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    Building the On Demand Supply Chain: Driving Growth through ... Building the On Demand Supply Chain: Driving Growth through ... Presentation Transcript

    • Integrated Supply Chain Building the On Demand Supply Chain: Driving Growth through Innovative Management Dr. Brian Thomas Eck Director, SCORBoard and Program Director / Business Growth, IBM Corp. © 2004 IBM Corporation
    • Integrated Supply Chain Agenda The Supply Chain Council and using the SCOR Framework Background Some IBM examples Results SCOR in context: IBM’s supply chain journey Looking back – last ten years Recent organizational changes Transformation drivers and results Future Opportunities Managing the Services Supply Chain Event-driven supply/demand • The potential of RFID • Wake Up Call: Sense and Respond supply chains Supply chain as a driver of growth 2 IBM at Nikkei © 2004 IBM Corporation
    • Integrated Supply Chain The Supply Chain Council was formed to build a common language for supply chain, and advance state of the practice The SCC is an independent, not-for-profit, global corporation with membership open to all companies and organizations interested in applying and advancing state-of-the-art supply chain management systems and practices. ~ 800 Company Members Cross-industry representation Europe Japan SEA ANZ Practitioners USA/Canada/Mex Software Vendors Consultants ROW Non-Profits SAfrica 3 IBM at Nikkei © 2004 IBM Corporation
    • Integrated Supply Chain SCOR is structured around five distinct management processes Plan Deliver Source Make Deliver Source Make Deliver Source Make Deliver Source Return Return Return Return Return Return Return Return Your Company Customer’s Suppliers’ Supplier Customer Customer Supplier Internal or External Internal or External SCOR Model 4 IBM at Nikkei © 2004 IBM Corporation
    • Integrated Supply Chain Opportunity Assessment Project outline SCOR Level 2 physical Steering Committee and process maps Final Review Best practices Additional 6-7 weeks Level 3 Process Gaps process maps Diagnostic metrics Performance SCOR metrics Sized Business drivers data collection improvement cases for Current performance opportunities selected versus competition Business and opportunities supply chain initiatives Steering Committee Project: To identify opportunities for Interim Review significant improvements in a division(s) 11-12 weeks supply chain(s) and provide business cases to help prioritize these opportunities Phase One Phase Two 5 IBM at Nikkei © 2004 IBM Corporation
    • Integrated Supply Chain Phase: Current performance versus competition Example: Level One SCORCard Supply-Chain Performance Versus Custom Population 0% - 20% 21% - 40% 41% - 60% 61% - 80% 81% - 100% Major Average Best- Key Perspectives Level 1 Metrics Opportunity Disadvantage or Median Advantage in-Class Delivery Performance to Commit Date 85% 92% Delivery – Direct shipments only = 80% of total Performance/ Customer-facing Quality Order Fulfillment Lead Time 32.0 Days 8.3 Days – US data only Flexibility & Material Availability 20.5 Days 1.7 Days Responsiveness Upside Production Flexibility Direct Labor Availability 7.5 Days 0.0 Days Manufacturing Capacity 2.0 Days 0.0 Days Cost Supply-Chain Management Cost 8.7% 4.1% Internal-facing Warranty Cost 3.0% NA Total Inventory Days of Supply 55 Days 21 Days Assets Cash-to-Cash Cycle Time 82 Days 22 Days Net Asset Turns 2.9 6.2 Divisional Performance 6 IBM at Nikkei © 2004 IBM Corporation
    • Integrated Supply Chain Example: SCOR Level 2 Process Maps XIP XIP Endicott Endicott Engines P1 P2 P4 Mgmt & Planning D2 S2 Engines w/controllers Asia NA Direct M2 D2 S2 D1 S1 NA Distributor Controllers D2 S2 Make-to-Order SCMO Paperloading Accessories CA P4 D2 S2 Japan LA Customer via CDC P1 Other Accessories D1 S1 LA Distributor via CDC Endicott Endicott D2 S2 Engines P2 NA P4 D2 S2 Network Interface Cards Asia AP South Customer via CDC D2 S2 D1 S1 AP South Distributor via CDC Paperloading Accessories Texas Deliver Stocked Products D2 S2 Japan Raleigh Raleigh Components/Accessories Note: Fujisawa integration facility has D2 S2 Level 2 process structure similar to NA P3 P4 ILC but serves Japan only Network Interface Cards D2 S2 Texas EMEA Direct M2 D2 S2 Controllers EMEA Distributor Integrate-to-Order D2 S2 CA ILC ILC 7 IBM at Nikkei © 2004 IBM Corporation
