By Eva Megova -- Supply Chain Management Review, 9/1/2008
Back in 2000, IBM needed to restructure a scattershot supply chain. The company planned to rein in roughly 30 different independent supply chain operations worldwide, replacing them with a smaller number of key centralized units. For one of these centralized operations, customerfulfillment, IBM believed it had the perfect albeit unlikely location in Bratislava, Slovakia.
What did IBM know that no one else did back then to take the financial risk to move to this small country in Eastern Europe, of all places? Prior to the company's arrival, the corporate world had thought little about Slovakia and much of the part of Europe that was once behind the Iron Curtain.
But IBMsmelled an opportunity. And in just eight years the company has not only succeeded in totally revamping its supply chain, but it has acted as a trailblazer for other corporate investment both in Slovakia and the region in general.
This article describes how IBM did it, including testimonials from leaders and the operation's first employees who were in Bratislava from the start. The article also showshow IBM's efforts helped lead to economic development in a part of the world that sorely needed it.
New Century, New Challenges
After surviving a near collapse in the early 1990s, IBM was back in the black by the end of the decade. By 2000, CEO Lou Gerstner was taking the company's sales momentum to all parts of the business. That included the supply chain, which at its core was in dire need ofrevitalization and restructuring.
Until the reorganization, IBM didn't have one supply chain. It had roughly 165 different operations of varying complexity, one for each of the countries the company did business with around the world. This could not continue if the company was to remain competitive.
In the restructuring process, all of the formerly local supply chains were eliminated, in favorof one globally integrated supply chain with centralized offices, or “centers of excellence”, around the world. Each of these centers handles key supply chain functions for multiple countries. Some functions, such as logistics, were completely outsourced. Some functions were transferred to multiple hubs. For example, all $40 billion of IBM's procurement spend is now handled by three offices, inBangalore, India, Budapest, Hungary, and Shenzhen, China.
IBM chose to consolidate most of its worldwide customer fulfillment functions in Bratislava. Today, the office handles fulfillment needs for the Americas, parts of Asia, the Middle East, and most of Europe.
The philosophy underpinning this restructuring was simple: a supply chain is greater than the sum of its parts. If successful, it wouldtransform IBM's supply chain into a powerful global force that would drive efficiency, make life easier for the company's clients, and improve their satisfaction with IBM as a strategic partner. IBM believed that if the company could achieve this level of integration, it would grow revenue while squeezing unnecessary cost and expense out of the system.
Of course, this meant dramatically improvingoperations. But it was also about making IBM's supply chain accountable to the business by applying a fundamentally different set of expectations of the benefits the supply chain would deliver. “We wanted the entire fulfillment organization all in one place, serving an entire region, with common processes and systems,” says Karl Machacek, who at the time ran customer fulfillment in Vienna. “Thebenefits would be several fold, including gains in productivity, efficiency and quality.”
The message was clear: IBM wanted to preserve and strengthen functional excellence, while creating the capability to see, understand and leverage the interdependencies across the entire chain.
The decision to look at alternative locations to centralize key activities of the supply chain,...