It’s not a name you’d traditionally associate with supply-chain management, but IBM Corp this week said it has developed a software product that will enable companies to cut millions of dollars from their inventory costs. Big Blue initially developed the software for internal use and the company claims it enabled its PC group to save $100m in inventory costs last year. Not surprisingly, it’s now offering the software to customers who want to do the same. Already, a number of large retail firms, including the UK food superstore chain Tesco, consumer packaged goods companies and semiconductor manufacturers, are paying IBM on a consultancy basis to help them realize similar savings and at least one half a billion dollar company has actually bought the software and plans to implement it itself, IBM said.
Grace Lin, who works for IBM Research, where the software was developed, said the company started work on the product in 1995, as a way of helping IBM to better handle its inventory and at the same time improve service to its customers. There were a lot of inefficiencies across the board, she told ComputerWire, our inventory costs were so expensive, we were losing several billions of dollars annually. Lin said the loss was particularly severe for the Personal Systems Group (PSG), which makes IBM’s PCs. In many cases, our partners were holding over two months of inventory at a time, and with the price of PCs dropping at 1% per week that meant we were losing a lot of money through rebates. Under the price protection agreement, IBM is obliged to pay a rebate – the different between the price of the PC when it was shipped and the price it eventually sold for – to its resellers.
To address the problem, IBM embarked on its global supply chain reengineering initiative, under which IBM Research worked with the company’s integrated supply chain team to develop an Asset Management Tool (AMT) to measure, analyze and steer the reengineering of IBM’s multiple and complex supply chains. Using AMT, IBM’s PSG worked with researchers to reduce expenses, incurred through reseller rebates, by $100 during 1998. Inventory itself was also reduced by more than 50% from 1997 to the end of 1998; product delivery was sped up four to six weeks, saving between 5% and 7% of product costs and the number of components used to build products was reduced by 35%. AMT has since been implemented in approximately half of IBM’s operation worldwide, including its printing systems group, where it helped to cut inventory costs by $4m annually.
In recognition of its achievement, IBM Research last week was awarded the Franz Edelman prize; the Pulitzer for innovations in company operations and management. The Institute for Operations Research and the Management Sciences (INFORMS) issued the award to IBM over such heavyweights as AT&T and British Telecom for developing a product it said had the most significant impact on client organization.