    • Integrated Supply Chain SCOR Projects see a wide range of adoption, and set the foundation for a robust supply chain Consumer Foods Project Time (Start to Finish) – 3 months Investment - $50,000 US 1st Year Return - $4,300,000 US Electronics Project Time (Start to Finish) – 6 months Investment - $3-5 Million US Projected Return on Investment - $ 230 Million US Software and Planning SAP bases APO key performance indicators (KPIs) on SCOR Model Aerospace and Defense SCOR Benchmarking and use of SCOR metrics to specify performance criteria and provide basis for contracts / purchase orders 8 IBM at Nikkei © 2004 IBM Corporation
    • Integrated Supply Chain A robust supply chain is essential for an on demand business On Demand Business–A Definition An enterprise whose business processes–integrated end-to-end across the company and with key partners, suppliers and customers–can respond with flexibility and speed to any customer demand, market opportunity or external threat. KEY ATTRIBUTES RESPONSIVE VARIABLE FOCUSED RESILIENT 9 IBM at Nikkei © 2004 IBM Corporation
    • Integrated Supply Chain For IBM, we’ve been transforming both our company and supply chain for the last ten years 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 RESULTS Revenue: $64B Net income: $3B SUPPLY CHAIN JOURNEY Static supply chains Development of better functional True external electronic with business unit and skills and increased inter-business collaboration with geographic “silos” unit communication suppliers and partners Cost Center Profit Driver Fragmented and not mission critical Drives value primarily by saving money Distributed & hard-wired to business units and increasing cash conversion SUPPLY CHAIN EVOLUTION Pockets of integration in functional silos Still primarily product focused No client-facing processes No common processes or leveraging experience A corporate staff function Cost Cutting Reinvention 10 IBM at Nikkei © 2004 IBM Corporation
    • Integrated Supply Chain Then tied it all together with shared measurements to assure success at both the business unit and IBM level Financial Operational Client Facing Results Results Results COST REDUCTION DEMAND/SUPPLY CLIENT SATISFACTION: SYNCHRONIZATION - Delivery CASH GENERATION - Solutions CYCLE TIME EASE OF DOING BUSINESS QUALITY OF INSTALLATION UNLEASHING SALES FORCE PRODUCTIVITY 11 IBM at Nikkei © 2004 IBM Corporation
    • Integrated Supply Chain When we put it together, it made an impressive footprint Customer Solutions Centers Manufacturing (IBM/Joint Ventures) Electronic Component Trading Centers Customer Fulfillment Competency/ Client Support Centers Control Towers Procurement Operations Centers Contract Manufacturers Logistics—Major Logistic Sites Manufacturing (IBM/Joint Ventures) 22 Customer Solutions Centers 6 Electronic Component Trading Centers 4 Contract Manufacturers 28 Procurement Operations Centers 3 Logistics—Major Logistic Sites 28 Customer Fulfillment 11 Control Towers 11 In-country Customer Fulfillment 61 Competency/Client Support Centers 12 IBM at Nikkei © 2004 IBM Corporation
    • Integrated Supply Chain …with unmatched economies of scale and expertise 19,000 employees at 100 Over 25% have advanced locations in 61 countries degrees; 200+ PhD’s worldwide Current staff holds 14 supply Approximately $40 billion, or chain related patents and have roughly 50%, of IBM’s total cost published more than 45 books and expense and articles Handles over 78,000 products, IBM supply chain was named with over 3 million configurations one of the 10 best by Supply Chain Technology News in 2002 45,000 business partners worldwide, 33,000 suppliers are connected to IBM through the Web 13 IBM at Nikkei © 2004 IBM Corporation
