was its supply chain, says Gary Smith, IBM's vice president of global logistics.

"Our management understood that we could no longer manufacture products everywhere in the world," says Smith. "But if we were going to take away from our manufacturing operations and still satisfy our customers, we had to beef up our supply chain processes."

The goal was to eliminate the company's 30 existing supply chains in favor of one integrated on-demand supply chain that could support IBM's 30 different brands, regardless of the customer or their service requirements and metrics.

"In terms of performance, we wanted a supply chain that was focused, responsive, variable and reliant," says Smith. "In terms of success, we looked at cost, cash and the customer."

The transformation involved several steps. First, the company defined its strategy, which called for outsourcing transportation, distribution centers and even the equipment inside them to third-party logistics (3PL) providers. "Over a period of four years, we sold every warehouse and transferred 100% of our people," says Cash. "Ninety-three percent of our costs are now variable rather than fixed."

The second was to focus on processes, applications and people. IBM reduced the number of supply chain applications it was using from 310 to 62. In addition, the company identified the best processes around the globe. Then, it brought together the people managing those processes, wherever they were located, to show the rest of the organization the benefits of how they conducted business.

Finally, it brought those people together to manage the logistics business. "We realized we have 20,000 people out there with a passion for the supply chain," says Smith. "We got them involved in what we're trying to do at IBM."

And the result of that integration? Today, says Smith, IBM can take an order from a customer located anywhere in the world. Based on manufacturing capacity, the availability of parts and transportation costs, the system determines the most economical place to source that order and still meet required customer service levels. In short, IBM has moved entirely to the real-time world.