The case of IBM integrated supply chain division. APPLIED INFORMATION TECHNOLOGIES

The case of IBM integrated supply chain division

Introduction; Many organizations are recognizing that increased volatility and turbulence are becoming standard characteristics of their underlying markets. Developing an agile supply chain that allows such organizations to meet the variations in demand at an acceptable level of cost is now a major focus of many leading organizations Four components of supply chain agility can be named: customer sensitivity, virtual integration, process integration and network integration, all of which rely on the ability to easily and quickly be able to form deeply integrated information systems linkages with trading partners.

IBM supply chain chain division. IBM is a global leader in the development and manufacture of information technologies, which include computer systems, software, networking systems, storage devices and microelectronics. IBM had annual revenues in 2003 of $89bn, of which $43bn was from IT services, $28bn from hardware, $14.3bn from software and $3bn rental and financing. It has 319,000 employees in 170 countries and its head offices are located in New York State.

In their Annual Report for 2003, IBM set out their intention of increasing the agility of their entire organisation. They described how they wished to be able to respond to the volatility and turbulence in their markets by becoming what they described as an ‘on-demand’ business. Such a business they believed had processes that are: responsive to any client demand, market opportunity or external threat; integrated end-to-end across the company and integrated across their partners, suppliers and clients. IBM operates within a complex supply network that handles over 78,000 products, with over 3 million configurations. A key part of meeting their vision of becoming a highly responsive organisation was to improve the agility of this supply network. In January 2002 an Integrated SupplyChain Division (ISCD) was established to build ‘‘the most advanced and cost-effective on demand supply chain in the industry’’. The division works across multiple business units within IBM as shown in Fig. 1. The ultimate aim is for a customer to be able to place a single order for all of their goods from IBM, and suppliers to have a single point of reference within the organisation.

Whilst the ISCD employs a number of means of communicating with suppliers and customers, including phone, fax, extranet and EDI, a major initiative for them is the use of the electronic hub E2Open, as depicted in Fig. 2. E2Open was established in 2000 by a consortium of leading organizations in the electronics industry. Originally established as an electronic trading marketplace, like many such organizations, E2Open found that establishing a viable trading community proved challenging and like other marketplaces they sought to evolve their offerings. E2Open has since positioned itself as a third party hub between organizations in the electronics industry that wish to achieve integration between their information systems.

E2Open is based upon a ‘software-as-a-service’ model. It operates a platform and set of supply chain applications, which organizations in the electronics industry can use, as they need them, to connect with their customers and suppliers who are also using E2Open. The


services can be accessed by a browser or can be integrated into an organization’s existing back-end systems. E2Open offers systems that support inventory and order management, including request for quotations (RfQs) and materials content information, and the tracking of orders, shipments and deliveries.

Fig 1. Integrated supply chain division.

The services and applications offered byE2Open, and consequently those used by IBM are based upon web services. Use of web services allows IBM to publish to its trading partners via the UDDI directory hosted byE2Open, details of and access to its on-line processes, such as purchase orders and RfQs. This directory forms the intelligence behind the any-to any integration enabled byE2Open and is described as the ‘‘switch board for the network’’. IBM’s suppliers and customers also making use of E2Open can easily make use of these services to exchange information and trade with IBM.

Fig 2. IBM’s use of E20pen.

IBM are using E2Open’s services to improve communications with both their customers and suppliers, that is for both the management of supply and demand. An important attraction of the many-to-many model of E2Open is the ability for multiple organizations in the supply chain to connect to each other, allowing improved performance of the entire chain since ‘‘information from any tier in the supply chain is available to any other organization in the chain’’.

In order to support many-to-many trading, E2Open provides various support or enabling services. These include security, registration and authorization procedures, legal


documentation and high-level business process information such as standard business process maps, for example, RosettaNet Partner Interface Process (PIPs) maps. They also provide translation services between existing standards.

The use of E2Open byIBM and its web service-based applications enables a number of the vital components of the agility paradigm. An important aspect is that rather than encourage the development of disparate systems within different organizations within a supply network; E2Open’s shared services encourage standardization across the industry. This in turn allows IBM, or other industry participants, to easily form electronic linkages with their trading partners and to reconfigure these when market conditions require.

“-Because this is a shared product, which is being driven by the industry, rather than just IBM, we will be moving to a more industry standard environment. We are looking at the ability of the software to manage the supply chain, as opposed to our internal key performance indicators. With an ERP system we buy it and implement it internally—it is within your four walls in terms of processes and functions-”

The shared services model also provides the flexibility to match changing demand, another component of agility.

“If we built the infrastructure in IBM, we cannot have the flexibility we need. We need to build the infrastructure size so it can meet peak capacity(for example quarter end order volumes) and if we do not have demand that utilizes this capacity continually, we are not exploiting our infrastructure, but are still paying for it.”

Utilizing an organization whose core competence is in connecting up supply networks, rather than doing it themselves, enables IBM to significantly reduce the costs of connecting its systems to those of its customers and suppliers, and the time taken, once again contributing to increased agility.

“The cost per connection is 50% lower for connecting and managing a new business partner via E2Open when compared to doing these activities ourselves”

As a result of adopting E2Open’s services, IBM has reduced the time taken to respond to a customer order from over one hundred hours, to less than ten. The main reasons for this were the removal of people from the process and the elimination of batch processes, which previously ran only once a day. From an internal perspective, the elimination of manual ‘touches’ in the order-to pay process is one of the main benefits that IBM attributes to adopting E2Open’s services. For example, email orders that previously had to be manually entered into an ERP system are now passed directly from the systems of suppliers. This addresses a collective interest, ‘‘driving down the cost of these low value transactions, increases the profits for all of us and make us more competitive’’.

Source: “The Role of Emergent Information Technologies and Systems in Enabling Supply Chain Agility” E.Daniel and M. Mohdzain. International Journal of Information Management October 2015.


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