The 2008 IBM Global Supply Chain Executive Summit March 12 and 13, Beijing, China

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1 IBM Institute for Business Value Insights from the 2008 IBM Global Supply Chain Executive Summit Insights from the 2008 IBM Global Supply Chain Executive Summit Integrating the Supply Chain: The foundation for a Profitable and Sustainable Globally Integrated Enterprise The 2008 IBM Global Supply Chain Executive Summit March 12 and 13, Beijing, China Hosted by IBM and The Logistics Institute - Asia Pacific Prepared toc by the IBM Institute for Business Value IBM Institute for Business Value 1

2 Introduction The 2008 IBM Global Supply Chain Management Executive Summit brought together supply chain leaders from the world s top companies to share their experiences, provide new insights, and chart new directions. The event, cohosted by IBM and The Logistics Institute - Asia Pacific, created a forum focused on the leading thinking from academia, analysts and industry leaders on key supply chain issues facing the industry. Held in mid-march in Beijing, China, 35 senior supply chain executives participated in the summit. Participants included industrialists, retailers, consumer products manufacturers, distributors, and logistics companies. The profiles of the diverse participant base included companies ranging from streamlined, single channel businesses to highly vertical and complex global operations, spanning revenues from $1 billion to nearly $100 billion. This paper shares the insights and perspectives discussed during the presentations and panels conducted over the two-day event. Summit at a glance: I. The Landscape of Change Supply chains are evolving rapidly to accommodate new imperatives including emerging markets, sustainability, and heightened risks. Savvy supply chain leaders understand the need to drive change smartly and effectively. Emerging markets require leaders to drive change Sustainability adds a fourth dimension to an already complex change equation Risk is real and risk management is critical II. IBM: Journey of Global Integration As a globally integrated enterprise with a complex supply chain, IBM understands that integration will be the key to future growth and success. With this charge, IBM seeks to become an exemplar in global integration, developing innovative solutions, and delivering exceptional value to our clients. IBM had extensive learnings from its own successful transformation into a globally integrated supply chain IBM is sharing this experience with other companies so they may to become globally integrated The comprehensive approach included many key focus areas, including client satisfaction, shareholder value, growth enablement, integrated processes, information technology, and a focus on workforce culture and accountability. III. Facing the Challenges of Global Integration Global integration is difficult and rife with challenges, so successful leaders start with the most human of elements: a unified vision, executive leadership, and the best and brightest people. Management s support and demonstration for a unified vision and mission is critical to building supply chain success People are the great enabler in the field, and are central to the success of information technology and risk management programs Companies can deal with labor and material costs by taking control of other levers that drive the cost equation, including process improvement, information integration, and implementing leading practices. IBM Institute for Business Value 2

3 IV. Building Green and Profitable Integrated Supply Chains Regulations, resources and reputation are the forces driving companies to manage supply chains with attention to sustainability. Building a sustainable supply chain requires an even greater level of integration and collaboration among an enterprise, its suppliers and its customers. Supply chain integration, especially beyond the internal enterprise, is crucial in taking control of resource usage New practices and models will be required for success, such as Design for Environment (DfE) and carbon footprinting. Companies need to find their new sustainability paradigm, where both shareholder value and sustainability can be achieved simultaneously V. Achieving Green Supply-Chain Management Achieving a green supply chain requires moving beyond compliance and brand protection. Fortunately, there are simple, fundamental ways to begin the transformation, with the clearest path beginning inside your existing operations. Start with the simple initiatives that deliver a big impact quickly. Then move to initiatives that require more redesign and development work. Establish new leadership for green initiatives as a formal position reporting to senior leadership Don t wait for the government to intervene; take control of your own green endeavors. Open up, don t wait to be pried open. I. The Landscape of Change Supply chains are evolving rapidly to accommodate new imperatives including emerging markets, sustainability, and heightened risks. Savvy supply chain leaders understand the need to drive change smartly and effectively. Presented by: Dr Robert DeSouza, NUS & Logistics Institute, Executive program to nurture logistics and supply chain excellence Change is pervasive, necessary, and critical in today s complex global network. Understanding the various paths and pitfalls of change or the Landscape of Change - is critical for supply chain leaders who wish to safely navigate through its opportunities and dangers. Knowing the right parameters and boundaries in this landscape provides a map for supply chain leaders. Companies must redefine and refine their synchronization strategies and know when to push or pull in order to succeed in this ever-changing landscape. Emerging markets force change Many companies are changing their business models as they enter into new and emerging markets, both in terms of sourcing and selling. New manufacturing and sourcing markets bring new challenges including regulatory, safety, environmental, infrastructural, cultural, and political barriers. Understanding how to find, use and maximize resources in these markets may be the key charge of the supply chain manager as they seek labor, manufacturing, distribution, customer service, and even research & development in untested regions. On the revenue side, emerging customer/consumer markets bring their own distinctive challenges, including distribution, channels, and culture. For most global companies, emerging markets represent both ends of the supply chain, and connecting them in an effective manner means taking a careful, strategic, and proactive approach to managing change. Sustainability defines a fourth dimension The emerging importance of the green supply chain, especially in dealing with CO2 emissions and carbon management creates a forth dimension in a series of trade offs which previously only included factors such as the overall network (facilities, capacity, location); speed to market; customer demand and service; and costs. For most, the supply chain needs to be restructured or reconfigured to accommodate the retrieval, disassembly and disposal of products to meet the new sustainability imperative. Again, the ability to manage change in this area will be paramount, and the cleverest managers will find business benefits in their sustainability efforts that rival their regulatory and public mandate. Risk is real and change requires risk management Risk mitigation is a real business and social issue. Disruptions and other risk events need to be considered and planned for in the modern supply chain operation. Formal risk management programs now require sophisticated measures, including risk simulation, prediction, and risk event optimization. Risk management is a growing concern of IBM Institute for Business Value 3