    • Integrated Supply Chain Forming an organization with a compelling vision was a start. But to drive change and deliver sustainable results we had to: Transform & strengthen the functions while building end-to- end capability Reduce fixed costs and drive flexibility in infrastructure Implement common global processes & technology Apply governance, performance goals and reporting disciplines Tend to the culture, emphasize talent and improve skills 14 IBM at Nikkei © 2004 IBM Corporation
    • Integrated Supply Chain By creating an on demand supply chain, we achieved some impressive 2003 results IBM: $89B REVENUE $33B PROFIT $7.6B FREE CASH FLOW #2 IN CUSTOMER SATISFACTION Financial Operational Client Facing Results Results Results $7B INVENTORY AT THE LOWEST LEVELS IN 95% ON TIME DELIVERY 30 YEARS COST AND EXPENSE SAVINGS DSO REDUCED CUSTOMER USE OF BY NEARLY WEB-BASED SERVICES 2 DAYS RESULTED IN $207M GENERATED $700M + CASH 20% E-SUPPORT COST REDUCTION IN 3Q03 IMPROVEMENT IN SALES FORCE PRODUCTIVITY 15 IBM at Nikkei © 2004 IBM Corporation
    • Integrated Supply Chain The on demand model is giving us: Greater efficiency Server volume growth contained with minimal spending increases yielding ~10% productivity gains Procurement "hands free" transactions up from 78% to 90% Logistics volumes up 31%, costs down 21% A more variable cost structure Fixed spending for high volume systems manufacturing down 33% over 3 years Logistic warehousing from 100% owned to 100% vendor managed Improved responsiveness and flexibility Ability to respond to shifts of hardware demand inside quarterly lead time by up to 50% Customer fulfillment e-Applications reduced annual calls from clients by over 600,000, saving 2.9M Reduced number of non-strategic suppliers by 80% Better business process controls Reduced escapes (maverick buying) from a high of 35% to less than 0.2% Acceptable business controls (audits) from 85% to 95%+ 16 IBM at Nikkei © 2004 IBM Corporation
    • Integrated Supply Chain What’s next: The transformation continues with a focus on both cost take-out and driving top line revenue 2003 Future RESULTS Revenue: $89B Net income: $7.6B SUPPLY CHAIN JOURNEY One integrated and fully-enabled organization (ISC) that has re-invented IBM operations Profit Driver Business Optimization Goes beyond products to services Extends success past financial metrics SUPPLY CHAIN EVOLUTION Impacts customer satisfaction Impacts sales team productivity Fully synchronizes supply and demand Ignite growth Reinvention 17 IBM at Nikkei © 2004 IBM Corporation
    • Integrated Supply Chain Focused: Managing the Services Supply Chain Workforce Management Process Framework Acquire & Strategy Supply Plan Develop Deploy Transition Human Resource Mg. Taxonomy/ Forecast Determine Develop Learning Request Strategy Employee Profile Demand Sourcing Programs Resource •ERequest Resource Sourcing Assess Internal Conduct •EDecision Support •] Plan Individual ID Recommended Strategy Inventory Optimization internal vs. contractor Development Resource (skills, CVs, availability) •EID Devel Needs •EDecision Support •] Resource Supply Recruit/ Source •ECreate Devel. Plan resource type •EInternal Update/Maint. Strategy •EOutsourcing Fcst. Resource Plan •ESkills •ERecruiting/Hiring •EExperience/CV •EAlt Workforce •EApplicant Tracking Execute Devel. Assess Subcon. •EAvailability Modeling •EContractor Sourcing Actions Supply RM Operations Onboard/ Qualify & Select Strategy Assess External Deboard Resource Supply Plan & Execute Assign/ Commit/ Transitions Adjust •EOut of business •EAcross LoBs Business Measurements Employee Performance, Workforce Benefits Programs Pay & Incentives Programs 18 IBM at Nikkei © 2004 IBM Corporation
    • Integrated Supply Chain Responsive: Fully synchronizing supply and demand requires a fundamental paradigm shift Supply Shocks Short Product Life Cycles Demand Shocks • New product ramp-up • Demand is unreliable and challenges changes daily • Customers exercising their pricing power Past Present Future Recognize Demand Demand “given,” Event-driven supply / can also be condition supply demand balancing conditioned 19 IBM at Nikkei © 2004 IBM Corporation
