Why IBM Is Linking Information and Logistics
By Michelle M. Meyer -- Supply Chain Management Review, 9/30/2001
As we consider the impact of technological innovations on various business processes, those of us who manage logistics at IBM are working to answer two key questions: 1) What are the forces driving the tremendous changes we can sense happening around us? and 2) What will the future logistics space look like?
In seeking the answers, we have come to believe that succeeding in the new business environment depends on effectively managing not only the physical flow of goods but also the flow of information. To improve our logistics information management capabilities, IBM currently is implementing what we call our "4Cs" approach to developing logistics solutions. This approach focuses on the four key pillars of content, connectivity, collaboration, and customerization. We are also implementing a specific IT infrastructure strategy we call the "integration layer." This integration layer allows us to receive external information in any format and map it to internal applications as well as to reverse the process.
To understand the context in which we launched these initiatives, it's important to appreciate just how rapidly technology is changing the business environment. From the standpoint of logistics, in particular, it's also critical to know the marketplace drivers that are changing the scope and nature of global supply chain management. A brief overview of these dynamics is presented below.
The Connectivity ExplosionLike everyone else, IBM is feeling the impact of current and potential technological advancements and is trying to understand how they will change supply chain management. We are becoming a networked world because of these new technologies and the behavior driven and enabled by them. Several theories about technological advancements have helped to shape our thinking. These include Moore's Law, Metcalfe's Law, and the Law of Disruption.
Gordon Moore, one of the founders of Intel Corp., postulated that technological advances would allow for the processing power on a chip to be doubled every 18 months with no increase in price. This has since become known as Moore's Law. His proposition has held true for nearly 30 years. Projecting this over the next 15 years yields a 210(1,024x) growth in processing power. Moore's law also holds for other technologies such as storage devices.
We all have personally experienced the explosion of processing power. The most visible example is the increased connectivity through such things as e-mail, the Internet, and company intranets and extranets. We will continue to experience this connectivity to even greater degrees, according to Robert Metcalfe. Metcalfe's Law states that the utility of a network equals the square of the number of users. In other words, the more information used and the higher the number of people using it, the greater the net value of the network and the outcomes of using the network.
So, what's next? The net value of connectivity should continue to grow at a rapid rate. What we know as the Internet today is only the first step. The speed of adoption for the Internet has been much faster than for any other communication medium in history. Most of us didn't even know what the Internet was in 1994. But today, we all have e-mail addresses, have bought items online, and might even use other services such as online banking. In a short period of time, we have vastly improved our speed and ability to make decisions from the days when phone calls and "snail mail" were used for these transactions. Never before have we had so many options and opportunities for collaboration.
With its rapid rate of adoption, the Internet also provides a good example of the disruptive technologies described by The Law of Disruption, outlined in the book Unleashing the Killer App by Larry Downes and Chunka Mui.1 The Law of Disruption basically states that while changes in political, social, or economic areas happen incrementally, changes in technology are exponential in nature and disrupt the fundamental balance of the status quo. The technological, business process, and business model status quo has been disrupted by an increasingly capable Internet. The rules have changed. Thus far, most people's view of the disruption relates to the e-commerce part of the "e" world—in other words, buying or selling something over the Internet.
During this period of time, the world has shifted from analog technologies to digital, and the Internet exploded onto the world scene with a force no one could have imagined. Most of us also have experienced, to some degree or another, the corporate stages of downsizing, total quality management, business process reengineering, and enterprise resource planning implementations. Exhibit 1 shows that if the concept of a sigmoid curve is applied to this evolution, one can see that today we are at the top of a curve in terms of time and technology. This position is basically both an end point and a beginning point. We have progressed up to the top of the curve (an end point), where, to keep developing, we must jump to the next curve (a new beginning point). If we don't, we risk sliding down the backside of the existing curve and forever missing the opportunity to continue developing—much like the way product development teams view product life cycles. You always want to be on the "up" escalator, not the "down" escalator.
The Internet not only has increased our ability to connect but also has enhanced the value of the information that can be passed through these connections. Some of the major developments in the marketplace, which are shown in Exhibit 2 and explained below, require increasingly complex supply chains and logistics networks. These complex supply chains require companies to manage not just the physical flow of goods but also the flow of information.
Deregulation throughout the world is reducing the cost of doing business and encouraging competition—two developments that lead to industry consolidation. Consolidation means we need to be careful about which partners we pick. We need to make sure they are thinking about how to jump to the next sigmoid curve with us.
