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Supply Chain Frontiers issue #6. Read all articles in this issue. 

The recent decision by IBM to exit the PC business it pioneered is an industry milestone, but that is only half the story. The $1.75 billion sale of IBM's PC hardware division to Chinese computer manufacturer Lenovo Group Ltd. brings Big Blue one step closer to a very ambitious goal: the creation of what it calls an "on demand business" driven by a mix of products and services and with a new breed of supply chain at its core: one as efficient in deploying people as assets.

Bob Moffat, IBM's senior vice president, Integrated Supply Chain, will explain the company's strategy at the CTL symposium "At the Crossroads of Supply Chain and Strategy", March 1, 2005 at MIT (see Update item below). The symposium will launch Supply Chain Strategy, a new monthly newsletter produced jointly by the MIT Center for Transportation & Logistics and Harvard Business School Publishing--the first publishing venture between the two organizations. SCS will help enterprises to bridge the gap between supply chain and corporate strategy, and Moffat will be joined by thought leaders from C&S Wholesaler Grocers, MIT, Procter & Gamble, and Reebok at the Crossroads event to explore this vital connection.

IBM has positioned its supply chain at the core of its corporate strategy. Now the company is adapting the supply chain principles that shaped its traditional, asset-based business, to the services-oriented enterprise the organization is becoming. In 1999 software and services accounted for 54% of IBM's revenue, hardware about 40%; the most recent figures, which are pre-Lenovo, were about 64% and 32% respectively. The company's 2004 fourth-quarter performance reflects this change. Revenues from Global Services increased 10 percent to $12.6 billion. Big Blue signed services contracts totaling $12.7 billion and ended the fourth quarter with an estimated services backlog of $111 billion.

IBM is not alone in recognizing the potential of services. In a world where products can be replicated globally with relative ease and cranked out by low-cost manufacturing operations, services and customization offer fresh profit-making opportunities.

The shift poses major challenges for supply chain managers, since a services-based business model requires different capabilities. At IBM "the thing we are emphasizing is more business skills," Moffat said. Enhancing general business expertise will not only make supply chain executives better people managers, it will make it easier for them to take a seat at the senior executive table, he believes. And - with the increasing importance of aligning the supply chain to corporate strategy - Moffat has no doubt that companies need them at the table.

But are senior supply chain managers ready to migrate upwards into the higher reaches of corporate management? In Moffat's experience some are, indeed, they relish the prospect. Others, however, are intimidated. "They've read the books very well, they can talk the theory, but they can't go into the boardroom and talk about it," he said. Nor can they argue a convincing business case for radical change. Moreover, these individuals will probably find it difficult to motivate people to take the bold steps needed to execute an innovative supply chain strategy. "You've got to do both," Moffat asserted.

Still, he is optimistic that the profession is moving in the right direction, partly because senior executives are nudging it up the decision-making ladder. "I've probably talked to 200 CEOs and COOs of major corporations within the last 12 months, and they are all going to pull it this way," he said. For these "C" level execs the challenge is "figuring out how best to do it in their organization," said Moffat.

The full article about IBM's strategy for developing a people-focused supply chain can be found in the March, 2005 issue of Supply Chain Strategy. For more information about this new monthly newsletter from CTL and Harvard Business School Publishing go here.

To register for the "At the Crossroads of Supply Chain and Strategy" symposium, March 1, 2005 at MIT, contact Nancy Martin at nlmartin@mit.edu.