Reinventing purchasing wins the Medal for BIG BLUE

In the future IBM will have a set of suppliers who have multiple component capacities up to the finished product level, says John Paterson, vice president production procurement and reengineering. IBM invests in emerging suppliers who have technologies that IBM will need in the future because 'we don't want to be Johnny-come-latelys knocking after they have sold their capacity,' says Andrew Winterbottom, vice president of components, packaging, and materials.

By James Carbone -- Purchasing, 9/16/1999

It's not a word often used to describe the supply management strategies and purchasing practices of large global manufacturers. But it aptly describes the changes that have occurred at IBM's purchasing organization under the direction of Gene Richter. And it aptly describes why International Business Machines Corporation is the 1999 winner of Purchasing Magazine's Medal of Professional Excellence.

IBM's transformation actually began the moment, several years ago, when top management realized it had to turn its long-practiced approach to supply upside down. Instead of doing nearly everything related to manufacturing internally, Big Blue's leaders decided the company needed to find outside companies that could help IBM maintain its leadership in global high-technology markets. They turned to a man well known for leadership excellence in purchasing and supply management: Richter, who was heading up purchasing at Hewlett-Packard at the time.

During his five years at IBM, Richter, Big Blue's chief procurement officer, has transformed IBM's purchasing from essentially a collection of divisional purchasing groups into a centralized structure that truly recognizes the importance of suppliers in keeping IBM a leader in the technology marketplace. He has set up a purchasing operation to support IBM's fast growing Global Services division, which provides expertise on information technology (IT) as well as hardware and software to IBM's corporate customers. He set up another office to track technology road maps of core suppliers and to develop promising new ones. And he made sure IBM was on the forefront of electronic commerce. While many OEMs are struggling to figure out how to use the Internet with suppliers, IBM will buy $12 billion worth of goods and services over the Internet this year.

Commodity councils that leverage IBM purchases worldwide have resulted in IBM sourcing parts at pricing that's 5%-10% below industry averages. By developing close relationships with suppliers, IBM has been successfully guaranteed supply of leading-edge parts to its line of PCs, servers, workstations, and mainframes. IBM's Internet initiative with suppliers saved the company $70 million last year and is expected to save $240 million this year by making the procurement process more efficient. The strategies employed have had a big impact on IBM, which last year spent about $41.5 billion with suppliers. IBM executives say procurement has saved Big Blue hundreds of million of dollars over the past several years and helped IBM return to profitability after some near-ruinous years earlier in the decade when it was bleeding red ink.

IBM's winning the Medal marks the third time that a purchasing organization headed by R. Gene Richter has won the award. Previously Hewlett-Packard and Black and Decker won the award with Richter at the helm.

Change was good

Major changes to IBM's purchasing organization and strategies were necessary because of fundamental changes in IBM's business model. Less than 10 years ago, IBM was a highly vertically integrated company that made most of its own components for its computers. For example, up to about four years ago, IBM used to build 100% of its printed circuit boards (PCBs). Now it makes only about 10% of its boards and those are leading-edge, complex PCBs. Big Blue used to make 85% of the memory chips used in its computers; today it's about 15%. Keyboards and power supplies were built in house in the past, now they are outsourced. IBM used to assemble all its own computers. Now contract manufacturers build most of them.

With the high degree of vertical integration, there was a great deal of secrecy. "There was also a feeling that everybody in the industry was trying to steal our technology and ideas, which was true 20 years ago," says Richter. "Everything at IBM was a secret. In procurement we were the guardians of confidential information, the guard at the door who didn't let any suppliers know anything. You couldn't have effective collaboration with suppliers because IBM didn't want suppliers to know what product their part was going to be used in. You couldn't develop volumes very well because the volumes planned were a secret. You couldn't say which plant would build the product that the part was going to be used in. Parts would be shipped to central locations like Kansas City or St. Louis, and then we shipped it from there so the supplier wouldn't know what plant it was going to," says Richter.

So what happened?