Faster product cycles in the technology business and other sectors are driving companies to be first to market with new products so they can earn the high margins associated with a highly sought-after, supply-constrained item. The supply chain and logistics networks must be responsive and capable of meeting the need for speed. The quicker information about the product travels, the faster that product will be introduced to market.
Network optimization means that we need to shift from our former focus on optimizing the performance of a particular lane to optimizing the performance of an entire logistics network and supply chain. This optimization will come through effectively managing the information inside the supply chain.
Outsourcing gives anyone the potential to participate in multiple "virtual corporations" at a global level. The key to becoming a capable global supplier or to leveraging capable global suppliers lies in the ability to manage information.
Knowledge management means we need to learn to leverage the intellectual capital that our employees possess. We also need employees with new skills who understand the importance of data, information, and knowledge and possess the know-how to apply that information and knowledge to improving the business.
Last but not least, the new e-business technologies will require new processes. If we don't implement these processes, we risk the possibility that a competitor will. Competitors will take our customer if they find a better, cheaper, faster way to get to market with the goods customers want.
The Evolution of LogisticsAll of these developments and their implications help explain why supply chain management and logistics have moved from being a "backroom" function historically to being a boardroom function today. Logistics is no longer solely about moving goods. From World War II until the 1970s, the logistics business primarily concentrated on basic transportation service—moving products from point A to point B. The 1980s saw the advent of time-definite delivery as UPS, Federal Express, and other transportation industry providers began to guarantee delivery times. Early in the 1990s, more companies began to outsource their warehousing and fulfillment needs to third-party logistics (3PL) providers, which created added value through multiclient leverage. During the same period, 3PLs also began to offer a range of transportation and distribution services for both domestic and international moves. Finally, we are beginning to see companies offering total integrated logistics services that address the warehousing, transportation, and information technology needs of the supply chain.
As we have moved up each step on this evolutionary path, the value of information has increased. All of these developments call for a sharper focus on better information management—and this is where the work lies ahead. This information management capability will be the foundation for the new e-logistics space. Customized logistics services will become the standard expectation of customers. It will no longer be enough to simply deliver the product to their door. The customer now expects Web-based order-status tracking capabilities, electronic proof-of-delivery, postponement manufacturing and postponement services, call center and Web-based customer service, self-service, and finally, personalized interaction.
The evolution within the logistics infrastructure and the proliferation of information have made leveraging information into service logistics a key element of successful business transformation. IBM believes that competing successfully in the new logistics environment depends on integrating physical distribution and information management.
The e-Business Foundation of e-LogisticsOur perspective on e-logistics is grounded on IBM's overall e-business viewpoint. We see e-business not as one application or one use of the Internet. Rather, it is a series of Web-enabled applications and solutions that solve specific problems or respond to customer, employee, supplier, and shareholder requirements. We define e-business and e-commerce as follows:
- e-Business—the use of Internet technologies in the workplace both internally within the corporation and externally between the corporation, its trading partners, and its customers.
- e-Commerce—the specialized use of these tools to improve the efficiency and effectiveness of buyer-seller transactions.
e-Logistics, then, is a subset of both e-business and e-commerce because it uses Internet technology to manage logistics processes and because it does so to support e-commerce transactions.
Last December, IBM took these definitions a step further by defining the next phase or generation of e-business as end-to-end integration + infrastructure.3 This stage will result in not just a transformation of buyer-seller transactions (e-commerce) but also in a transformation of the entire business.
- End-to-end integration—from a supply chain perspective—involves the connection and integration of every process and relationship in the supply chain from quote to cash. In other words, this integration will cover interactions on the front end with customers, interactions on the back end of the supply chain, transactions that connect an enterprise to markets and to industries, and internal transactions such as order processing, fulfillment, logistics, and manufacturing. This level of integration will require the transformation of every important transaction and relationship in the supply chain—not just the buyer-seller transactions of e-commerce. e-Business leaders understand that the e-business transformation must sweep across all of these core business processes. While all of these processes are being transformed, they are also being fused together and integrated within the enterprise.
- End-to-end infrastructure is the technology that allows the connections to take place. Companies will need to easily connect with every customer, supplier, distributor, regulatory agency, licensing board, and tax authority outside of their firewalls. At the same time, they must make sure that they can connect with the explosion of new end-user network access devices such as personal digital assistants and net-enabled cell phones. There also will be a trillion or more connected "things"—things we'd never think of as "computers" but which will actually be doing a little computing and maybe even a little storage. IBM calls this pervasive computing.
