The recent decision by IBM to exit the PC business it pioneered is an industry milestone, but that is only half the story. The $1.75 billion sale of IBM's PC hardware division to Chinese computer manufacturer Lenovo Group brings Big Blue one step closer to creating an "on-demand business" driven by a mix of products and services and with a new breed of supply chain at its coreone as efficient in deploying people as it is in deploying assets.
To accomplish this, the company is attempting to take the principles of its supply chain for products and apply them to how it organizes and deploys its employees' diverse range of skills. This is a groundbreaking concept in the supply chain field, one that blurs traditional lines between supply chain management, HR, and the operations of IBM's many business units. It is also symptomatic of the way companiesand supply chain managersare adapting to a more volatile competitive environment.
Mapping products to people
In a world in which products can be replicated globally with relative ease and cranked out by low-cost manufacturing operations, services and customization offer fresh profit-making opportunities. And while product innovation remains important at the new-look IBM, software and services are an increasingly bigger part of the picture. (In 1999, software and services accounted for 54 percent of IBM's revenue, hardware about 40 percent; the most recent figures, which are pre-Lenovo, are about 64 percent and 32 percent, respectively.)
In the 1990s, when products ruled at IBM, the supply chain was centered on physical assets such as semiconductor fabrication facilities, says Bob Moffat, IBM's senior vice president of Integrated Supply Chain. Labor management, from a supply chain perspective, "was a minor part of the cost." With the focus on service, that equation is turned around. This has major implications for supply chain management, Moffat says, both in terms of the skill sets managers need and how the profession relates to the enterprise as a whole.
IBM's development of its people-focused supply chain grew out of its long-established track record for making and delivering products. Indeed, an effort is under way to map IBM's manufacturing supply chain principles to the organization's service business. But people are not items of production, and IBM employs approximately 180,000 people in its services business. "In an asset-based supply chain, you have a system for identifying each and every one of your parts," Moffat says, and the parts must meet certain specifications. Put people center-stage as the primary asset, and "most companies do not even have a common taxonomy by which they can place all of the talents and skills of their employees into a system and categorize them," he says.
An effort is underway to map IBM's manufacturing supply chain principles to the organization's service business. |
Thus, Moffat and his supply chain team are working with IBM HR executives to create a new labor resource management systembased on a uniform taxonomy of skillsthat will enable IBM to more efficiently match its labor resources to customers' needs and deploy the right expertise quickly. For example, IBM has created templates for employees to log their skills in a common way. The data can then be accessed by business units seeking expertise for a particular assignment. IBM also is aiming to create a better balance of labor supply and demandfor both the short and the long termby comparing the needs of the market with the database of available skills. With this analysis, the company is well positioned to address projected resource excesses or shortages by skill set. (For example, the firm might boost training efforts in a particular area.) The new labor management system will even provide alerts when the availability of resources capable of meeting demand falls below accepted levels.
The challenges of creating an efficient labor-based supply chain extend beyond internal labor management, Moffat saysfor example, how to use partners in the fulfillment of service contracts. Communicating with suppliers and achieving the economies of scale needed when dealing with small companies that may employ only a handful of people are also challenging. "We are spending a lot of our intellectual time on this," Moffat says.
IBM's labor supply chain program has been in the prototype phase for the past 10 months, and the company says it's already seen the benefits. Employees' time is documented against a set of activities such as work, vacation, and education. A 14-week view of billable and nonbillable activities for each individual is then captured. The system has achieved two measurable results. First, the difference between forecast and actual hours given in any week was reduced from more than 15 percent to less than 9 percent. (Not all of that improvement accrues to chargeable hours, but most did, according to IBM.) Second, the company improved its utilization of available billable hours by up to 5 percent, a gain that has a direct impact on business performance.
Time for an industry makeover?
IBM's challenges in creating a labor-based supply chain are not made any easier by the lack of precedents. Moffat says he has searched in vain for appropriate labor-based supply chain models that can be copied in some way. "Our competitors do not think this way," he says.
Neither does the manufacturing industry generally, which is something Moffat says needs to change. He says he has been spending a great deal of time recently with industry representatives, who "are defining manufacturing very narrowly" in terms of how American companies can compete on cost and productivity, and retain traditional jobs. "I think this is foolish," he says, when the emphasis should be on educating workers to compete in the new types of markets that are emerging. People in industry "need to widen the aperture and understand the evolution of the supply chain and how domestic workers fit into it."
Similarly, some time-honored notions of supply chain efficiency are due for a makeover. Take extreme-demand variability, an integral part of highly changeable markets. Rather than striving to minimize it, perhaps companies should pay more attention to leveraging it, suggests Moffat. Catering for variability helps companies exploit the growing demand for tailored products. "I think your best defense against globalization is your ability to give someone exactly what they want, when they want it," he says. And that requires supply chains that are adaptable yet robust enough to keep performing in uncertain markets.
IBM has imbued its supply chain with this "sense and respond" capability. This paid dividends when the Lenovo deal was announced in December. PC production continued smoothly even as this major development hit people's radar screens. Says Moffat: "That would not have happened three years ago."
An Outside Perspective Required: A New Mindset
by Ken Cottrill
"The IT industry is bifurcating," says IBM's Bob Moffat. On one side are enterprises "that efficiently deliver commodity-based products with no emphasis on innovation or R&D." IBM is in the other camp, where business models are built on innovation, not just in products but across a range of services and solutions. This requires "a different type of supply chain," he says.
A people-focused, on-demand delivery system can place novel demands on many supply chain managers. And while new models require more people-management skills, "the thing we are emphasizing is more business skills," Moffat says. Enhancing business expertise not only will make supply chain executives better people managers, but it also will make it easier for them to take a seat at the senior executive table. And with the growing importance of aligning the supply chain with corporate strategy, Moffat has no doubt that companies need them at the table.
But are senior supply chain managers ready to migrate upward into the higher reaches of corporate management? Many are, but others are intimidated. "They've read the books, they can talk the theory," but they can't go into the boardroom and make a convincing business case for radical change. What's more, many find it difficult to motivate people to take the bold steps needed to execute an innovative supply chain strategy. "You've got to do both," Moffat says.
Still, he is optimistic that the profession is moving in the right direction, partly because senior executives are nudging it up the decision-making ladder. "I've probably talked to 200 CEOs and COOs of major corporations within the last twelve months, and they are all going to pull it this way," he says. For these C-level execs, the challenge is "figuring out how best to do it in their organization," says Moffat.
Excerpted with permission from "Can Your Supply Chain Move People?" Supply Chain Strategy, Vol. 1, No. 1, March 2005.