Tough Problems Solved

What do industry leaders Wal-Mart, Dell, and Procter & Gamble have in common? Answer: A razor-sharp supply chain characterized by end-to-end connectivity and collaborative design, manufacturing, planning, forecasting and replenishment.

Unfortunately, this is not nearly the norm for most companies. According to a recent survey of 142 companies by Supply Chain Management Review, only a handful -- 10 percent -- have highly integrated, responsive supply chains. Most companies have barely begun to integrate their chains internally -- let alone with suppliers, partners, and customers. Worse, about half the firms surveyed have only a nascent supply chain strategy or, amazingly, none at all.

IBM, on the other hand, has been a leader in supply chain management for many years. For a global computer manufacturer with dealers and distributors in a multitude of countries, IBM Research designed an XML-based system with open architecture to implement e-procurement with its vast supplier base. The company's e-commerce director said that the company expected to save several percent on its annual procurement budget. The system cut inventory storage time and procurement cycle time by about half, but most important, it's helping the company to deliver products to customers faster. (More information)

IBM saw the benefits of supply chain management from working with its clients and decided to use those principles to help transform its own supply chain. Since early 2002, it's been hard at work doing just that -- not only to cut costs (though it saved $5.6 billion in 2002 alone) but ultimately to increase customer satisfaction in the hope of raising revenue and market share. Unlike many other companies, IBM's supply chain now includes touch points such as online sales, business partner systems, fulfillment, customer relationship management, and accounts receivables. And now, IBM's building a supply chain that will sense and respond to various changes in the market -- both supply and demand. To do that, it must be integrated end-to-end, to extend vertical operations across a network of suppliers and partners.

So, what are the supply chain problems that companies face today and what are the prospective solutions?

Supply chains are vulnerable to disruptions from both the supply and demand side. Supply shocks include the challenges of fast new product rollouts and frequent order changes. Demand shocks include fickle customer preferences coupled with ever-greater pricing power. Revenues get squeezed but costs don't budge. It all adds up to companies having only a limited time in which to profit from new product launches.

Until a few years ago, many corporations were hard-pressed to respond. But then a number of enabling technologies emerged -- many from IBM's labs. Software called middleware helped these corporations to integrate within and with other companies regardless of operating systems. Radio frequency identification helped them to trace the movement of products from the factory all the way to the checkout counter. Data mining aided them in finding huge amounts of data both internal and external, past, present and near future, to do far more accurate, continuous forecasting. Analytics -- in the form of "digital dashboards" -- afforded companies the chance to check key business indicators not just quarterly or monthly, as in the old days, but far more frequently.

In other words, technological advances spawned entirely new business models, and it was inevitable that the supply chain -- the heart of most businesses -- would undergo a major transformation.

That transformation is to a state that IBM calls an on demand supply chain -- and the theory is fast becoming a reality. The brainchild of IBM Global Business Services, an on demand supply chain will sense and respond to many changes in the environment, adjusting quickly when, where and how needed. It will vary capacity rapidly to meet new requirements, the supply network working as one team. It can focus on core strengths and help a company use closely connected partners to handle the rest. And more than just respond, it will be able to anticipate key capacity or supply issues, assess the impact of decisions, and flex and extend at will.

The benefits? They can include higher revenues along with lower costs, greater market share, a more defensible market position, lower inventories and less waste, help in getting better products to market faster, and above all, greater customer loyalty. Several companies are moving toward this way of doing business -- and are poised to lead their industries. How about yours?

The benefits are obvious -- and IBM has the business insight and the technological prowess to transform a company into an on demand business. For more information, contact IBM Research Services.