IBM used backward placement to improve supply-chain operations

Abstract
All business is both customers for some other businesses' product and services, and suppliers of products and services to their own customers or other business. So no operation, or part of operation, can be seen as existing in isolation. Every operation is part of a network of suppliers and customers. In this age of international market and competition, a company's competitiveness rests on its ability to provide desired goods and services. The report will be under the case to finding the differences between strategic supply chain management and traditional purchasing and supply management; discuss and analyze the contribution of supply chain management to the success of this case organization and the practical implication of the supply chain management approach for operations managers in this case organization.

Theoretical Basis
Introduction to Supply Chain Management

If your company makes a product from parts purchased from suppliers, and those products are sold to customers, then you have a supply chain. Some supply chains are simple, while others are rather complicated. The complexity of the supply chain will vary with the size of the business and the intricacy and numbers of items that are manufactured. Elements of the Supply Chain

A simple supply chain is made up of several elements that are linked by the movement of products along it. The supply chain starts and ends with the customer. o Customer: The customer starts the chain of events when they decide to purchase a product that has been offered for sale by a company. The customer contacts the sales department of the company, which enters the sales order for a specific quantity to be delivered on a specific date. If the product has to be manufactured, the sales order will include a requirement that needs to be fulfilled by the production facility. o Planning: The requirement triggered by the customers sales order will be combined with other orders. The planning department will create a production plan to produce the products to fulfill the customers orders. To manufacture the products the company will then have to purchase the raw materials needed. o Purchasing: The purchasing department receives a list of raw materials and services required by the production department to complete the customers orders. The purchasing department sends purchase orders to selected suppliers to deliver the necessary raw materials to the manufacturing site on the required date. o Inventory: The raw materials are received from the suppliers, checked for quality and accuracy and moved into the warehouse. The supplier will then send an invoice to the company for the items they delivered. The raw materials are stored until they are required by the production department.

o Production: Based on a production plan, the raw materials are moved inventory to the production area. The finished products ordered by the customer are manufactured using the raw materials purchased from suppliers. After the items have been completed and tested, they are stored back in the warehouse prior to delivery to the customer. o Transportation: When the finished product arrives in the warehouse, the shipping department determines the most efficient method to ship the products so that they are delivered on or before the date specified by the customer. When the goods are received by the customer, the company will send an invoice for the delivered products. Supply Chain Management

To ensure that the supply chain is operating as efficient as possible and generating the highest level of customer satisfaction at the lowest cost, companies have adopted Supply Chain Management processes and associated technology. Supply Chain Management has three levels of activities that different parts of the company will focus on: strategic; tactical; and operational. Strategic: At this level, company management will be looking to high level strategic decisions concerning the whole organization, such as the size and location of manufacturing sites, partnerships with suppliers, products to be manufactured and sales markets. Tactical: Tactical decisions focus on adopting measures that will produce cost benefits such as using industry best practices, developing a purchasing strategy with favored suppliers, working with logistics companies to develop cost effect transportation and developing warehouse strategies to reduce the cost of storing inventory. Operational: Decisions at this level are made each day in businesses that affect how the products move along the supply chain. Operational decisions involve making schedule changes to production, purchasing agreements with suppliers, taking orders from customers and moving products in the warehouse.

Differences between strategic supply chain management and traditional purchasing and supply management

Before the days of efficient transportation and storage systems, customers consumed goods close to where the goods were produced. Otherwise, the movement of goods was limited to what individuals could carry and store. Limitation in movement and storage systems generally constrained people to consumer the narrow range of goods produced locally. Today efficient and effective transportation and storage systems allow production of products all over the world for global consumption. The traditional supply chain often includes more than one company in series of supplier customer relationships. It is often define as the series of links and shared processes that involve all activities from the acquisition of raw materials to the delivery of finished goods to the end consumer. Raw materials enter into a manufacturing organization via a supply system and are transformed into finished goods. The finished goods are then supplied to customers through distribution system. "A characteristic of supply chain management can be summarized as that the supply chain is thought of as a single entity, not a series of autonomous functions or segments." (Markland, 1998) and Slack (2001) has states "supply chain management" is the management of activities that procure raw materials, transform them into intermediate good and final products, and deliver the products to customers though a distribution system. These activities include the traditional purchasing function plus many other activities that are important to the relationship with suppliers and distributors. Where the traditional supply chain would push out a fixed line of one-size-fits-all items, hoping that customers would buy them, the value net in contrast allows unique customers to choose product or service attributes that they value the most: in effect, to design their own product then the value net configures itself, its suppliers, its manufacturing, service, and its delivery capabilities to meet the need of each customer or at least of each customers segment. It differentiates itself to supply one-size-fits one or customized products for each customer or customer grouping. It leverages operations and customer choice to drive strategic of supply management.

