In the early 1990s, International Business Machines Corporation, better known as IBM, was changing not just its product line but its entire business model. The technology giant had reached the point where it was selling as much software and services as computers. The problem was that its supply chain had been designed to support local and regional computer sales and delivery. That fragmented approach, moreover, prevented IBM from capitalizing on one of its greatest strengths: the ability to leverage its purchasing power with vendors around the world. What "Big Blue" needed was to restructure its supply chain as a unified, global organization.
But that would require changing more than just the way IBM delivered products and materials. "We had to reinvent the supply chain as a system that moves people and insights and results and motivation," says Timothy E. Carroll, vice president of supply chain operations for IBM's Integrated Supply Chain. That mission set the company on a journey of self-improvement that continues to this day.
Building an integrated organization
Based in Armonk, N.Y., IBM was founded a little more than a century ago, in 1911. The giant company earned more than US $106 billion in worldwide revenue from hardware, software, and services in 2011. Its supply chain management organization works out of 360 locations in 64 countries, tracking more than 1.5 million assets for both IBM and its clients. The organization also deals with about 23,000 suppliers in nearly 100 countries.
IBM's supply chain operation oversees two critical processes for the corporation. The first is the order-to-cash cycle. That process, Carroll says, starts when a customer is ready to do business with IBM. It continues with the placement and then the execution of the order, including manufacturing and delivery. The cycle also encompasses billing and invoicing, accounts receivable, and post-sales support.
The second process is called "procure-to-pay," which encompasses purchasing and payment of suppliers. The procure-to-pay systems enable the integration of the purchasing department with the accounts payable department. In fact, these systems are designed to provide IBM with control and visibility over the entire lifecycle of a transaction—from the way an item is ordered to the manner in which the final invoice is processed. "It's everything that we do with external suppliers," Carroll says. "Our chief procurement officer and his organization have full responsibility for all purchasing on behalf of IBM, whether it's production, administrative, travel, you name it."
Two decades ago, IBM's supply chain picture was very different. It had a supply chain structure suited to supporting regional product sales across 150 countries, with different business units handling sourcing, logistics, and delivery of orders. "We had local procurement, local cash collection, local unique processes, and many units had their own [information] systems," Carroll recalls.
IBM's move toward global delivery of software and services meant that a supply chain strategy focused on local or regional businesses was no longer viable. In 1993 the company began the process of reorganizing its many supply chain organizations into a single global entity. The first step was to transform its procurement and order fulfillment functions, including establishing standards for those activities for all business units in every country.
The following year, IBM established Global Sourcing Councils where procurement executives could exchange knowledge with their counterparts in other countries. These councils also allow professionals with deep sourcing expertise to work together to solve problems and coordinate with other functions. "Our [procurement] professionals worldwide work hand-in-hand with product development in design, manufacture, and delivery of products that not only meet governmental regulations, but also meet voluntary objectives set by IBM, such as lower power consumption," Carroll explains.
Building on those earlier unification initiatives, by 2002 the company was able to formally establish a single, global supply chain organization. "We extracted anything [supply chain-related] that was in a line of business or in other functional entities across IBM and consolidated them into one integrated organization," Carroll says.
The global integration of IBM's supply chain serves as the foundation for two principles, or axes, underpinning the company's service philosophy. The first is what Carroll terms the "pillars of strength." The supply chain organization, he says, provides strength and stability to the company because there are uniform practices at its centers for procurement, manufacturing, and order fulfillment around the globe. For example, all fulfillment centers, regardless of location, follow a standard procedure for taking orders or handling cash collection. "The driving force is to 'do it once, consistently' around the globe," he observes.
Process standardization also allows IBM experts located anywhere in the world to support customers wherever the company does business—at any hour of the day or night. For example, a client in Europe that discovers a need for a critical part late at night doesn't have to wait until normal business hours to place an order, but can instead contact a fulfillment center in another part of the world to process its request. "These centers are supporting 24/7 everything that takes place around the world," Carroll says.
The other axis, dubbed the "pillars of value," relates to effectiveness in serving customers. It refers to the fact that supply chain professionals, located in a center anywhere in the world, can work on developing a specific solution to meet the needs of a particular industry, geography, or group of customers. By applying its expertise to solve a particular problem, IBM is able to increase customer or shareholder value.
Analysis and prevention
A decade after IBM achieved its objective of creating a single, integrated supply chain, the company continues to seek ways to improve on that model. Its latest supply chain initiative involves using predictive and prescriptive analytics to drive operational improvements. The tech giant has begun using a number of analytic software applications that sift through disparate types of information to find patterns or propose solutions to problems. IBM applies analytics to such areas as visibility, risk management, customer insight, cost containment, and sustainability. It also uses the software to model the impact of potential scenarios on its supplier network.
Carroll notes that analytics helped IBM respond in a timely and effective way when natural disasters threatened to disrupt the company's supply chain. For example, when a volcano in Iceland halted flights throughout much of Europe in April of 2010, the analytical software told IBM to focus its response on Asia rather than Europe. Carroll says he and his colleagues were "quizzical" at first about the software's analysis, which indicated that the critical link in IBM's supply chain was Hong Kong. It quickly became clear why. The analysis forecast that if IBM did not take steps to secure sufficient airlift once the volcanic eruption abated and flights resumed, it would encounter a bottleneck in Hong Kong when it tried to quickly move a backlog of components and products from Asian manufacturers to European customers. As a result of that prescriptive analysis, IBM booked space on commercial and charter aircraft from Hong Kong to Europe in plenty of time. "We didn't sit and watch what was going on with the disaster," Carroll says. "We prepared ourselves for what to do once the disaster lifted."
Now, in fact, a team of specialists, part of a dedicated research arm within IBM's supply chain organization, reviews various scenarios to prepare a response to a natural disaster or man-made crisis anywhere in the world. "We are constantly playing out scenarios through business analytics to determine if we have a way of quickly recovering from a situation," Carroll says.
The biggest challenge
As IBM continues to refine its supply chain strategy, analytical tools will play an even greater role. That's because Carroll believes that the biggest challenge facing his company is protecting the enterprise, its clients, and its shareholders from the unknown. "Most supply chain chiefs don't worry about what they know," he says. "They worry about what they don't know."
Predictive tools will enable IBM to foresee problems and take pre-emptive actions to prevent supply chain interruptions anywhere in the world. Its global, integrated supply chain organization will ensure that those actions are carried out quickly, efficiently, and consistently, no matter where or when they're needed.