Executive Briefings

IBM's Integrated Supply Chain Creates Strategic Value Throughout the Enterprise

IBM at one point had 30 supply chains, one for each of its business units, with each considered a necessary cost of doing business. Today the Integrated Supply Chain at IBM is an innovative, strategic business unit that delivers significant cost savings, competitive advantage and enterprise alignment.

Supply chain transformation at IBM began in 1993 and has played a key role in the company's overall shift to an On Demand enterprise. Today IBM's Integrated Supply Chain (ISC) is a core strategic business unit that touches every area of operations and is a source of value, innovation and competitive advantage.

Creation of the ISC in 2003 as a single business unit for global supply chain operations was an important milestone in this journey. Practically overnight, ISC emerged with 19,000 employees in 56 countries responsible for $45bn in spending.

"The organization chart for ISC looks simple, but it's actually very complex," says Sal Calta, ISC vice president of worldwide manufacturing. He notes that IBM still manufactures servers and mainframes and has 10 manufacturing sites around the world. "So the supply chain consists of global manufacturing; a procurement division for parts; global logistics, which is completely outsourced; customer fulfillment; order entry; billing; inventory management and tracking to delivery-all these entities."

Uniting supply chain operations into one business unit, however, did not mean disassociating supply chain experts from their domain specialties. Rather than disband these silos, the company wanted them to learn from one another and for ISC to serve as a bridge to align enterprise operations horizontally.

"It used to be that a supply chain team would work only on their thing, whether it was the mainframe manufacturing team or the storage team," says Calta. "The fact that high-end storage boxes and mainframes look alike and have similar attributes was never leveraged because these teams never talked." Today, however, the teams get together and learn from one another, he says. "Instead of solutions being one-offs, teams share a common framework for configuring solutions that allows them to be replicable."

With more reliability and consistency across the supply chain, the sales force has been freed from spending time on things like ordering, scheduling and billing and is able to spend more time with clients, resulting in increased sales, he adds. "By moving a lot of customer fulfillment activities into the supply chain, we are giving our sales force this time back and making them a powerful source of productivity," Calta says.

The management and organizational changes IBM made were reinforced with new measurement systems designed to capture critical quantitative data across and between functions as well as qualitative insights into supplier and partner relationships. "It's important that different functions not get mesmerized by their own internal metrics," says Calta. "What are needed are shared measurements that take a top down approach." This means putting shareholder and customer value first and staying focused on end-to-end processes, rather than optimizing individual silos, he says. "We haven't tossed out the individual metrics, but we have added new ones that tie the entire supply chain together with common goals and objectives, such as improvements in customer service or cash generated," Calta says. This approach has driven "tremendous cost reduction and expense reduction as well as improvements in cycle times," he says.

Taking a global approach to the supply chain also has helped the company as a whole leverage its economic scale, says Calta. "A big piece of this has been changing our culture so that we think globally on all levels." One example of this is development of talent in other countries, particularly China, he says. "It used to be that when we sent business to China, a U.S. facility remained the plant of control," he says. "Now that is starting to flip, with plants in other countries taking the global lead." One demonstration of this shift is the decision by Calta's counterpart in the procurement division of ISC to relocate himself to Shenzhen, China, he notes.

As ISC has become more of a strategic player within IBM, it has pushed supply chain issues up the organizational agenda. "The supply chain has gone from being an afterthought to having a seat at the table at the highest levels of the organization," Calta says. This has many ramifications, with one example being design efficiencies. "With a seat at the table, we now have the clout to work with the product development team to ensure that they design for the supply chain," Calta says. This, in turn, "enables us to go to the next level in adding value to manufacturing."

One of the most innovative byproducts of the ISC is the application of supply chain principles to other aspects of enterprise management at IBM. This is demonstrated by the Workforce Management Initiative (WMI), which tracks and allocates human resources and expertise in much the same way as the supply chain tracks and allocates inventory.

WMI essentially is an inventory of IBM's talent and skills, which can be scheduled for deployment based on specific client needs and availability, Calta explains. If a client needs a French- and Russian-speaking Linux expert with supply chain experience in the retail industry in Moscow on Aug. 15, an employee can quickly search IBM's consultants and find the right expert in seconds, just like checking inventory.

The WMI also maintains a Hot Skills Index that measures demand for different skills on a daily basis and matches the demand with IBM employees, similar to the way a parts manager would match the number of hard drives available to fulfill a client order. If more skills are needed in a particular part of the world, the local HR team can start recruiting and partnering with universities. If a region has an excess of a particular skill, education can be rolled out to retrain those workers.

Overall, ISC has returned tremendous benefit to IBM and its customers, says Calta. He cites just a few of its achievements, based on 2005 numbers. "Our inventory was the lowest it has been in 30 years, cycle time performance was up 6 percent, overall customer satisfaction was up by more than 1 percent, sales productivity was up by 25 percent, we generated $580m in cash and achieved $6bn in cost and expense savings."

