IBM Supply Chain

How IBM Put Bratislava on the Supply Chain Map

By Eva Megova -- Supply Chain Management Review, 9/1/2008

Back in 2000, IBM needed to restructure a scattershot (disperso) supply chain. The company planned to rein (frenar) in roughly 30 different independent supply chain operations worldwide, replacing them with a smaller number of key centralized units. For one of these centralized operations, customer fulfillment (satisfacción), IBM believed it had the perfect albeit (aunque) unlikely location in Bratislava, Slovakia.

What did IBM know that no one else did back then to take the financial risk to move to this small country in Eastern Europe, of all places? Prior to the company's arrival, the corporate world had thought little about Slovakia and much of the part of Europe that was once behind the Iron Curtain. 1. Apostar a

But IBM smelled an opportunity. And in just eight years the company has not only succeeded in totally revamping its supply chain, but it has acted as a trailblazer for other corporate investment both in Slovakia and the region in general.

This article describes how IBM did it, including testimonials from leaders and the operation's first employees who were in Bratislava from the start. The article also shows how IBM's efforts helped lead to economic development in a part of the world that sorely needed it.

New Century, New Challenges

After surviving a near collapse in the early 1990s, IBM was back in the black by the end of the decade. By 2000, CEO Lou Gerstner was taking the company's sales momentum to all parts of the business. That included the supply chain, which at its core was in dire need of revitalization and restructuring.

Until the reorganization, IBM didn't have one supply chain. It had roughly 165 different operations of varying complexity, one for each of the countries the company did business with around the world. This could not continue if the company was to remain competitive.

In the restructuring process, all of the formerly local supply chains were eliminated, in favor of one globally integrated supply chain with centralized offices, or “centers of excellence”, around the world. Each of these centers handles key supply chain functions for multiple countries. Some functions, such as logistics, were completely outsourced. Some functions were transferred to multiple hubs. For example, all $40 billion of IBM's procurement spend is now handled by three offices, in Bangalore, India, Budapest, Hungary, and Shenzhen, China.

IBM chose to consolidate most of its worldwide customer fulfillment functions in Bratislava. Today, the office handles fulfillment needs for the Americas, parts of Asia, the Middle East, and most of Europe.

The philosophy underpinning this restructuring was simple: a supply chain is greater than the sum of its parts. If successful, it would transform IBM's supply chain into a powerful global force that would drive efficiency, make life easier for the company's clients, and improve their satisfaction with IBM as a strategic partner. IBM believed that if the company could achieve this level of integration, it would grow revenue while squeezing unnecessary cost and expense out of the system.

Of course, this meant dramatically improving operations. But it was also about making IBM's supply chain accountable to the business by applying a fundamentally different set of expectations of the benefits the supply chain would deliver. “We wanted the entire fulfillment organization all in one place, serving an entire region, with common processes and systems,” says Karl Machacek, who at the time ran customer fulfillment in Vienna. “The benefits would be several fold, including gains in productivity, efficiency and quality.”

The message was clear: IBM wanted to preserve and strengthen functional excellence, while creating the capability to see, understand and leverage the interdependencies across the entire chain.

Why Bratislava?

The decision to look at alternative locations to centralize key activities of the supply chain, including customer fulfillment, was made in the company's Central Europe, Middle East, Africa (CEMA) organization, spearheaded by IBM's regional executive Carlos Da Silva. “One of the key demands for corporate real estate decision makers is airport proximity and it came to me that Bratislava was certainly close to the airport,” DaSilva recalls.

In addition to that advantage, according to all of the data IBM had, Slovakia was also a serious candidate for the next wave of European Union integration. This, in turn, would lead to another important criterion—funding for infrastructure improvements. Many were also predicting that the so-called Schengen Agreement would be a reality in the not too distant future after EU integration. This agreement would allow citizens of certain European Union countries to move freely across borders without visas or passports for leisure activities, and more importantly for employment.

While IBM has had a sales presence in Slovakia since it became a separate country in 1993, moving supply chain operations there on such a grand scale still seemed a bit risky at the time. DaSilva recounts his early impressions: “I went to Bratislava before we made the final decision multiple times. I saw a vibrant young city looking forward to the future and the challenges that lie ahead. I met many youngsters who eagerly transmitted their enthusiasm to me and I was sold. Shortly after, I was meeting with the local government officials who welcomed us with open arms and several months later I was presented with a key to the city.”

Prior to the Bratislava move, democracy in Central and Eastern Europe was in its infancy and the political framework was uncertain, making markets in that region unstable and unattractive. While the European Union was still digesting the integration of Austria, Finland and Sweden in 1995, there was great hope in Europe, particularly in the East, that Austria would be the catalyst accelerating the development of the political, democratic and economic framework of Eastern Europe.

Before the fall of communism in 1989 and the split of Czechoslovakia in 1993, Slovakia didn't exist. So while Slovakia and the capital city of Bratislava have certainly been attractive for foreign investors lately, it wasn't until 1999-2000 that businesses could consider the country as a potential location. It was at this time IBM began discussions with local government officials and became interested in the city for its economics, location and talent.

To cite one fiscal advantage, the city's public officials had implemented a flat corporate tax and income tax policy that leveled out at 19 percent. In addition, foreign enterprises were allowed to easily form a subsidiary or a branch by the parent company with limited liabilities, which wasn't the norm in the region at the time. In the mid-90s Bratislava also committed to invest heavily in both telecommunications and mass transit infrastructure. With its membership in the European Union as of 2004, this spending has increased several fold.

Bratislava's geographic location also made it a leading contender. In fact, that's what first caught Da Silva's eye. “The city center is only 5 miles by car to the airport making it very easy for employees to travel and for clients to visit,” he says. “This will save time and travel costs.”

Historically, the city has been an influenced by various ethnic groups, including Germans, Slovaks, Hungarians, and Jews. This, combined with the presence of neighboring countries such as Austria, Poland, Hungary, Czech Republic, and Ukraine gives businesses diversity—and when you need to support dozens of languages from one location, diversity is king. For example, IBM can offer global support to IBM sales reps and to business partners in 24 different languages. Without these language skills, Bratislava wouldn't have been as attractive.

But by far the biggest draw for the city was its wealth and variety of talent. Not only do the people speak multiple languages, they also have a well-rounded education. The population of Bratislava is roughly 430,000. Of that total, nearly 60,000 are students. This makes for a steady stream of skills, particularly in IT, economics and accounting. Currently at the Bratislava operation, more than 80 percent of the employees have advanced college degrees, and speaking four languages is not uncommon.

Let the Hiring Begin

Once the decision was made to proceed with the operation at Bratislava, Karl Machacek and the author were put in charge of hiring to open the center. The hiring process focused on three customer fulfillment disciplines: order center operations, business partner sales, and accounts receivable. IBM posted internal job listings on its intranet, hired headhunters and placed advertisements in local newspapers.

Machacek, who becomes somewhat emotional when thinking back to those early days, comments, “It was a really amazing time, mostly because I didn't know what to expect. Here I was, a customer fulfillment veteran playing the role of CEO in creating a brand new office for IBM.”

The most important skills Machacek was looking for at the time were the ability to work under pressure and teamwork. “I didn't want any soloists, that was number one,” he recalls. “And second, they needed to be able to stay professional when a sales person calls up and starts shouting about a delay in a client's order.” Screeners tested candidates on the spot with several scenarios and everyone passed.

One of the initial applicants was Sylvia Scheerova, who at the time was working for Ernst & Young.

...