4 supply chain executives and many are adopting new risk mitigation strategies and processes. In the landscape of change, dealing with risk becomes tantamount to dealing with opportunity as well as routine daily operations. II. IBM: Journey of Global Integration As a global enterprise with a complex supply chain, IBM understands that integration will be the key to future growth and success. With this charge, IBM seeks to become an exemplar in global integration, developing innovative solutions, and delivering exceptional value to clients. Presented by: Sophie Bechu, vice president, World-wide Integrated Supply Chain Engineering IBM has recognized that its suppliers contributions and performance are critical to meeting strategic goals, and successful integration of its global supply chain is essential. Supply chain integration practices at IBM and other companies have evolved as emerging markets have become more open and corporations more interdependent both domestically and overseas. As IBM continues on this journey of global integration, it is sharing its own practices and insights with clients so that they too can reach their strategic goals through supply-chain integration. In 2002, IBM integrated its supply-chain operations into a single organization that includes customer fulfillment, global logistics, manufacturing and procurement. Specific technology tools were deployed to enable the integration, along with the establishment of common practices for governance, and data collection and management. IBM s strategy would focus on open technologies and high-value solutions. It would strive to deliver integration and innovation to clients, and ultimately become the premier example of a Globally Integrated Enterprise. The transformation focused on six principles: 1. Measure success based on client satisfaction and the ability to create shareholder value. 2. Provide sustainable competitive advantage to IBM in the areas of productivity, cost, cash, quality and flexibility to enable growth. 3. Integrate IBM s operations globally, end-to-end. 4. Execute with speed and a sense of urgency through simplified, global processes. 5. Be recognized as the world s leading example of a globally integrated company. 6. Develop the skills of people within a culture that embraces IBM s values and promotes collaboration and personal accountability. Now five years into the journey towards integration, IBM has experienced significant benefits from the change. The impressive results include: 2007 Corporate Results Total revenues=$98.8b (up 8%) $7.18 EPS (up 18%) $16.1b cash on hand Financial results Operational results Client-facing results* $6.5b total cost reductions $133m cash generated $2.3b spend with diverse suppliers, an all-time high $250m free cash flow 0.5% reduced order failure +4 points cycle time or orders better than target* +4 points improvement in delivery and ease of doing business 81% client satisfaction +2 points on-time delivery better than target *As measured by the IBM Client Experience Survey IBM Institute for Business Value 4