The supply chain management includes the interactions between suppliers, manufacturers, distributors, and customers; this includes transportation, scheduling information, cash and credit transfers, as well as material transfers between them. To achieve a balance between costs and customer satisfaction, company's supply chain must be customer driven. It is customers' business, products, culture, markets, and organizations to ensure that it is attuned to its customer's need and requirements. So the customers are fully integrated into the company's supply chain to ensure competitive advantages for all cooperating parties.

Industry and Company Background

International Business Machines Corporation, or IBM, is an American multinational technology and consulting corporation, with headquarters in Armonk, New York, United States. IBM manufactures and markets computer hardware and software, and offers infrastructure, hosting and consulting services in areas ranging from mainframe computers to nanotechnology. The company was founded in 1911 as the Computing Tabulating Recording Company (CTR) through a merger of three companies: the Tabulating Machine Company, the International Time Recording Company, and the Computing Scale Company. CTR adopted the name International Business Machines in 1924, using a name previously designated to CTR's subsidiary in Canada and later South America. Security analysts nicknamed IBM Big Blue in recognition of IBM's common use of blue in products, packaging, and logo. In 2012, Fortune ranked IBM the #2 largest U.S. firm in terms of number of employees (433,362), the #4 largest in terms of market capitalization, the #9 most profitable, and the #19 largest firm in terms of revenue. Globally, the company was ranked the #31 largest in terms of revenue by Forbes for 2011. Other rankings for 2011/2012 include #1 company for leaders (Fortune), #1 green company worldwide (Newsweek), #2 best global brand (Interbrand), #2 most respected company (Barron's), #5 most admired company (Fortune), and #18 most innovative company (Fast Company). IBM has 12 research laboratories worldwide and, as of 2013, has held the record for most patents generated by a company for 20 consecutive years. Its employees have garnered five Nobel Prizes, six Turing Awards, ten National Medals of Technology, and five National Medals of Science. Notable inventions by IBM include the automated teller machine (ATM), the floppy disk, the hard disk drive, the magnetic stripe card, the relational database, the Universal Product Code (UPC), the financial swap, SABRE airline reservation system, DRAM, and Watson artificial intelligence. The company has undergone several organizational changes since its inception, acquiring companies such as Kenexa (2012) and SPSS (2009) and organizations such as PwC's consulting

business (2002), spinning off companies like Lexmark (1991), and selling off product lines like ThinkPad to Lenovo (2005).

Problem Identification
The title of this case is "IBM used backward placement to improve supply-chain operations." The IBM PC Company Europe is facing relentless pressure from formidable competitors who frequently cut prices, tout rapid customer order response times, and continually introduce new products and features. In light of these pressures and record losses as a corporation, IMB needed to reduce operational costs and inventory and improve customer service. One of the targets of improvement efforts was the largest of the IBM personal computer plants, a 1.3-million-squarefoot factory in Greenock, Scotland. The plant, consisting of manufacturing, warehousing, and storage areas, annually accounted for 1.2 million PCs delivered to Europe, the Middle East, and Africa. Management decided to examine the supply chain between the plant and customers to determine whether improvements could be made. Supply chain management and logistics gives managers an outline of the elements within each discipline, which together can improve competitiveness. Logistics is a term that refers to the management functions that support the complete cycle of material flow: from the purchase and internal control of production materials; to the planning and control of working-in-process; to purchasing, shipping, and distribution of the finished product. Many elements must be effectively managed within a company's total logistic system. It might include transportation, facilities, procurement and purchasing, packaging, warehousing and storage, inventory planning and control, demand forecasting, customer services, order processing, and salvage and crap disposal, and so on. Distribution is an important part of supply chain elements, Krajewski (1999) has defined distribution as "the management of the flow of materials form manufacturers to customers and from warehouses to retailers, involving the storage and transportation of products." It involved three elements, which are placement of finished goods inventory, selection of transportation mode, and scheduling routing and carrier selection. In this case, it is more focus on the potential area for improvement was inventory placement. Before 1993, the distribution network in Europe consisted of IBM-managed distribution centers and transshipment points (facilities where shipments from various origins are reorganized and combined with other shipments destined for a particular distribution center0. the distribution centers would warehouse shipments until needed