    • Integrated Supply Chain Radio RFID tags have many advantages over the barcode… Frequency Barcode / UPC RFID ‘Smart Tag’ Identification Ability to read one Ability to read multiple tags Efficiency tag at a time (line of simultaneously (no line of sight required) sight required) Labels easily Tags less susceptible to Dependability damaged damage Limited amount of Significantly higher data Data Capacity data can be capacity to capture detailed assigned information about product RFID Tags on face of a Dime Potential for read / write Flexibility Static information capability, making tags reusable Prices reflect adoption Today + 3 Yrs* + 6 Yrs* Hi $ 10.00 $ 0.10 $ 0.05 Tags Low $ 1.00 $ 0.05 $ 0.02 Readers $ 1,500.00 $ 500.00 $ 100.00 Reader on temporary mount * Cost figures are projected estimates only, and tag cost Source: IBM Business Consulting analysis, Auto-ID Center estimates assume passive tags 20 IBM at Nikkei © 2004 IBM Corporation
    • Integrated Supply Chain The internet provided supply chains an ocean of data… RFID promises to step that up a notch. Visibility is more than data, it’s data turned into information ISC needs to leverage IBM’s expertise in analytics New approaches from AI, motivated by agent technology and emergent behavior RFID provides technology for sensing; the bigger idea of adaptable, autonomic supply chains rests on a broader Reprinted with Permission: Best of Latin America concept: Sense & Respond. 21 IBM at Nikkei © 2004 IBM Corporation
    • Integrated Supply Chain Adoption of Sense and Respond processes and technologies represents an approach to create a responsive, on-demand supply chain Monitor the environment and Interpret the information sense critical and evaluate if it is demand signals, something to react to or to Interpret ignore events and changing & conditions Evaluate Monitor & Sense Event Decide Manage the sense & & respond cycle to insure completing the process Plan as rapidly and effectively as required Decide what response is best and Response plan to implement it Respond & Reconfigure Execute & Respond to the needs. Adapt Execute and redeploy. Reconfigure or adapt, operations to meet requirements, change course of action 22 IBM at Nikkei © 2004 IBM Corporation
    • Integrated Supply Chain Controlled pilots allow learning and adjustment – expanded scope and span is needed to drive an autonomic supply chain Selected IBM Sense and Respond Projects ● PCD Demand Conditioning ● Quality Management System for Server Manufacturing ● Adaptive Manufacturing Routing ● MD’s 300 mm Plant ● MD Demand / Supply ● Transportation Management System (TMS) with Manugistics Observations ● Redesign efforts must balance between accountability and procedure ● IBM Research and SWG are defining architectures and reusable components to enable Sense & Respond capability ● Agent classification emerging ● Opportunities for reusable analytics ● Risk can be managed through simulation of possible actions (responses) ● Software tool capability is improving, and though still relatively immature, is not a primary constraint on moving forward ● “Sense and Respond” versus “Make and Sell” is a shift in mindset ● Centralized management of information becomes a prerequisite for decentralized use of information 23 IBM at Nikkei © 2004 IBM Corporation
    • Integrated Supply Chain Building on our combined strength across organizations, allows IBM to bring the needed depth to bear on clients’ supply chain challenges Business Consulting Services Oct 2002 Technology Group IBM Research Integrated Supply Chain June 2002 March 2003 February 2004 E&TS On Demand Innovation Services Business Growth Initiative deeper Solutions for clients’ supply chains 24 IBM at Nikkei © 2004 IBM Corporation
    • Integrated Supply Chain Thank you! Please visit the SCC-Japan Booth Brian Eck 845-892-3118 © 2004 IBM Corporation