Brings internal consolidation experience to marketplace

By Peter A. Buxbaum, AJOT

IBM has entered the supply chain management business. Announced last June, IBM has billed its new product a supply chain management business transformation outsourcing (SCM BTO) offering.

SCM BTO incorporates the experience IBM garnered in transforming its own business by consolidating its thirty divisional supply chains into one and saving the company $20 billion in logistics costs. The company aspires to become what Forester Research calls a Global Trade Orchestrator (GTO), a company which provides seamless, end-to-end, and global supply chain management. IBM may have embarked on that path, but Forrester analyst Noha Tohany says the company is not quite there yet.

“We consider this to be the world’s first business transform outsourcing capability,” says Frank Crnic, director of business transformation outsourcing at IBM Integrated Supply Chain. “The offering is based on our own internal supply chain experience, the scope of our consulting activities, and analytic techniques from across IBM.”

IBM has chosen to initiate its supply chain offering in three key areas: logistics, direct procurement, and supply chain optimization. Logistics includes setting up global networks and managing trade functions. Procurement services include providing clients with lower cost international sourcing opportunities. Supply chain optimization includes planning, fulfillment, and supplier collaboration.

“Our clients tend to focus on pain points,” says Crnic. “We consider these elements of the supply chain as the first steps in the transformation journey.”

IBM views SCM BTO as a potentially important source of revenue. The market for non-asset based supply chain services stands at $23 billion per year and is growing at a 10% annual clip, Crnic notes. “This is an emerging market that plays very well to our strengths,” he says. “The opportunity is large and we have capability to access it.”

Crnic claims that IBM’s potential competition in this market is fragmented. “The top ten providers of supply chain services account for 34% of market,” he says. “Many competitors are regional and niche players. A significant provider like IBM should be able to consolidate quite a bit in terms of gaining share.”

Few of IBM’s customers are willing to talk publicly of their supply chain activities. One exception is Omron, a Japanese-based electronics and control systems supplier, which sought IBM’s help to improve its procurement capabilities in China. Omron used IBM’s knowledge of trusted suppliers in China and their change management skills to deliver significant savings. Another client, an international peace keeping organization, used IBM’s services to overcome security and transportation challenges in shipping computer equipment to places like Bosnia, the Republic of the Congo, and Mozambique. IBM has achieved a 100% delivery success rate on behalf of the organization, and saved it $5 million in logistics costs.

IBM touts SCM BTO as the first example of what Forrester Research calls a Global Trade Orchestrator. Forrester contends that the increased complexity and globalization of the economy has created the demand for organizations that can do more than provide individual logistics services and that can provide supply chain and logistics management services on an end-to-end basis.

Coming up short?

Forrester Research analyst Noha Tohamy has studied IBM’s supply chain offering and concluded that it comes up short of the GTO paradigm.

Forrester defines a GTO as a “global service provider that synchronizes trading partners’ financial, informational, and physical flows within an Adaptive Trading Network to deliver efficiency and flexibility gains across multiple firms’ supply networks.”

Tohamy notes that IBM believes its new service uniquely positions the company to assume the GTO role primarily because IBM has successfully transformed its own supply chain, generating $20 billion in savings, reducing inventor