for a customer order originating in the country in which the distribution center was located. This approach placed the inventory close to the customer. When an order was received, the distribution center would "configure" it, which amounted to grouping the elements of the order, such as system units, monitors, country-specific keyboards, cables, documentation in the appropriate language, and various peripheral accessories. Once configured, the distribution center would ship the order to the customer and receive replenishment inventory from Greenock. A fundamental decision is where to stock an inventory of finished goods. As what the IBM used a forward placement in this case as its inventory finished goods. Forward placement means locating stock closer to customers at a warehouse or distribution center or which wholesaler or retailer. It is proved that in this case, the company is not suitable for using the forward placement inventory. There are two serious problems with IBM of implementing of supply chain management. First, customer service levels were low. Invariable, the distribution center wouldn't have all the elements of the order in stock and would have to wait for a shipment from Greenock. Since each order was unique to the customer, it was difficult to forecast the specific elements, or their quantities, that a customer would request. Second, the costs of the distribution network were high. Freight rates, negotiated in each country, weren't always the lowest. The operational costs of the country-specific distribution centers also were high. As can be proved in the case, an alternative approach that backward placement is more effectively suitable for the IBM to manage the supply-chain operations. Backward placement means holding the inventory at the manufacturing plant or maintaining no inventory of finished goods. To resolve the problem IBM decided to ship orders directly from Greenock to customers, bypassing the country distribution centers entirely. The resulting savings are approximately $40 million a year. By eliminating the country distribution centers and pooling the inventory at Greenock, IBM improved customer service levels and reduced finished goods inventories. In this case, the suitable inventory placement is the greatest effect of distribution in the supply chain management on inventory levels, efficiencies and costs.

Solution
The goals of supply chain management are to reduce uncertainty and risks in supply chain, thereby positively affecting inventory levels, cycle time, processes, and ultimately, endcustomers service levels. The IBM is achieving signification competitive advantage by the way they configure and manage their supply chain operations. For manufacturing used technique is to "drop ship".

Drop shipping means their supplier will ship directly to the end consumer, rather than to seller, saving the both time and reshipping costs. The cost saving measures includes the use of special packing, labels, and particular location of labels or bar codes. Another feature that might be added is size and number of units in each shipping container. In the IBM case, it decided to ship orders directly from Greenock to customers, bypassing the country distribution centers entirely. "The resulting savings are approximately $40 million a year" (source from: Gerald, 1996). Warehouse simplifies routes and communication.

Uncertainties in the procurement process and production, companies rely on the accumulation of inventory to help ensure a smooth flow into and through the manufacturing process. So warehousing logistics element performs these. In this case, as the IBM ship orders directly from Greenock to customers, therefore, the IBM has to communicate directly to the consumers. As a result, the direct communication would avoid certain misunderstanding, in order to increasing the efficiency. On this way, the IBM simplify routes and reduce their cost as well, and probably more significantly, each factory has only to deal directly with their a few local customers; each customer only has to deal one supplier that is local warehouse. As well as the arrangement of the distribution system, physical distribution managers must decide on which mode of transport is best to distribution their products to their customers. (Mode of transport includes: road, rail, water, air, and pipeline.) Each of these modes has different characteristics, which affect its suitability for the transportation of particular products.

In this case, the IBM has chosen the very best of 7 of shipping companies to arrange a service to deliver the products directly to the consumers very timely, in order to achieve the best efficiency and building good relationships with the consumers.

Suggestion for the operation manager in this case

Before days operations managers have seen their main responsibility lying within their own operation. However as operations becomes more focused on their materials and services, the contribution of purchasing and supply to the business increase in importance. Therefore, the operations manager implications of almost of supply chain management approach. The best way to address this issue is by first understanding the ways operations mangers can work with any supplier and the scope of their activities within a supply chain. In this case, building good relationships with both first-tier supplier and first-tier customers is the major approach, which the operation manager has implicated. First-tier suppliers' involvement.

Supply mangers lack the internal capabilities and/or external power resources to be able to direct innovation from the extended network of suppliers. In this case, "The IBM works beyond the first-tier supply relationship to improve functionality and/or reduce costs on a continuous basis, normally using long-term collaborative relationships. And four basic sourcing options in first-tier suppliers approach that they have implicated, for example: o Supplier selection o Supply chain sourcing o Supplier development o Supply chain management First-tier customer's involvement.

In this case, first-tier customers involve distribution centers, consumers that receive finished product from the organization. The operations mangers have implicated man approaches, for example: o Level of customer service, delivery lead time and technical support selection o Level of customer service at minimum cost setting

o How much of each items should be stocked o Transportation modes selection

Conclusion
A company's competitiveness rests on its ability to provide the right goods and services when and where they are needed. The supply chain is an important component of any company's value chain, which links the company's operating processes to both its suppliers and customers. The integrative and multifunctional nature of supply chain management provides an avenue for more efficiently and effectively satisfying customers' needs. In the IBM case, it firstly identified there are some major problem about the high cost of operation, and low level of customer services. When it used the backward placement to recovered these problems, as a result it saving a huge amount of costs, and it build a good relationship with the customers, however, the IBM has showed some improvements of supply-chain operations by better understanding of the theatrical points of views tested in the practical realities.

References
Harland, C.M. (1996) Supply Chain Management, Purchasing and Supply Management, Logistics, Vertical Integration, Materials Management and Supply Chain Dynamics. In: Slack, N (ed.) Blackwell Encyclopedic Dictionary of Operations Management. UK: Blackwell. http://dewey.petra.ac.id/ http://sbm.itb.ac.id/ www.ibm.com www.studymode.com