"What happened is we woke up. We realized that we couldn't be expert in everything," Richter says. IBM also realized that outside suppliers had technology that IBM needed, and that competitors were reducing their costs by outsourcing. While IBM could make many of its own critical components for IBM computers, so could other suppliers, often for less cost. So IBM began buying more from outside suppliers and outsourcing more. Consider: In 1986, 28% of IBM's revenue was spent with outside suppliers. In 1996, that percentage grew to 49%; in 1998, it was 51%.

"My boss likes to tell me I'm the biggest spender at IBM," Richter says with an easy smile. "Payroll is something like 26% of revenue; we (purchasing) are almost double that."

With a purchasing budget that was growing yearly as IBM began relying more on outside suppliers, there was a clear need to leverage purchases. To take advantage of IBM's huge purchasing volumes globally, Richter centralized IBM's purchases, setting up commodity councils to buy parts rather than having individual sites buy their own components. The councils combined the requirements of all the divisions and negotiated long-term contracts with suppliers, resulting in lower prices. It also resulted in a major reduction in IBM's supplier base, with accompanying cost savings. In 1993, IBM had about 4,900 production suppliers. Now about 85% of IBM's $17.1 billion in production purchases is with 50 suppliers.

IBM has 17 commodity councils for such items as dram, microprocessors, logic, passives, monitors, electronic card and test (board assembly) among others. "Their job is to network and do the total buy for everyone who uses the commodity," says Richter. "We have one global contract with a supplier," he says. So a logic chip supplier would supply logic to all IBM divisions. IBM will commit to buying a percentage of its component requirements from a supplier. "Or we might have a contract with Samsung that says we will buy at least 20% of our global memory chip requirements from Samsung. In return for that, Samsung will grant us discounts," he says. IBM has similar contracts with other dram manufacturers. "We try to make the percentage add up to less than 100% so we have some freedom," says Richter. The contracts are usually for three years with various reopeners for pricing issues.

That's a dramatic change for IBM because five to 10 years ago Big Blue had virtually no long-term agreements with suppliers. "Most of our commitments were for quantity," says Richter. "For instance, we would bid for 50,000 one-megabit (Mb) dram. It was a very tactical kind of a deal."

A lot of suppliers had an understanding that they would have a large share of IBM's business, but it wasn't a legal commitment. "It was tough for some suppliers because IBM can and did get mad at a supplier and throw them out on their ear. There was no contractual obligation to stay with them," he says. "We have tried to say to our buyers, 'sure you're going to have problems with a supplier. It's your job to fix the problem, not to throw the supplier out.'"

The commodity councils also are responsible for reducing the number of suppliers. That has been challenging because different IBM sites have had their favorite suppliers. Commodity councils are populated with buyers from various IBM facilities around the world.

"They have battles over narrowing the supply base," says Richter. "We may want to have three suppliers in the world for a given commodity. The question is always: which three?" In deciding, the council has to take into account technology, price, quality, and delivery. The weight of each criterion can vary depending on the commodity. "We have some things where price is 80% and everything else is 5%, or technology may be 80% and price is not important," says Richter. Decisions are reached by consensus. If a consensus cannot be reached it can be kicked upstairs to the Production Procurement Executive Council or General Procurement Executive Council, but this rarely happens.

Many of the commodity councils are buying production parts for IBM's facilities around the world. But they are also buying for IBM's contract manufacturers because IBM is outsourcing much of its manufacturing.

"Until the end of 1997, with few exceptions, we largely made all of our own PCs," says John Paterson, vice president, production procurement and reengineering. "Now we are outsourcing them. "And the company is outsourcing to the tune of $3-$3.5 billion per year to contract manufacturers. IBM also outsources notebook computers, lower-end servers and workstations, and mass-storage devices. IBM continues to build high-end products likes its System 390 enterprise server because it is a complex product that requires unique components and a sophisticated manufacturing process.

"Where we make a difference, we will build them ourselves," says Paterson. "Where we don't, we will buy them." IBM has reduced manufacturing costs by about 20% through outsourcing.

