IBM Company Supply Chain

Background: In early 1990’s, IBM PC Company in Europe faced a number of challenges, such as frequent price cuts, rapid customer order response times, and a steady arrival of new products and features, by increasingly agile and aggressive competitors, which were eroding IBM's market share. Also, poor forecasting caused critical shortages of popular products and excess supplies of others.

• Primary Goals: Reduce Operational Costs
• Increase Customer Responsiveness

The purpose of the modeling and simulation study was to evaluate various demand and supply planning alternatives and analyze the impact on inventory costs and customer service levels. The alternatives evaluated were: 1) Build-to-Order, 2) Local Customization, and Build-to-Plan

Solution: Using SIMPROCESS products and support, the IBM analysts developed a supply chain simulation model that allowed detailed modeling of various business processes of a manufacturing and distribution supply chain. The team defined the supply chain in terms of seven major process objects:

• Customer
• Manufacturing
• Distribution
• Transportation
• Inventory Planning
• Forecasting
• Supply Planning

Creating a model of the European PC operations was then a matter of integrating these objects into a network that represented all the relevant business processes and their interactions. The next step was to collect appropriate data that would drive the simulation. Once the model was validated, a number of experiments were performed to evaluate alternatives under different market scenarios.

To analyze the output of the simulation model, statistics were collected on the following performance measures:

• Cycle time
• Serviceability
• Shipments
• Inventory
• Fill Rate
• Stockout Rate
• Resource Costs and Utilization

Results:

• Reduced Distribution Costs by 40 Million per year
• Improved Customer Service Level

Ultimately, the simulation analysis led to significant changes in both manufacturing and distribution, including the following:

• Adoption of a build-to-order (BTO) manufacturing strategy
• Direct-ship distribution process that bypassed costly country distribution centers
• Rejection of a popular idea that proved to be cost-inefficient, which is the introduction of a new late-customization (LC) assembly plant on the European continent.

Demonstration Model

In order to view the demonstration model you must have SIMPROCESS installed on your computer and you must have a license. If you don’t have SIMPROCESS you may download a trial version.

You must save the demo model file by RIGHT CLICKING on the file below and select "Save Target As". Save the file to your computer. After you launch SIMPROCESS select File and Open. Then navigate to where you saved the demo file and select to open it.

IBM - Supply Chain Demonstration Model file (Supply.spm)

Additional demonstration models are stored on your computer in the default location: C:\ProgramFiles\SIMPROCESS\models\Demos

View the IBM Supply Chain Demonstration Model with your web browser.

Supply Chain Model Description:

For an industrial enterprise, one of key business processes is the supply chain process. The primary goals of supply chain management are to maintain high service levels while minimizing costs. The key problem in supply chain management is how to balance inventory. Variability in demand and process times, complexity of the supply chain objects, and system dynamics create uncertainty that can only be modeled and analyzed with a tool like SIMPROCESS.

This demonstration model represents a typical supply chain for an industrial enterprise with 4 factories, 3 suppliers, and 4 customers (distributors) in the United States. This high level model of the supply chain demonstrates how SIMPROCESS can help define the major processes, resources, and entities involved in providing products to customers. The model also demonstrate the power of the hierarchical simulation capability of SIMPROCESS. To view the power of hierarchical modeling, drill down into the West Coast factory (F1). Below is a brief description of the model elements.

Customers

Customers demand products from the factories. The customer process defines the frequency and quantity of demand from the factories.

Suppliers

Suppliers supply raw materials (supplies or components) to the factories. Each supplier produces different types of raw materials and ships to each factory.

Factories

Factories assemble the components, package the goods (inventory) and ship them to customers. A factory typically ships to customers in its geographic region. For example, the west coast factory receives 80 percent of its orders from the west coast customer and 20 percent of its orders from the southwest customer.

Such a model of a supply chain can be enhanced to answer questions such as:

• What if the demand for certain products from the east coast supplier doubles?
• What if the west coast supplier is having manufacturing problems with a product line?
• What if we use alternative transportation carriers to deliver products to customers?
• What if we outsource the assembly process?