5 In undertaking this journey, IBM learned some valuable lessons along the way: Think, act and optimize globally. Transform, integrate and synchronize operations; don t just manage them. Drive work flows from economics, expertise and openness. Flexibility, visibility and responsiveness are competitive advantages. Collaboration inside and outside the company leads to innovation. Use a variety of feedback loops to uncover barriers between visibility and reality. Move faster than you think you can/should go. III. Facing the Challenges of Global Integration Global integration is difficult and rife with challenges, so successful leaders start with the most human of elements: a unified vision, executive leadership, and the best and brightest people. Panel participants included: The President of a globally based logistics company; the President of Asia Pacific region for a leading industrialist; the VP of Supply Chain Operations for a US based electronics firm; and the World-wide Supply Chain Business Excellence Manager for a global consumer products manufacturer. Different types of companies are faced with either managing or participating in global supply chains. Whether a company is a fully integrated enterprise, only responsible for part of the product, or only supplies transportation, managing the challenges of global supply chains means dealing with disruptions, managing diverse teams, synchronizing information, and doing the heavy lifting of procurement, manufacturing and logistics. While the problems are diverse, some common key themes emerge in the areas of leadership and the human factor. Management and a common vision is key. The top factors for success identified by the expert panel included: A corporate-wide vision A clear mission and goals A strong belief in the vision at the executive level Strong success measures i.e., a keen understanding of what success looks like Ongoing demonstrations of confidence, belief in the vision, and aligned actions of leadership from the top down People are at the center of the success equation While management and vision were seen as being very important from a starting point, every issue discussed from managing labor to IT effectiveness to dealing with risk, pointed to having quality people on the line. This was often emphasized in the context of Asia, and China in particular. The top human factors that lead to success include: Acknowledge that this is going to be a painful process. Transformation is painful. Expect disruption. President of AP for a leading industrialist Focus job performance and talent retention efforts beyond salary. Create an enjoyable environment and reinforce the value of employees to the company to create a long-term employee-company relationship. Good people are better at dealing with risk. Successfully dealing with risk events, such as supply chain disruption, is often the result of having good people well trained on the tools they use. Trust is also essential in this equation. A formal risk management program is key, enabling the company to clearly understand what can hurt them and having visibility to information. Use scenario planning to improve risk mitigation efforts. People can make or break IT success. People and process drive data quality. If the data that people input are errant or of low quality, it affects the entire integrity of the supply chain. Our biggest IT issue is people. If the data that people input are no good, it affects the entire integrated supply chain. President of globally based logistics company IBM Institute for Business Value 5

6 Addressing rising material and labor costs in China Experts agreed that costs could be controlled through other levers besides materials and labor. This included optimizing assets and increasing efficiencies in process, infrastructure, technology, and other controllable factors. Most of the answers to cost problems can be found on the factory floor. Use the data and information that is collected from the operation to pinpoint improvement opportunities. In general, do not leave processes left to unplanned or homegrown development; it is preferred to have a formal best practice than no adopted practice at all. Source: GlobeScan, Issues and Reputation Report, 2005 IV. Building Green and Profitable Integrated Supply Chains Regulations, resources, and reputation are the forces driving companies to manage supply chains with attention to sustainability. Being green successfully requires an even greater level of integration and collaboration among an enterprise, its suppliers and its customers. Presented by: Noha Tohamy, Research Director, AMR Research The need for sustainable manufacturing and distribution has heightened the urgency to integrate supply chains. The only way to make meaningful choices about consuming energy and other resources is to consider all costs associated with bringing products to markets. This requires an even greater level of integration and collaboration among a producer, its suppliers and its customers. Customers are increasingly forming opinions about companies and their products based on social responsibility. In fact, according to GlobeScan in 2005, consumers were over five times as likely to judge a company based on its social responsibilities than how well it performed operationally. Going green with integration Integrated supply chains are the foundation for sustainability, while fragmented supply chains hinder green practices, environmental sustainability and ultimately profitable growth. The traditional scope of supply-chain management is limited to intra-company, suppliers and supplier-related issues. An integrated supply chain s scope is expanded to include the customer, product development, distributors, and vendors. Growingly, the green supply chain may even be extended beyond customer use into the aftermarket (for example, companies who buy back or refurbish used equipment). These inclusions open the door to more opportunities to reduce resource consumption and materials waste. This adds another dimension to managing supply chains, most of which are already tasked to achieve a universal focus on customer demand. New business models and approaches in design, transportation, supplier management and customer management are emerging in response to the need to manage these new demands. For example, Design for Environment (DfE) is a design philosophy that promotes reducing risks to people and the environment by preventing pollution when designing, manufacturing and disposing of products. The sustainability paradigm: being green is not a trade-off to being profitable Companies will find themselves making trade-offs across the functions of an integrated supply chain as they weigh the benefits and consequences of choices that consume resources and produce waste. For example, do they make decisions that create shareholder value vs. ones that will have a sustainable impact? In the new sustainability paradigm, companies must transform this sense of trade-off and find solutions that create a win-win: shareholder value and sustainability. IBM Institute for Business Value 6

