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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 .

includes addressable Hardware.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. CGRs 2009-2012 © 2011 IBM Corporation . Software and Services opportunity.

April 2009. 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.ibm.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.com/gbs/intelligent-enterprise © 2011 IBM Corporation . www.

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. a joint MIT Sloan Management Review and IBM Institute for Business Value study (c) Massachusetts Institute of Technology © 2011 IBM Corporation . 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.

© 2011 IBM Corporation . Copyright © Massachusetts Institute of Technology 2010. a joint MIT Sloan Management Review and IBM Institute of Business Value study. not data or financial concerns.Organizational obstacles. 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.

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. a joint MIT Sloan Management Review and IBM Institute of Business Value study. and mathematical optimization In 24 months Data visualization Simulations and scenario development Analytics applied within business processes Regression analysis. 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. © 2011 IBM Corporation . discrete choice modeling. Copyright © Massachusetts Institute of Technology 2010. discrete choice modeling.

IBM Institute for Business Value + What is the path to value? The New Path to Value © 2011 IBM Corporation .

a joint MIT Sloan Management Review and IBM Institute of Business Value study. start with questions. not data Embed insights to drive actions and deliver value Source: Analytics: The New Path to Value.“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. © 2011 IBM Corporation . Copyright © Massachusetts Institute of Technology 2010.

Excite the organization. Copyright © Massachusetts Institute of Technology 2010. a joint MIT Sloan Management Review and IBM Institute of Business Value study. © 2011 IBM Corporation . 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.

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.

The Smarter Integrated Supply Chain A new role for Business Analytics and Optimization © 2011 IBM Corporation .

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 .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.

where? What happened? Descriptive Degree of Complexity Based on: Competing on Analytics. how often.Increasing the organization’s 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…. Davenport and Harris. ? What actions are needed? What exactly is the problem? How many. 2007 © 2011 IBM Corporation .

Case Study: IBM Buy Analysis Tool (iBAT) A channel collaboration solution for IBM's extended server supply chain. Deployed with IBM’s largest channel partners across the United States. featuring a non-linear inventory model for optimized replenishment decisions under price protection. 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 “…. saving IBM and its core suppliers 7 weeks of defect containment effort. predict future defect trends 30 weeks before any quality incident occurs..” © 2011 IBM Corporation .

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 .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 transform economies Analytics Leadership Established Foundation © 2011 IBM Corporation . build future capabilities.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.

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 .