Accomplishing this end-to-end integration and developing the infrastructure will require good old-fashioned business process (integration) and IT (infrastructure) change and improvement work. Our new e-business initiatives will involve the same plain old hard work we have directed toward other business process and information technology efforts in the past, only pointed in a new direction. And, by the way, the IT infrastructure piece will be the easy part.4
As Exhibit 3 on the preceding page shows, we have begun to transform all of our core processes into e-business applications, from human resources (HR) programs to procurement to finance. Virtually all areas of our business are adding meaningful and relevant e-based applications for both internal and external use. For example, within HR, job recruitment and applications are now done online, and employees enroll for benefits online. Also, IBM is a leader in the use of e-based procurement tools. Today, IBM buys more than $40 billion worth of goods and services annually from more than 40,000 suppliers via Web-based processes and tools.
The "4Cs" Approach for Driving e-Logistics
In logistics, we are transforming the core processes to create a logistics information network that will enable us to provide integrated e-logistics services. Integrated e-logistics means we have integrated our logistics process and IT infrastructure both internally within IBM and externally with, for example, our customers, suppliers, and government agencies. To help drive our team's efforts to develop e-logistics applications and solutions, we have created the 4Cs framework of content, connectivity, collaboration, and customerization (as shown in Exhibit 4).
- Content
- is what gets moved through the network. Content can be data—things quantitative in nature—or it can be information—things typically thought of as qualitative in nature—or combinations of multiple quantitative data elements. In any case, content should ultimately be knowledge or intellectual capital, which is the combination of data and information with some interpretation of the result to create valuable knowledge. Some examples of logistics management content include order information, advance shipment notices, carrier information, and inventory information.
Content is the foundation of every e-logistics application. If you don't have the data and don't have a way to integrate and move it, then you can't manage the logistics process. This holds true today even when the content is moved manually with paper. However, as we switch over to Web-based applications, we have to change the way we think about content. How are we going to manage the content on an ongoing basis? How are we going to make sure that it is fresh and accurate, and has specific owners responsible for maintaining it? We also need to decide how often the content should be updated. Real-time updating is often an expensive proposition, while batch updates are often too infrequent to be useful for managing a fast-changing environment. The right answer to these questions depends on what we are doing with the content.
- Connectivity is the method by which users gain access to content through the network; this is the infrastructure piece. The options include the open Internet, secure extranets, intranets, wireless access tools, and pervasive computing devices.
- Collaboration is the teaming or cooperation that becomes possible when you enable access to content via connectivity. It is the sharing of content across the network. Through collaboration, supply chain partners can become involved in such processes as advanced planning and scheduling, demand planning and scheduling, or inventory management. Collaboration is where the real innovation possibilities come alive.
- Customerization, the final "C," is a play on the words "customization" and "customer." This concept represents the value we hope to create for our customers through content, connectivity, and collaboration. It involves customization around the customer and helps us focus our teams' efforts on extending value to our end-customers. For example, different customers often want to see information in different ways, at different times, and with different levels of access. Accomplishing this manually, however, is burdensome and expensive. If you can get information into a digital (Web-based) format, however, it becomes much easier to put the information into different formats for different customers.
Creating integrated e-logistics services based on the 4Cs, however, is a formidable challenge. IBM's supply chain environment is large and complex. In fact, we actually manage multiple supply chains for multiple business segments, each of which has different supply chain requirements and characteristics. Our three or four primary supply chains support our configured Hardware Business (the z-series, x-series, i-series, p-series, storage devices, etc.); our Personal Computing Division, which includes personal computers and printers; our Technology Group for original equipment manufacturer (OEM) parts; and our Microelectronics Division. We also have multiple inbound supply chains supporting these businesses.
In addition, our supply chains are supported primarily by complex legacy systems, which also vary across the businesses and around the world. To the greatest extent possible, we are striving for global solutions for our logistics systems, our processes, and our solution providers/partners. At the same time, we recognize that there are also circumstances where a regional or local solution is more appropriate.
In 1999, we conducted a study of global logistics technology systems and concluded that the best solutions for IBM would be Web-based. We believe that, in the end, such approaches will provide more functionality, cost less, and take less time to implement than alternatives. As part of that transition to Web-based solutions, we have focused on several broad IT strategies. These strategies mix together our older legacy applications with new Web-based applications. We have been converting some of our legacy applications to Lotus Notes or Web-based applications. At the same time, we have implemented Web interfaces in front of the legacy applications that will remain in place. And in some cases, we have implemented completely new Web-based applications and tools.
