Keeping Up With Changing Market
IBM developed the Asset Management Tool (AMT), an advanced supply chain optimization and simulation tool, as part of its reengineering effort.
IBM made a commitment to reengineering in 1993 to keep up with rapid technology changes that have seen PC prices drop and the average shelf life of PC's decline from 12-18 months in 1990 to 4-6 months in 1998. Shortened product life cycles for computers and components can result in as much as a 100% loss due to scrapping of unsold, obsolete inventory, the company says. Increased competition and a decline in the demand for mainframe computers motivated the reengineering drive. In making its commitment to reengineering, IBM faced the challenge of streamlining one of the most complex corporate supply chains in the world.
Range of Uses
AMT has been used in a number of IBM units as well as in other businesses, like the food industry, notably by Tesco, the largest food retailer in Great Britain.
AMT addresses a wide range of logistics and business topics, including inventory and customer service level target, supply network configuration, supplier terms and conditions, lead time reduction, fulfillment policies, forecast accuracy, and supply-chain scenario analysis.
The implementation of AMT resulted in substantial business benefits, most notably in IBM Personal Systems Group. AMT helped IBM Personal Systems Group reduce its channel inventory from over three months to just one month. As a direct consequence the division reduced its 1998 price protection expenses by over $100 million.
The Personal Systems Group reduced its end-to-end inventory from 4 1/2 months to less than 2 months by the end of 1998. This helped IBM realize additional savings on product cost of an additional $650 million.
AMT also contributed to IBM's overall reengineering achievements of an over 50% turn improvement and a 55% delivery cycle time reduction.
AMT integrates simulation, animation, graphical process modeling, analytical performance optimization, and activity-based costing into an Internet-enabled system that allows quantitative analysis of extended supply chains.
The prize-winning researchers are Grace Lin, Markus Ettl, Steve Buckley, Sugato Bagchi of IBM Watson Research Center; David Yao of Columbia University; Bret Naccarato of IBM Printing Systems Company; and Rob Allan, Kerry Kim, Lisa Koenig of IBM Personal Systems Group.
Major Corporate Opponents
The seven finalists for the INFORMS Edelman Award, all of whom were recognized by the award committee, are AT&T; British Telecommunications plc; Dana Corporation Off-Highway Systems Group; IBM; Towers Perrin; the U.S. Department of Energy; and Visteon Automotive Systems. All the finalist papers will be published in the January 2000 issue of the INFORMS publication Interfaces.
This is the 28th year that the prestigious $15,000 competition has been held. The award is jointly sponsored by INFORMS and CPMS, the Practice Section of INFORMS.
The INFORMS Edelman Award recognizes outstanding implemented work that has had a significant, positive impact on the performance of the client organization. The top finalist receives a $10,000 first prize.
The judges of the 1998 Edelman competition were Russ Labe, Merrill Lynch Private Client Group, Chair; Joseph Discenza, Wagner & Associates; Howard Finkelberg, BBDO; H. Newton Garber, Garber Associates; Stephen C. Graves, Massachusetts Institute of Technology; Yoshiro Ikura, Saitech; Peter V. Norden, Columbia University; Rick Rosenthal, Naval Postgraduate School; and Michael Rothkopf, Rutgers University.
The Institute for Operations Research and the Management Sciences (INFORMS) is an international scientific society with 12,000 members, including Nobel Prize laureates, dedicated to applying scientific methods to help improve decision-making, management, and operations. Members of INFORMS work primarily in business, government, and academia. They are represented in fields as diverse as airlines, health care, law enforcement, the military, the stock market, and telecommunications.