IBM Corp. launched a supply chain optimization initiative earlier this week aimed at small- and medium-sized (SMB) manufacturers seeking to instill greater flexibility into inventory management processes that in many cases are still dominated by imprecise guesstimates.
Built in collaboration with IBM's patent-powered research unit, Express Services for Inventory Management is aimed initially at IBM consulting clients that are using SAP ERP software and business intelligence tools. But since the service is delivered as a toolkit, rather than a hard-coded application, IBM anticipates being able to more easily adapt it for use by clients running a variety of ERP systems, said Charles Vianey, SMB Supply Chain Leader for IBM Business Solutions, in an interview with Managing Automation.
IBM's initial market thrust was driven by the large number of mid-market installations that have made major investments in SAP ERP software, Vianey said, some of which are still working to achieve ROI amid escalating inventory management challenges that defy existing estimate-driven processes. "We started with SAP because we have quite a few clients that have SAP Business Information Warehouse and now NetWeaver business intelligence installed. It made for a logical starting point," he explained.
What catalyzed development of the service, Vianey said, was a consulting engagement undertaken a few years ago with NIBCO Inc., a 100-year-old global manufacturer of fittings, valves, actuators and support systems based in Elkhart, IN, which has standardized on SAP ERP and business intelligence tools to help manage operations across 12 plants and distribution centers, including a facility in Poland. The company realized that couldn't remain competitive if its inventory targets were inaccurate, or worse, if its supply chain wasn't flexible enough to accommodate last minute order changes on its 9,000-plus SKUs.
With IBM's assistance, NIBCO has significantly reduced corporate computing and inventory management costs, the company claimed. "IBM's Express Services for Inventory Management have allowed us to reduce our target inventory levels by 13%," said John D. Hall, NIBCO's director of supply chain systems, in a prepared statement. "This is the type of cost reduction that immediately impacts the bottom line."
With the new service, SMBs like NIBCO can predetermine how much inventory to stock at any given time, IBM said. Here's how the service works: IBM consultants walk clients through tailored needs analysis that helps to establish formal, repeatable inventory management processes for creating more responsive, demand-driven supply chains. They do this, for example, by helping to create safety stock calculations that stratify and prioritize requirements and investments by product class, IBM said.
These exercises are conducted through a toolkit that consists of 25 algorithms (pre-coded in SAP NetWeaver by IBM Research in the initial release) that help to build prototypes and analyze inventory requirements, as well as plan and allocate resources for pilot and implementation projects. Also included are training materials.
In its initial release, IBM Express Services tools can pull data directly from SAP Business Information Warehouse and plug in inventory projections into the NetWeaver Business Intelligence environment for further analysis, Vianey said. "There's a significant performance improvement in what/if analyses through the push of a button -- it's almost instantaneous," Vianey said of the output that helps guide inventory management decisions. "This was a very lengthy process that took days or weeks in the past."
Express Services is priced at $300,000, which IBM acknowledges might create indigestion for smaller and mid-tier manufacturers. Therefore, the company is offering a range of financing arrangements and a shared-risk/reward program in which IBM puts its profit on the line until pre-negotiated milestones (that pivot around attributes such as reduced inventory management costs or faster inventory turns) are achieved, Vianey explained.
IBM says its initial inventory management services foray should play well in the mid-tier of the aerospace/defense, automotive and industrial supply sectors, as well as throughout the hard goods wholesale distribution space, market segments whose fortunes are dictated by tight inventory controls. "The benefit to clients is they do not have to buy additional products nor increase IT staffing costs for implementation," Vianey said. "There's lower cost of maintenance because there are no additional applications: Integration is seamless and ... [the service] takes advantage of the SAP network and infrastructure."
Moreover, Vianey sees a green field opportunity, claiming IBM hasn't run into competitors focused on inventory optimization for the mid market. Larger supply chain management vendors, such as Manugistics and i2 Technologies, aren't overtly targeting the middle market, though Vianey believes they will eventually move downstream. "That would be a logical extension," he concluded.