7 Key Takeaways: Building Green and Profitable Integrated Supply Chains Listed below are some key business practices that companies looking to define their own sustainability paradigm should consider: Secure top management support upfront. Align green supply-chain goals with business goals. Evaluate the supply chain as a single system. Use green supply-chain analysis as a catalyst for innovation, not just compliance. Be a leader in shaping industry standards and regulations. Treat sustainability as a journey, with small steps. Set aggressive but credible goals. DfE (Design for Environment) is a design philosophy that promotes reducing risks to people and the environment by preventing pollution when designing, manufacturing and disposing of products. V. Achieving Green Supply Chain Management Achieving a green supply chain requires moving beyond compliance and brand protection. Fortunately, there are simple, fundamental ways to begin the transformation, with the clearest path beginning inside your existing operations. Panel members included: Noha Tohomy, Research Director, AMR Research; the President of AP for a leading industrialist; the World-wide Supply Chain Business Excellence Manager for a global consumer products manufacturer; the CIO of IBM Integrated Supply Chain; The Chief Technology Officer of one of the world s leading logistics firms. Becoming green, especially in a way where business value is matched with sustainability impact, may seem like a difficult challenge. The good news is that the first steps a company should take all reside within the people, leadership, data, and assets of the existing operation. By tapping these first in some simple, fundamental ways, supply chain leaders can take an active role in achieving and managing their green supply chains. Taking interim steps to become green One of the first steps to becoming green is to harness the data on the factory floor. Address the big ticket/lowhanging-fruit items first to make the largest impact the fastest, i.e., address the simple things first. Then move on to other practices that require more extensive redesign of processes or network, such as designing with the environment in mind and carbon footprinting. Who is in charge of green initiatives? One participant in the session had a formal Sustainability, Health and Environmental Director who reports to the Operations Director. This position (or one like it) should be an officer who reports directly to the CEO. This position should have tangible decision-making authority within the organization. Skills should be in the areas of business administration and engineering. Are green initiatives the responsibility of business or the government? Today s belief is that green initiatives are not solely the government s responsibility, but this shift is happening slowly and culture change may be necessary to bring the majority on board. For instance, the most effective way to reduce emissions in factories is to buy efficient motors, but most procurement departments are reluctant to do so prior to government intervention. Currently, green investment extends the perceived attainment of ROI to longer timeframes in most situations. Companies will need to develop new business models to plan for and harness the benefits of green operations. IBM Institute for Business Value 7

8 Key Takeaways: Going green is good for business. Understand existing operations and harness information from the factory floor. Take a holistic view of carbon footprinting in order to make informed decisions. As a first step, focus on simple things. Sustainability needs to be part of the corporate ethos and supported by strong leadership. Addressing green now will enable sustainable growth Conclusion Becoming a Globally Integrated Enterprise requires having a globally integrated supply chain. Such a transformation is an ongoing journey that pays off in terms of increased profitability, customer satisfaction, reduced costs and competitive advantage. Leaders in globally integrated supply chains are finding themselves building new competencies as the world changes, be it emerging markets, changes in technology, growing customer demands, and new business models. The integrated supply chain is critical for achieving green initiatives. This was a new topic in this year s summit and represents only the beginning of our exploration on these themes. Companies will need total visibility of their products lifecycles in order to make informed trade-off decisions about their supply chains. Sustainability adds a fourth dimension to this complex equation but offers a new way for companies to differentiate themselves and achieve competitive advantage. New models such as Design for Environment (DfE) are surfacing to address these needs. Ultimately, supply chain leaders will strive for win-win solutions that achieve shareholder value and sustainability goals simultaneously. The Summit reaffirmed that this transformational journey is often challenging. Those organizations rising to the challenge are reaping benefits, such as better decision-making; more flexible, agile operations; increased shareholder value; and consumer recognition as socially responsible corporations. For additional information about this Executive Summit, the presentations or the panel discussions, please contact your IBM Global Business Services representative. For more information about IBM Supply Chain services, please visit ibm.com/gbs/supplychain. IBM Institute for Business Value 8

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