Extending Enterprise Supply Chain Management at IBM Personal Systems Group
The Problem
In 1994, IBM began reengineering its global supply chain to achieve quick customer responsiveness while keeping inventory at the minimum possible level. IBM's manufacturing sites are linked to tens of thousands of suppliers and distribution channels all over the world. A single product line may involve thousands of part numbers with multilevel bills of materials, highly varied lead times and costs, and dozens to hundreds of manufacturing and distribution sites linked by different transportation modes. Facing the challenges of increasing competition, rapid technology advances, and continued price deflation, the company launched an internal reengineering effort to streamline business processes in order to improve the flow of material and information. Achieving these goals would require the IBM analytics and operations research team's expertise in advanced mathematical methods for inventory control and supply chain optimization.
The Analytics Solution
Early in the analytics team's efforts, its members realized that there were two fundamental keys to overhauling IBM's supply chain. First, they had to reduce and manage uncertainty to promote more accurate forecasts. Second, they had to improve supply chain flexibility to facilitate quick adaptation to changes in the marketplace. They focused on the intrinsic interdependency of an extended-enterprise supply chain, knowing their system would perform as desired only if it reflected the policies and processes used by its suppliers and channels, integrating their value chains with IBM's own.
To support their effort, IBM developed an extended-enterprise supply chain analysis tool, the Asset Management Tool (AMT). AMT integrates graphical process modeling, analytical performance optimization, simulation, activity-based costing, and enterprise database connectivity into a system that allows quantitative analysis of extended supply chains.
The Value
IBM implemented AMT at a number of IBM business units and their channel partners – for benefits that included over $750 million in material costs and price-protection expenses saved in 1998. Channel inventory was reduced from over 3 months to approximately 1 month, and end-to-end inventory from 4.5 months to less than 2 months. By closing the gap between component procurement and product sale by 4 to 6 weeks, there was a savings on product cost of at least 5%.
Said Bob Moffat, General Manager for Manufacturing, Procurement, and Fulfillment, "AMT has improved our relationships with business partners, making them more efficient, more productive, and ultimately more powerful in the marketplace. I believe this will lead to a fundamental change in our business culture, a unification of basic value among suppliers, manufacturers, and resellers."
Mac McNeill, Senior Vice President of Global Operations for GE Capital IT Solutions, who sponsored a four-month project using the AMT to model GE Capital's personal-computer supply chain, commented: "The modeling allowed us to develop a base case using actual end-user customer sales and then to quickly model and optimize many alternatives based on various levels of GE forecast accuracy, IBM fill rates, transit times, in-bound and out-bound delays, and commonality of parts. The optimization results will allow us to develop action plans to balance improved levels of serviceability with lower levels of inventory."