While IBM outsources manufacturing, it has kept control of the purchasing of components that its contract manufacturers use. Many high-tech manufacturers let CMs buy the parts for boards and systems that are outsourced. But IBM benchmarks prices for commodities and believes it gets lower prices than the industry average for many commodities. If it lost its leverage it would have to pay more for parts for the equipment it manufactures in house. It would also mean a higher cost for the parts that the contract manufacturers have to buy; that cost would get passed on to IBM.

"Our strategy is to continue to do the component sourcing and direct the contract manufacturers to the suppliers we want them to use," says Paterson. "However, the CMs don't have visibility of our price." Reason: IBM believes the prices it has negotiated with suppliers are significantly lower than what CMs may be paying for the same components. If pricing were known, IBM's CMs would press the supplier for similar prices, and IBM could lose price advantage.

"Last year the difference between the prices that we contracted the components for and prices that CMs were quoting us differed to the tune of $65 million," says Paterson. "By taking advantage of our prices we saved $65 million."

Purchasing's role in outsourcing varies. With PCBs the role is to manage the relationship with suppliers. However, when IBM decides to outsource a product it has never outsourced before, procurement is part of a team along with product development and manufacturing that evaluates and selects contract manufacturers. "Once the sourcing decision is made, then it is a procurement responsibility to manage that relationship," says Paterson.

While IBM used to manufacture all of its own products, it also used to make many of its own semiconductors such as microprocessors, memory and logic, as well as disk drives that went into those products. The chips were made by IBM's Microelectronics division; drives were made by the Mass Storage Division. Today, those divisions supply a portion of IBM's component and drive requirements.

"Microelectronics and the storage division have no God-given right to be our source of supply," says Paterson. "We use the same process in deciding whether to use them or an external supplier." That means, just like external suppliers, they have to meet or exceed IBM's cost, quality, technology, and delivery targets.

"I happen to believe that over the past five years, we have helped them (microelectronics and mass storage) to be competitive. Prior to that they were the de facto source," says Paterson. He says IBM's component business to external customers such as Dell, Compaq, and Gateway has grown from nothing to $6.5 billion.

"You cannot do that if you are not competitive," says Paterson. "I believe that we were instrumental in helping them get to that competitive position because they found out what it takes to compete on price and technology in the marketplace.

"Of course there have been a few disagreements with microelectronics," Paterson says with a smile. "They question whether we work for IBM or not, and we question their parenthood. But when they go to sell on the outside, what we ask of them is what the Compaqs and Dells expect."

While IBM is buying more from outside suppliers, its number of production suppliers is declining, says Paterson. About 85% of IBM's spend is with about 50 suppliers.

"Beyond that core 50, we are significantly reducing the number of suppliers, largely because we went to the global commodity team structure five years ago." Example: IBM used to have a couple dozen mechanical and cable suppliers; now it has one for each commodity. The number of suppliers for a given commodity will vary, but it's not uncommon for IBM to have three to five, depending on the technology.

Through commodity councils, IBM has reduced its supplier base. Now the focus with IBM production procurement is developing "enterprise relationships" with suppliers. IBM has suppliers who supply multiple commodities such as memory and monitors. "We have managed these as individual purchases, but we want to develop an enterprise relationship with them. We think that will add a lot of value," says Paterson.

The idea is to manage the overall relationship that exists between IBM and the supplier that is providing multiple commodities. "We think that drives efficiencies for them and for us and also drives a level of certainty for them in terms of the kind of business overall they can expect from IBM over a period of time," he says.

It may also help IBM when a commodity becomes tight. "In some constrained situations, we have been able to get the division that is supplying commodity A to help with another division if we are having trouble with commodity B.

"As we look forward, the future for us consists of some set of suppliers that have multiple component capacities up to finished product level. That's what we need them to have," says Paterson. "It does influence how we source. All other things being equal, we would source with a supplier who has multiple capabilities and we tell them that."

