Patrice Knight Vice President, IBM Integrated Supply Chain 11 April 2011

Business Analytics and the Supply Chain: The new path to value

2011 IBM Corporation

Overview

The Top Five Supply Chain Challenges

Analytics: The New Path to Value

The Smarter Integrated Supply Chain

Five trends define the Chief Supply Chain Officer agenda

Why does analytics matter? What is the path to value?

A new role for Business Analytics and Optimization

2011 IBM Corporation

The Smarter Supply Chain of the Future

The collective insights from 400 Supply Chain Executives identify five major challenges that comprise the Chief Supply Chain Officer agenda

70% 55% 60% 56%

43% GLOBALIZATION

COST CONTAINMENT

SUPPLY CHAIN VISIBILITY

RISK MANAGEMENT

INCREASING CUSTOMER DEMANDS

2011 IBM Corporation

Business Analytics and Optimization is the next big investment area for companies similar to ERP or CRM in the past

Transactional Automation

Resource Planning

Business Process Management

Business Analytics & Optimization

Enterprise Integration Detection, Direction & Prediction

Task / Process Automation Recording & Reporting

Business Efficiency Aggregation and Data Warehousing

Cross-functional Integration Performance Measurement

$566B

3% CGR*

$105B 8% CGR*

Source: IBM Analysis on addressable market opportunity based on GMV 1H09 data; includes addressable Hardware, Software and Services opportunity. CGRs 2009-2012 2011 IBM Corporation

Companies see the need to adopt new ways of working to improve speed to insight and speed to impact
Traditional Approach Sense and respond New Approach Predict and act

Instinct and intuition

Real-time, fact-driven

Skilled analytics experts Back office Decision Support Efficient

Everyone Point of impact Action Support Optimized

Source: Business Analytics and Optimization for the Intelligent Enterprise, April 2009. www.ibm.com/gbs/intelligent-enterprise 2011 IBM Corporation

IBM Institute for Business Value

Why does analytics matter?

The New Path to Value

2011 IBM Corporation

Organizations are challenged with how to innovate for differentiation, grow revenues and reduce costs
Primary Business Challenges
Innovating to achieve competitive differentiation Growing revenue Reducing costs and increasing efficiencies Profitably acquiring and retaining customers Increasing operating speed and adaptability Managing regulatory compliance Managing risk or reducing fraud 10%
Top-line focused Internally focused

60% 50% 46% 44% 35% 14%

Source: Analytics: The New Path to Value, a joint MIT Sloan Management Review and IBM Institute for Business Value study (c) Massachusetts Institute of Technology

2011 IBM Corporation

Organizational obstacles, not data or financial concerns, are holding back adoption
Primary obstacles to widespread analytics adoption
Lack of understanding how to use analytics to improve the business Lack of management bandwidth due to competing priorities Lack of skills internally in the line of business Ability to get the data Culture does not encourage sharing information Ownership of the data is unclear or governance is ineffective Lack of executive sponsorship Concerns with the data Perceived costs outweigh the projected benefits No case for change

38% 34% 28% 24% 23% 23% 22% 21% 21% 15%

Organizational Data Financial

Source: Analytics: The New Path to Value, a joint MIT Sloan Management Review and IBM Institute of Business Value study. Copyright Massachusetts Institute of Technology 2010.

2011 IBM Corporation

Organizations want to see insights more clearly and act on them

Analytic techniques that provide the most value Today
Historic trend analysis and forecasting Standardized reporting Data visualization Analytics applied within business processes Simulations and scenario development Clustering and segmentation Regression analysis, discrete choice modeling, and mathematical optimization

In 24 months
Data visualization Simulations and scenario development Analytics applied within business processes Regression analysis, discrete choice modeling, and mathematical optimization Historic trend analysis and forecasting Clustering and segmentation Standardized reporting

Increased or sustained value Decreased in value

Source: Analytics: The New Path to Value, a joint MIT Sloan Management Review and IBM Institute of Business Value study. Copyright Massachusetts Institute of Technology 2010.

2011 IBM Corporation

IBM Institute for Business Value

What is the path to value?

The New Path to Value

2011 IBM Corporation

New path to value is a five-point approach to operationalizing analytics

Recommendation 5: Recommendation 1:

Use an information agenda to plan for the future

Focus on the biggest and highest value opportunities

Recommendation 4:

Recommendation 2:

Keep existing capabilities while adding new ones

Recommendation 3:

Within each opportunity, start with questions, not data Embed insights to drive actions and deliver value

Source: Analytics: The New Path to Value, a joint MIT Sloan Management Review and IBM Institute of Business Value study. Copyright Massachusetts Institute of Technology 2010.

