IBM to Offer Outsourcing of Supply-Chain Management

The new unit will bring together IBM's existing 8,500 supply-chain consultants with another 15,000 IBM employees who have worked on building IBM's own internal supply chain.

Sensing a relatively untapped, multibillion-dollar market opportunity, IBM on Thursday will launch a new outsourced-services offering aimed at ultimately managing all aspects of customers supply chains.

Competing against consulting giant Accenture as well as some smaller players, IBMs new SCM (supply-chain management) outsourcing business unit will be part of its Business Process Transformation arm, said Bill Ciemny, who will lead the SCM unit.

Targeting a "supply-chain transformation services" market estimated by IBM at $23.5 billion, the new unit will bring together IBMs existing 8,500 supply-chain consultants with another 15,000 IBM employees who have worked on building IBMs own internal supply chain.

Like IBMs earlier forays into outsourced human resources management, client relationship management, and financial and accounting services, the unit represents a move into an area the company sees as growing a lot faster than IT, Ciemny said.

"Wed traditionally go in and talk to customers about what [supply chain] strategies are available to them. Now, well [also] be able to actually take over [supply chain] business processes and optimize and run them for customers," Ciemny said in an interview with Ziff Davis Internet.

IBM will focus at first on supply-chain processes in the categories of logistics, direct procurement, and "sales and operations planning with production," he said.

"Some customers might want to start out with just consulting," Ciemny said. In terms of verticals, IBM is initially eyeing electronics and high tech; government; and the consumer products and retail distribution sectors. "But over time, well broaden out from there."

Although tailored to the needs of specific customers, prescribed solutions will tend to combine IBM middleware with supply-chain applications from third-party partners such as i2 Technologies and Manugistics Group, he said.

As competitors, Ciemny cited Cat Logistics and UPS on the logistics side and Accenture for both logistics and indirect procurement.

"But theres now one firm out there that can provide the complete, integrated picture," he told Ziff Davis Internet.

The supply-chain outsourcing market is just emerging, and competition is still rather scarce, Lora Cecere, an analyst at AMR Research, said in another interview.

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Aside from Accenture, she said, IBM faces rivalry from companies such as Prescient Systems, Chainalytics and i2, which recently started its own services program.

IBMs existing army of 8,500 supply-chain consultants offers "deep [domain] expertise and application knowledge," Ciemny said.

Existing IBM supply-chain customers run the gamut from Omron, a Japan-based electronics supplier that needed to improve its procurement capabilities in China, to an international peace-keeping organization that turned to IBM for help in shipping computers to third-world countries.

"But [another] clear differentiator for us is the ability to leverage the 15,000 people in our [internal] integrated supply chain. Weve hardened these assets, and weve eaten our own cooking," Ciemny said.

In 2002, IBM CEO Sam Palmisano centralized all of IBMs supply-chain functions under a new ISC (Integrated Supply Chain) business unit.

Navi Radjou, an analyst at Forrester Research, credited the ISC with helping to streamline a highly complex IBM supply chain consisting of 33,000 suppliers, 45,000 business partners and 78,000 products with millions of different configurations.

According to Ciemny, customers are particularly interested in finding out about how IBM moved from a fixed to a variable cost structure, and about lessons IBM has learned about getting the best mix of offshore and local procurement.

As some industry analysts see it, IBM is well-positioned in a market that holds potential for the future, despite market fragmentation and less-than-spectacular spending at the moment.

"People dont have a lot of money for supply-chain planning right now. IT resources are tight. But I notice quite a bit of interest from customers in IBMs [outsourcing service]," Cecere of AMR Research said.

IBMs new offering targets "the middle ground—from strategy to supply-chain execution," she said.

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