IBM Optimized Supply Chain Leads to Channel Efficiencies

IBM saved $5.6 billion last year after reengineering its supply chain and found new confidence in the channel, an IBM executive said at the Global Technology Distribution Council Summit here.

Bob Moffat, senior vice president of integrated supply chain at IBM, said an optimized supply chain model led to more efficient channel relationships and helped IBM determine that the channel was a legitimate go-to-market route. A comprehensive study of IBM's supply chains, he said, demonstrated that costs weren't necessarily being reduced through a direct model, they were being shifted.

"You hear the only way to make money is to be direct, Moffat said. "Anecdotes would suggest that. You could look and say our profitability inside the channel is not there. Why? Maybe because you had to dump inventory in the channel. But [we didn't] realize we would have had to do that if we were going direct too."

Too many companies stop thinking of their supply chain at their own four walls, which leads to faulty conclusions about channels, Moffat said.

"If you don't look beyond your own walls, you're kidding yourself that you know the supply chain," he said. "You must understand the profitability of one route to market vs. another route to market. If you don't, you can't act on them and you'll base all your decisions based on anecdotes. We were guilty of finding routes to market for company based on anecdotes."

For example, IBM often negotiated special prices for customers to win opportunities. But Moffat found that the special bid process cost too much money to administer, which made the company less responsive to competitors such as Dell, he said.

With a streamlined supply chain, IBM's Fill rates have improved to about 88 percent, compared to 50 percent to 60 range before the supply chain optimization program was implemented, he said.

"We would not have [the savings] without having gone through this process, and we are now on our 12th quarter of looking at data, and understanding anomalies in the data and acting on the data. It allowed us to find key things," he said.