eWorld Purchasing & Supply Conference Day 1 - September 28th, 2010 12:00 to 12:30 PM Building the Smarter Supply Chain of the Future Overview: IBM’s first Global Chief Supply Chain Officer Study asked 400 Senior Supply Chain executives about the challenges they are currently facing and ways in which they are hoping to make their supply chains smarter. The survey identified the top five challenges topping the agenda as being: Visibility, Managing Risk, Customer Intimacy, Cost Containment and Globalisation. Supply chains of the future will work differently and smarter, with new approaches that employ sensor technologies, new analytic capabilities and simulation techniques to not just sense and respond, but to predict and act. They will use smart objects – not people – to do more information gathering and sharing, thereby automating and standardising baseline activities. And they will recognise risk in all its dimensions, simulation, visualisation and emerging analytic capabilities to better synchronise supply and demand planning and execution. This illuminating session will explore the findings of the study and provide real-life examples of what other companies are doing to build "smart" supply chains, as well as facilitating the exchange of ideas and experiences amongst attendees. Speaker: Simon Terry, Executive Partner, IBM Global Business Services

1. THE SMARTER SUPPLY
CHAIN OF THE FUTURE
IBM Global Chief Supply Chain Officer Study
Simon Terry
(C) 2008 asbl Atomium / Artists Rights Society (ARS), New York / SABAM, Brussels
Photo Number: WC6D8959
© Copyright IBM Corporation 2009

2. IBM Global Business Services
We ran our Global Chief Supply Chain Officer study to gain insight into the
challenges facing supply chain executives around the world… to learn what
strategies and initiatives they are undertaking.
400 Supply Chain
400 Supply Chain Executives
World-wide
Executives
29 Industries
Retail
Electronics
Industrial products
25 Countries
25 Countries Consumer products / wholesale
Automotive
Food, beverages and tobacco
Chemicals and petroleum
Life sciences / pharmaceuticals
Transportation and logistics
Telecommunications
Aerospace and defence
Government and public services
Utilities (e.g., gas & electric)
0 5 10 15 20 25 30 35 40 45
Number of Respondents
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3. IBM Global Business Services
We found a volatile marketplace where supply chains continue to
become more global and more complex...
Businesses are becoming Supply chains are becoming The product portfolio is
more global supply networks changing rapidly
Foreign subsidiaries tripled 80% expect the number of Large consumer products
from 265,000 to 790,000 collaborative relationships with companies are introducing
between 1995 and 2007 third parties to increase 10,000 SKUs per year
The number of transnational R&D outsourcing is expected to
companies doubled from increase by 65% 2007 - 2010
38,000 to 79,000
Engineering services and
product design projects are
forecast to increase 80%
Experienced and expected level of complexity Complexity and preparedness to handle
Currently experiencing Expect high/very high level of
high/very high level of complexity
60%
32 %
more
complexity over 5 years
79%
30 %
Complexity gap*
79% 49%
Expect high/very high level of Feel prepared for expected
complexity over 5 years complexity
Source: IBM Global CEO Study 2010, n=1522
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4. IBM Global Business Services
Our research found five challenges that
define the agenda…
visibility
cost 70% customer
containment risk
demands
55% 60%
56%
globalization …and that it’s no longer enough to build
43% supply chains that are efficient, demand
driven and transparent.
They must also be Smart
Instrumented Intelligent
Interconnected
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5. Visibility Global Business Services
IBM
Despite abundant information and
connectivity, supply chain executives still
rank visibility as their greatest challenge
70%
55% 60%
56%
43%
COST SUPPLY CHAIN RISK INCREASING GLOBALIZATION
CONTAINMENT VISIBILITY MANAGEMENT CUSTOMER
DEMANDS
© Centre Pompidou, 2008 / Architects: R.Piano, R.Rogers
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6. Visibility Global Business Services
IBM
Leaders of top supply chains are much more focused on improving
visibility. Twice as many report extensive implementations of
collaborative planning with suppliers and vendor-managed inventory
Extent of implemented Integration Practices Of your supply chain partners,
Leaders vs. Others where is your greatest supply chain visibility issue?
