IBM is moving one of its supply chain applications over to an electronics-industry trading hub in a move designed to wring some costs out of its hardware business.
The company announced Monday that it will begin using a supply chain collaboration service offered by E2open, a business-to-business network through which electronics manufacturers and their suppliers share production information. The changes are designed to help IBM save money and lower the cost of its hardware products, the company said.
By midyear, Big Blue plans to convert its internal system for gaining suppliers' commitments to fulfill IBM's incoming orders to the E2open Multi-Company Process Management hosted application, said Kevin O'Connell, IBM's director of manufacturing and procurement processes.
The shift will affect all of IBM's hardware purchases, which number 2 billion pieces of equipment per year, and about 85 percent of the company's suppliers. The company would not put an exact figure on the savings, but said the E2open hosted service will cost less than operating IBM's existing system for sharing data with its suppliers.
"We do expect to get benefits in both the short term and the long term," O'Connell said.
On top of IBM's savings, the company said, its suppliers will not need to invest in supply chain applications that connect to only one business partner. E2open will act as a central hub for IBM's suppliers to exchange information and view incoming orders.
"We expect see improvements in cycle time, reduced inventory and fewer liabilities for both us and our suppliers," O'Connell said. He added that Big Blue will consider dropping other internal supply chain applications in favor of E2open's hosted services in the future.
The participation in the E2open trading network is part of IBM's multiyear effort to revamp its internal processes to be more efficient and flexible. In 2003, IBM said that it managed to cut out $7 billion in expenses across its supply chain, which included transactions across all its suppliers and different internal divisions.
IBM was one of the initial investors in E2open, a business-to-business network that uses industry standards, such as XML and Web services, to save money on electronic transactions among manufacturers. E2open has about 2,000 electronics companies, such as Seagate and Hitachi, connected in to its trading hub for different supply chain functions.
The addition of IBM's substantial market weight to the E2open network will help encourage other companies to use the electronic trading system, said Lorenzo Martinelli, executive vice president of E2open.