This interview is an abridged version of a broader conversation with executives from IBM and Sunsweet Growers Inc. To listen to the full interview and others in the Progressive Manufacturing Roundtable series, click here.
It would be difficult to think of two manufacturing companies that are more different from one another than IBM Corp. and Sunsweet Growers Inc. A $91 billion high-tech manufacturing giant, IBM competes globally against some of the world's largest technology providers. Sunsweet, on the other hand, is a $250 million maker of dried fruit products and often competes against small, regional, low-cost providers. Yet, the two companies do have some things in common. Over the past few years, both have made improving their supply chains cornerstones of their business strategies. And, for their efforts, both have been named Managing Automation Progressive Manufacturing award winners in the Supply Network mastery category. IBM was the High Achiever winner in the category in 2006, and Sunsweet was a Progressive Manufacturing 50 award winner in 2007.
Recently, Managing Automation Executive Editor Jeff Moad spoke with Tim Carroll, vice president of global supply chain operations at IBM, and Harold Upton, vice president of strategic business processes at Sunsweet, about how their companies plan to continue to gain competitive advantage by streamlining their supply chains.
Q: Your companies have made significant improvements over the last couple of years in supply chain operations, both in reducing costs and satisfying customer demand. How much room is left for improvement? Are we just scratching the surface so far or have we substantially achieved what is out there to achieve?
Carroll: I think that we recognize and understand in our environment that it's never-ending. There's an end state that you desire to get to, but there are always improvements you need to make to get to that end state. We've been fortunate with the work that we've done on our own integrated supply chain since 2002; just take a look at the enormous results that we've had year-on-year.
I'll give you an example. Last year, we saved IBM over $6 billion in costs, improved payment terms by more than a day, and we've reduced our order-to-fulfillment cycle time by as much as six days to our clients. As we continue to drive for the process improvements by using lean, Six Sigma, etc., we continue to see this as evolutionary.
Upton: I would agree with Tim. It's a continuing effort. We have made tremendous strides and we've seen significant payoffs. The question is, how much further can you go for how much dollars? I don't think that we're looking at bringing back another big win [like] we did this last three or four years. But I also don't think that if you look long term at today's model that it's going to be around forever. What I mean by that is I think ... consumer patterns are going to challenge our distribution models as we know them today. So, I think there is a lot of opportunity [for the whole supply chain model] to be reinvented.
Q: Obviously, when it comes to demonstrating, both internally and externally, what you can achieve in terms of your supply chain performance, metrics are key. What do you feel should be measured and how are those metrics changing?
Upton: We obviously measure lead time, cycle time, inventory rates, customer fill rates, and those are pretty traditional. I think that you have to maintain focus on those, but that's the infrastructure; I don't think that's the end result.
One of the things we've done here in the last 12 to 14 months is we've actually taken our scorecards from our key customers and we've brought them in-house. We want to measure ourselves as our customer measures us, as well. That has opened our eyes in many cases where we thought, 'Wow, we're 98%, based on our measurement.' In a customer's eyes, maybe in a Sam's or a Wal-Mart's eyes, now all of a sudden, from their perspective, we're maybe 60% or 70%.
It's really got us to focus a lot more on the quality of the product delivered rather than whether it was delivered or not delivered. We found ourselves changing shipment containers and packaging materials and the stack loads on trucks so that we had fewer slippages, or shifted pallet patterns and things like that, that normally don't show up in our model because it's not a cost issue. We have traditionally related that as a transportation issue, but whenever our customers look at it and find out they've got to hand-stack these things because something shifted wrong in transportation or maybe a case collapsed, or how many times they return a product — all of those things now have become more enlightened in our system, and we're making sure that we're focusing on those things. So, when a customer gets [a shipment], they handle it as easily and quickly as possible, and that makes their life that much more efficient.
Carroll: One thing has flipped for me personally in the last, probably, three years. It used to be that I would go out with our client teams or sales teams, etc., and explain how the supply chain is not going to inhibit [IBM's] doing business with them ... What started to happen now — they want to know, 'We're hearing a lot of what you do in the supply chain ... and we've seen what's happened to the IBM business model results. Are there things that we could learn from you that we could apply to our own businesses?' So we started working on things where we potentially are able to outsource or consult, and show that we actually execute on what we consult in terms of the value of what we put into our supply chain.
We've done some great things now in terms of relationships we've developed with Unilever, Colgate, and others. We have added a new metric in the supply chain of how — through these types of [outsourcing or consulting] things — we can help to drive revenue growth for IBM in terms of sharing and using these practices to help our clients' experience in their own business models.
Q: Another issue for manufacturing companies is the need to develop, enhance, and enrich domain expertise around supply chain management issues. How do you address that?
Carroll: When you talk about how the global functions are aligned in the supply chain, they are lined up in a standard hierarchy. We're all used to it. The bigger challenge that we've had is understanding the power of the matrix that has to go across that hierarchy. The biggest challenge we've had is growing and developing leadership that can manage in a matrix with the understanding of the power they have and their access with full accountability, although all those organizations don't report to them.
I would say [that] over the last 12 to 18 months, we have developed a very core key skill set. What we need to do is figure out how to groom others as they're coming through the organization. How do you exert your power across the matrix, which is really where the value comes in when you're talking about an end-to-end solution enablement?
Up to this point, it's mainly been on-the-job experience for many of us, and that includes myself. Now we have enough expertise where we have developed training modules that we are launching to our management team, as we speak, over the next few weeks. We are at the point where we're starting to institutionalize the training modules.
Q: Of course, technology is a piece of the supply chain puzzle. What key technologies or trends do you see that might be important in supporting the supply chain initiatives that we've discussed?
Upton: What we're seeing is getting away from a more transactional focus and [toward] an analytical focus, and also early-warning-type systems are key. What we have found, and what has made a tremendous difference in our organization, is that when we get the people that are making the decisions on deliveries and the day-to-day stuff very much involved in the impact of what it means across the organization, that is key. Technologies that are going to allow us to predict more in the future of what's going to happen and [to] see problems earlier are definitely going to be key.
Carroll: I think one of the things we've learned — and this is kind of interesting to say, considering I've worked for IBM, a technology company — is that what has worked the best as we've matured our supply chain is that you really have to start with the processes and, as mentioned by Harold, the people and their talent. Have them establish what you need; have them establish the process; and then find the technology that best fits what you've established for the process that you believe is most effective for your company and your business strategy. I think, in the past, many of us have been more [likely to] start with the technology and make the processes fit the technology. I think we've gone to the inverse as we've matured in the IBM supply chain.