7% 11% 19% 1%
Gap Gap Gap Gap
Logistics Providers
Sum:
86%
extensive
& some 79% Suppliers
extent
72% 72%
Customers
61% 63% 62%
Others
53%
Contract Manufacturers
Ranking
Extensive 30% 16% 24% 19% 24% 9% 11% 16%
Planning with Continuous Customer Shared, real-
Suppliers Replenishment Inventory Planning time electronic
with customers & Deployment data
Top Supply Chains: Others:
Some Implementation Some Implementation
Extensive Extensive
* Leaders determined based on respondents’ ranking in AMR Research Supply Chain Top 25 for 2008
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7. Visibility Global Business Services
IBM
It may seem logical to blame poor visibility and collaboration on
inadequate IT but supply chain executives point elsewhere.
How significant are the following barriers to visibility & collaboration?
(respondents answered very to moderately significant)
Organizational silos 75%
Too busy to assist others 75%
Not rewarded for it 68%
Technological tools not effective 63%
Not viewed as important 52%
Concerns about intellectual property 31%
Very Significant Greatly Significant Moderately Significant
Not surprisingly, organizational silos are the biggest barrier. But we were
shocked so many executives reported that their organizations are too
busy to share information or simply do not believe collaborative decision
making is that important.
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8. Risk Management
IBM Global Business Services
Mounting supply chain risk – even more than
customer demands and increasing costs –
has leaders on edge.
70%
55% 60%
56%
43%
COST SUPPLY CHAIN RISK INCREASING GLOBALIZATION
CONTAINMENT VISIBILITY MANAGEMENT CUSTOMER
DEMANDS
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9. Risk Management
IBM Global Business Services
The focus on risk management is not driven by the economic
environment but from thousands of recall headlines, globalization and
the complexities of greater supply chain interdependence.
• 69% formally monitor risk, but What are the obstacles for implementing risk
management programs?
only 31% manage
performance and risk together.
Standard processes 46%
Insufficient data 42%
Inadequate technology 34%
Culture 26%
Organization 23%
Access/Process
controls
15%
Financial 6%
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10. Risk Management
IBM Global Business Services
Leaders are sharing risks across their supply chain network to reduce
vulnerability.
What types of and risk management practices have/are you
implementing?
96%
92%
82% 80%
79%
76% 72%
57%
Integrating Using supply
Compliance Incorporating risk
process chain event
programs strategies
controls management
Leaders Others
Currently implemented/Implementing Currently implemented/Implementing
Plan to implement in next 3 years Plan to implement in next 3 years
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11. Customer intimacy
IBM Global Business Services
Rising customer demands ranks as the third
highest supply chain challenge
70%
55% 60%
56%
43%
COST SUPPLY CHAIN RISK INCREASING GLOBALIZATION
CONTAINMENT VISIBILITY MANAGEMENT CUSTOMER
DEMANDS
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12. Customer intimacy
IBM Global Business Services
We forgot about the customer.
Almost Half (47%) FAIL to Collaborate with • Two out of every three companies
Customers! struggle to accurately identify customer
Extent of external demand collaboration with customers
needs.
Very great extent
• 80% design products jointly with their
No extent
suppliers, but only 68% do so with
5%
Significant extent customers.
19%
15%
• In supply-chain planning 53% of
companies include customer input, while
63% invite supplier participation.
28% 33%
Little extent Moderate extent
Top supply chains claim to collaborate with customers 10% more
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13. Cost containment
IBM Global Business Services
Cost Containment ranks 1st for supply chain
executives’ responsibility to the business but
their 4th greatest challenge
70%
55% 60%
56%
43%
COST SUPPLY CHAIN RISK INCREASING GLOBALIZATION
CONTAINMENT VISIBILITY MANAGEMENT CUSTOMER
DEMANDS
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14. Cost containment
IBM Global Business Services
Cost is still very much top-of-mind with Supply Chain Executives,
especially in today’s volatile environment.
How do you position your supply chain to meet the
challenges affecting your organization?
Cost containment
69%
efficiencies
In support of enterprise
growth initiatives 54%
For competitive advantage 48% Which one area of focus best describes your
Lead time improvement 45% relationship with suppliers?
43%
Product/service innovation 31%
Quality improvement
efficiencies 30%
20%
17%
10%
8%
2%
Total cost Price Quality Capabilities Delivery Proximity /
geography
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15. Cost containment
IBM Global Business Services
Logistics played a surprisingly large part in cost containment strategies
What efficiency practices and initiatives are you
implementing?