The next big vector, he says, will be to apply supply chain principles to all of IBM's service businesses. "Our mission is to make IBM the most efficient, responsive and globally integrated enterprise possible, for the benefit of all its clients," Calta says.

Supply chain transformation at IBM began in 1993 and has played a key role in the company's overall shift to an On Demand enterprise. Today IBM's Integrated Supply Chain (ISC) is a core strategic business unit that touches every area of operations and is a source of value, innovation and competitive advantage.

Creation of the ISC in 2003 as a single business unit for global supply chain operations was an important milestone in this journey. Practically overnight, ISC emerged with 19,000 employees in 56 countries responsible for $45bn in spending.

"The organization chart for ISC looks simple, but it's actually very complex," says Sal Calta, ISC vice president of worldwide manufacturing. He notes that IBM still manufactures servers and mainframes and has 10 manufacturing sites around the world. "So the supply chain consists of global manufacturing; a procurement division for parts; global logistics, which is completely outsourced; customer fulfillment; order entry; billing; inventory management and tracking to delivery-all these entities."

Uniting supply chain operations into one business unit, however, did not mean disassociating supply chain experts from their domain specialties. Rather than disband these silos, the company wanted them to learn from one another and for ISC to serve as a bridge to align enterprise operations horizontally.

"It used to be that a supply chain team would work only on their thing, whether it was the mainframe manufacturing team or the storage team," says Calta. "The fact that high-end storage boxes and mainframes look alike and have similar attributes was never leveraged because these teams never talked." Today, however, the teams get together and learn from one another, he says. "Instead of solutions being one-offs, teams share a common framework for configuring solutions that allows them to be replicable."

With more reliability and consistency across the supply chain, the sales force has been freed from spending time on things like ordering, scheduling and billing and is able to spend more time with clients, resulting in increased sales, he adds. "By moving a lot of customer fulfillment activities into the supply chain, we are giving our sales force this time back and making them a powerful source of productivity," Calta says.

The management and organizational changes IBM made were reinforced with new measurement systems designed to capture critical quantitative data across and between functions as well as qualitative insights into supplier and partner relationships. "It's important that different functions not get mesmerized by their own internal metrics," says Calta. "What are needed are shared measurements that take a top down approach." This means putting shareholder and customer value first and staying focused on end-to-end processes, rather than optimizing individual silos, he says. "We haven't tossed out the individual metrics, but we have added new ones that tie the entire supply chain together with common goals and objectives, such as improvements in customer service or cash generated," Calta says. This approach has driven "tremendous cost reduction and expense reduction as well as improvements in cycle times," he says.

Taking a global approach to the supply chain also has helped the company as a whole leverage its economic scale, says Calta. "A big piece of this has been changing our culture so that we think globally on all levels." One example of this is development of talent in other countries, particularly China, he says. "It used to be that when we sent business to China, a U.S. facility remained the plant of control," he says. "Now that is starting to flip, with plants in other countries taking the global lead." One demonstration of this shift is the decision by Calta's counterpart in the procurement division of ISC to relocate himself to Shenzhen, China, he notes.

As ISC has become more of a strategic player within IBM, it has pushed supply chain issues up the organizational agenda. "The supply chain has gone from being an afterthought to having a seat at the table at the highest levels of the organization," Calta says. This has many ramifications, with one example being design efficiencies. "With a seat at the table, we now have the clout to work with the product development team to ensure that they design for the supply chain," Calta says. This, in turn, "enables us to go to the next level in adding value to manufacturing."

One of the most innovative byproducts of the ISC is the application of supply chain principles to other aspects of enterprise management at IBM. This is demonstrated by the Workforce Management Initiative (WMI), which tracks and allocates human resources and expertise in much the same way as the supply chain tracks and allocates inventory.

WMI essentially is an inventory of IBM's talent and skills, which can be scheduled for deployment based on specific client needs and availability, Calta explains. If a client needs a French- and Russian-speaking Linux expert with supply chain experience in the retail industry in Moscow on Aug. 15, an employee can quickly search IBM's consultants and find the right expert in seconds, just like checking inventory.

The WMI also maintains a Hot Skills Index that measures demand for different skills on a daily basis and matches the demand with IBM employees, similar to the way a parts manager would match the number of hard drives available to fulfill a client order. If more skills are needed in a particular part of the world, the local HR team can start recruiting and partnering with universities. If a region has an excess of a particular skill, education can be rolled out to retrain those workers.

Overall, ISC has returned tremendous benefit to IBM and its customers, says Calta. He cites just a few of its achievements, based on 2005 numbers. "Our inventory was the lowest it has been in 30 years, cycle time performance was up 6 percent, overall customer satisfaction was up by more than 1 percent, sales productivity was up by 25 percent, we generated $580m in cash and achieved $6bn in cost and expense savings."

The next big vector, he says, will be to apply supply chain principles to all of IBM's service businesses. "Our mission is to make IBM the most efficient, responsive and globally integrated enterprise possible, for the benefit of all its clients," Calta says.