2011 IBM Corporation

Excite the organization, rally top talent and garner support

Big change requires a powerful spark

Big challenges do NOT equal big risks Focus on the biggest and highest value opportunities

Adopt a rigorous operational approach

Primary obstacles to widespread analytic adoption

Organizational Data Financial

Source: Analytics: The New Path to Value, a joint MIT Sloan Management Review and IBM Institute of Business Value study. Copyright Massachusetts Institute of Technology 2010.

2011 IBM Corporation

How to get started Pick your spot

Biggest and highest value opportunity

Prove the value

Start with questions Embed insights

Continuous Value Delivery

Add capabilities Information agenda

IBM can help Business Analytics and Optimization Jumpstart

Source: Analytics: The New Path to Value, a joint MIT Sloan Management Review and IBM Institute of Business Value study. Copyright Massachusetts Institute of Technology 2010.

2011 IBM Corporation

The Smarter Integrated Supply Chain

A new role for Business Analytics and Optimization

2011 IBM Corporation

How IBM Supply Chain uses analytics to drive Business Insights

Driven by information deluge and data availability; opportunity to gain and act on Business Insights Key Enabler to our goal to become the Smartest Supply Chain in the World We are also actively collaborating with Analytics teams across IBM Watson Research, Software Group, Global Business Consulting
Models

Analytic s
Data

Insight From Sense & Respond to Predict & Act

Optimized Business Competitive Advantage

Act
Sense Predict
Cut Costs Reduce Risk Increase Profit

& Respond

Predictive Analytics Analyzes patterns in data to predict potential future outcomes

2011 IBM Corporation

Increasing the organizations level of analytical sophistication allows an organization to build breakaway capability
Stochastic Optimization Optimization How can we achieve the best outcome including the effects of variability? How can we achieve the best outcome? What will happen next if ? What if these trends continue?

Prescriptive

Competitive Advantage

Predictive modeling Forecasting Simulation Alerts Query/drill down Ad hoc reporting Standard Reporting

Predictive
What could happen. ? What actions are needed? What exactly is the problem? How many, how often, where? What happened?

Descriptive

Degree of Complexity
Based on: Competing on Analytics, Davenport and Harris, 2007
2011 IBM Corporation

Case Study: IBM Buy Analysis Tool (iBAT)

A channel collaboration solution for IBM's extended server supply chain, featuring a non-linear inventory model for optimized replenishment decisions under price protection. Deployed with IBMs largest channel partners across the United States, Canada and Europe

Business savings: Total channel inventory Aged inventory (>45 days) Promotion and price protection payments
2011 IBM Corporation

Case Study: Early Warning System

Early identification of emerging quality issues using analytics and cutting edge statistical methods developed by IBM Watson Research Automated warning to allow for rapid inventory containment and corrective action

Visibility: we will see without being there .. predict future defect trends 30 weeks before any quality incident occurs, saving IBM and its core suppliers 7 weeks of defect containment effort.

2011 IBM Corporation

Case Study: Green Sigma TM

Green Sigma leverages the content of Lean and Six Sigma tailored to achieve specific environmental and business goals, resulting in improved ROI Green Sigma analytics move facilities from a passive state to a more proactive state, and help the end user seek out the obvious and observe the unseen
Strategy

Customer and product

Supply Chain

People

IT

Property

Information

Annual Savings Reduction of water usage Increase in mfg production Positive impact on the environment Packaging material reduction Green Sigma dashboard savings on this single Green SigmaTM pilot project Source and volume reduction

2011 IBM Corporation

A Path Forward
A critical success factor moving forward is to leverage and integrate these capabilities and infrastructure into the Smarter Supply Chain Smarter Supply Chain
Business Results Network of Talents

We will do more with less

We will see without being there

We will solve problems before there is a problem

We will know the customer as well as we know ourselves We will globally exploit opportunities, build future capabilities, and transform economies

Analytics Leadership

Established Foundation

2011 IBM Corporation

For more information

Patrice Knight Vice President Global Supply Global Operations IBM Integrated Supply Chain knighp@us.ibm.com 845-894-5225 (office)

2011 IBM Corporation