Extremely
Effective
42% Formal distribution strategy 83% To what extent have you outsourced the
Collaboration &
following functions?
38% integration among 3rd 79%
party logistics providers Extremely
Effective
Differentiated logistics
32% services for distinct customer 70% 63% Transportation 90%
segments
Warehousing
48% 75%
and/or DCs
Network optimization and
30%
simulation tools 58% Customs/Export
52%
management
66%
Supply chain visibility for 48% Manufacturing 64%
24%
managing exceptions 67%
Field services/
28%
reverse logistics
50%
Custom order and
Extensive implementation Some implementation 29% 24%
call operations
25% Procurement 19%
Extensive outsourcing Some outsourcing
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16. Cost containment
IBM Global Business Services
Companies with top supply chains are moving more quickly toward agile supply
chains and variable cost structures that allow rapid response to changing market
conditions.
Percentage who report extensive adoption of agile
supply chain practices.
37%
Top supply chains
Others
22%
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17. Globalization Business Services
IBM Global
Many companies are encountering issues
with global sourcing.
70%
55% 60%
56%
43%
COST SUPPLY CHAIN RISK INCREASING GLOBALIZATION
CONTAINMENT VISIBILITY MANAGEMENT CUSTOMER
DEMANDS
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18. Globalization Business Services
IBM Global
Our findings suggest globalization has contributed more to revenue
growth than to cost reduction.
Percentage who have experienced these outcomes as a result of • Nearly 40% report improved
globalization over the past three years
margins.
22 %
BETTER • Yet more than 30% are
59%
Improved overall performance experiencing increased costs.
37% 22 %
BETTER
Increased sales
63% • Higher profits seem linked to sales
41%
increases (as reported by 43%).
37%
Improved margins
38%
10 %
BETTER 33%
Increased lead times
43%
3%
BETTER 33%
Increased costs
36%
30%
Decreased customer service levels
14%
4%
Decreased quality
12%
NEGATIVE POSITIVE Top supply chains
Others
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19. Globalization Business Services
IBM Global
Global sourcing continues to have its challenges and impact on
performance
What are the major challenges that you have in regard to
global sourcing & global operations?
Delivery issues and reliability of commitments 80%
Lead times are greater than expectations 76%
Quality issues 75%
Capacity issues for new / unproven sources or
operations supply 76%
Difficulty evaluating / managing new sources 73%
Regulatory / legal issues in sourcing or
manufacturing country contract 65%
Have experienced issues Future concern
19

20. IBM Global Business Services
What have we learned from talking with 400 multi-industry supply chain
executives world-wide?
How will we tame the volatility?
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21. IBM Global Business Services
The Supply Chain of the Future must be SMARTER...It will be Instrumented,
Interconnected & Intelligent
• Sensors, actuators, RFID & smart devices
• Real-time data collection
Instrumented
• Inventory location, shelf-level replenishment detection,
transportation locations & bottlenecks
• System integration ERP-to-ERP-to-ERP across the network
Interconnected • Collaborative decision making
• C-Suite risk management, integrated financial controls and
operational performance
• Simulation to evaluate trade-offs of cost, time, quality,
service and carbon
Intelligent
• Probability-based risk assessment & predictive analysis
• From sense-and-respond to predict-and-act
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22. IBM Global Business Services
Procurement professionals must play a key role in building smarter
supply chains
• Supply chains will rely less on labour
• Extensive interconnectivity will facilitate
collaboration on a massive scale.
• Worldwide networks of supply chains
will make shared decisions • Different services
• Some decisions will be made • Different cost drivers
automatically • Complex relationships
• Real-time tradeoffs of service levels, • Revenue, cost and risk
costs, time and quality allocation
• Variable cost structures that fluctuate
with demand
• Supply chains will have the flexibility to
reconfigure as conditions change
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23. IBM Global Business Services
The Smarter Supply Chain of
the Future
IBM Global Chief Supply Chain Officer Study
www.ibm.com/supplychainstudy
Simon Terry
simon.terry@uk.ibm.com
(C) 2008 asbl Atomium / Artists Rights Society (ARS), New York / SABAM, Brussels
Photo Number: WC6D8959
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