We also have been focusing on creating certain information management capabilities. If we recall the trends affecting logistics, we see a common thread. With globalization and deregulation, we need to be able to quickly engage or disengage customers and suppliers. The current cumbersome EDI (electronic data interchange) process is too complex to provide the plug-and-play functionality needed. The increasing trend toward the outsourcing of manufacturing and distribution processes creates challenges regarding how to share information with these new supply chain partners. Companies need access to timely and relevant data to develop a responsive supply chain and logistics networks capable of meeting the need for speed. This is an important need because the speed of the goods depends on the speed of the information.
The common denominator here is information management. We need a strategic IT solution that can integrate our supply chain. We believe this IT solution should have the following attributes:
- End-to-end visibility of demand and orders.
- Web-enabled access.
- Real-time data feeds on order and shipment status.
- Event tracking of the shipment against a plan.
- Plug-and-play connectivity for supply chain partners and applications.
- Standard interfaces.
- Configurable rules for managing event exceptions.
- Proactive exception management.
With this functionality in place, we will have real-time data in our supply chain and be better able to prevent service failures. This capability will allow IBM and our customers to pay for performance and services upon delivery. Also customers will be able to help themselves to the information they need. Finally, this solution will provide a less expensive form of communication because it is Web-based.
We call this strategic solution our "integration layer." It provides us with a gateway through which we can move and manage all the information flows required to support our supply chain and logistics processes and to provide greater services.
The integration layer will help us manage the data, information, and knowledge (or content) needed for supply chain operations and services across the various connectivity points. The amount of content and the numerous connectivity points that are possible for even a segment of the supply chain clearly demonstrate the need for excellence in information management. In addition to moving and directing content, the integration layer will become the repository of the key data elements and information needed to understand supply chain performance. Data warehousing and key performance indicator (KPI) tracking processes will enable us to monitor the performance of the entire supply chain from multiple corporate views, not just from a functional logistics perspective. This will drive our ability to optimize supply chain performance, leverage knowledge, and provide both internal and external customized services and solutions.
Toward True e-EnablementAs we move toward integrated e-logistics services, we plan to progress through multiple business models and information management strategies on our way to becoming truly e-enabled. The first stage focuses on improving overall business efficiency by improving supply chain management processes and logistics network performance. The second stage starts to shift to a more outward customer focus and the ability to collaborate or connect directly to customers and other external partners. The third stage is where an organization begins to truly leverage knowledge and organizational and IT flexibility to develop customized solutions for customers.
We currently find ourselves operating in all three stages of e-business and e-logistics transformation, depending on where you look in the business. However, we are primarily focused on jumping from the first to the second stage and developing excellent external partner-focused content, connectivity, and collaboration. We believe this will lay the foundation for moving to Stage III—becoming an adaptive and knowledge-based enterprise with flexible, streamlined processes and technologies. This will allow for true customerization.
The ability to jump to the next curve will take both thought leadership and business leadership. Logistics leaders will need to become e-business leaders to better understand the digital world and its implications for them. The future of today's logistics organizations lies with their capability to become information management organizations and service providers. We need to be prepared for the next generation of e-business and e-logistics, which will change the way we work, what we do, and how we do it. To do this, we need to have IT solutions in place that will connect us to both internal and external partners while allowing us to exchange the content needed to run an effective supply chain. With this in place, we can provide the collaboration and customerization that will propel us into the future.
Author's note: This article is a direct result of the leadership and direction provided by IBM's logistics thought leaders: Gary Smith, vice president, Worldwide Distribution; Jeffrey Egan, director, Worldwide Distribution—Americas; Rob Steere, manager, Network Optimization; and Joni Bettge, architecture manager, IBM Global Services Government Industry.
| Author Information |
| Michelle M. Meyer is the manager of business integration for IBM Worldwide Distribution—Americas. |
| Footnotes |
| 1Downes, Larry and Mui, Chunka. Unleashing the Killer App: Digital Strategies for Market Dominance, Harvard Business School, 1998. |
| 2Dr. Donald J. Bowersox is the John H. McConnell University Professor of Business Administration at Michigan State University. Bowersox is a leading authority on logistics theory and practice. He has written more than 150 articles on transportation and logistics and is author or co-author of 12 books. |
| 3Gerstner, Louis V. Jr., chairman of the board and chief executive officer, IBM Corp., "Next Generation e-business," Keynote Address, e-Business Conference and Expo, New York, Dec. 12, 2000. |
| 4ibid. |
View All Blogs