A key capability for an IBM supplier is technology leadership. IBM purchasers look for suppliers who are going to be tomorrow's technology leaders. IBM checks out what is going on in a supplier's lab, says Richter. "Is the supplier going to be the first to be qualified on a 256-Mb dram or 1-gigabit dram, or the last? Does the supplier offer a full breadth of memory products or only one narrow niche? You try to evaluate who's going to be the leader in the next generation in new technology," says Richter.

Often councils look to Sang Park, vice president technology and qualification, global procurement. Park's office, which did not exist prior to 1994, evaluates the technology road maps of IBM's suppliers, comparing them to the technological direction that IBM is going. Park also identifies potential new suppliers and handles supplier qualification globally. (Park recently left IBM to be chief executive officer for a korean semiconductor company.)

Prior to 1994, supplier qualification was done by individual divisions. Park set up a companywide qualification plan. "We had to have the common criteria that we posed to the suppliers. That's the starting point where we dialogued with the suppliers," says Park. "We give meaningful feedback to suppliers so they know technically where we are. We compare where different suppliers are in terms of meeting specs. We do engineering evaluation, helping suppliers optimize their design."

The idea is to communicate the upcoming technical requirements with suppliers so that IBM is guaranteed a supply of the parts it needs. An example of this is the 128-Mb dram. A number of suppliers now make the 128-Mb dram. But the 128-Mb part is unusual because it is a half-generation part. (dram density increases by a factor of four. Most suppliers were to move from 64-Mb dram to 256-Mb parts.)

But IBM pushed for development of the 128-Mb device because of the requirements of its high-end servers. Park says that in 1996, IBM projected that its servers would need 100 megabytes of memory by the year 2000 because server customers always need more memory--it is critical to performance. "There was no way the 64-megabit dram could deliver that much memory because space in memory modules is limited in terms of how much memory we have per system, therefore we were looking at 256-Mb dram," says Park.

The problem was that process technology to make 256-megabit dram was not yet available. It would require less than .21 micron process technology, which became available just this year.

IBM researchers determined they could use a 128-Mb part and meet the memory requirements of its servers. The problem was no one planned to make 128-Mb parts. IBM worked with Toshiba, Samsung, and some other dram manufacturers and lobbied for the part explaining why it was necessary.

IBM worked with the suppliers on the technical issues and the part is in production.

Park says IBM frequently has "brainstorming" sessions with suppliers to communicate IBM's future technical needs and to listen to what the supplier there has to say about those requirements. "Typically we have our systems development people go through and say why we need such a density or a certain memory architecture like DDR (double data rate) or if we want to increase the speed of a part by 20%. What options are there? Some of the options are developing emerging suppliers.

Park's group is not just involved with semiconductor suppliers. It also works with connector manufacturers. Earlier this year, IBM was working with a major connector manufacturer on ways to reduce the thickness of gold plating and extend the life cycle of connectors, says Park. That will lower cost and improve reliability.

IBM also works with emerging suppliers who might provide IBM with a competitive edge in the future. Example: Taiwanese memory suppliers. IBM sees Taiwan as becoming a significant force in memory in the next several years. After all, geographical dominance in memory seems to shift every five years or so. U.S. semiconductor companies dominated the memory market in the 1970s. Then Japanese companies like NEC and Toshiba took it over in the 1980s. Samsung, Hyundai, and LG Semicon of Korea became the dominant players in the 1990s. IBM sees Taiwan as the next hot spot for memory and is working to develop and influence the technology of at least one Taiwanese company.

"We'll add a dram supplier in Taiwan," says Andrew Winterbottom, vice president components packaging and materials. He oversees the purchase of semiconductors, passives, chip packaging, silicon wafers, and gases used in semiconductor production.

"We'll start them with a 64-Mb part and then push them to the forefront of technology. They are 12-18 months behind in terms of technology, as well as quality. We are giving them feedback where they are falling short. It's going to take a couple of years to bring them up to speed," he says. He says IBM provides chip design support as well as chip manufacturing expertise.

Winterbottom says Taiwanese suppliers will likely own the dram industry and "we don't want to be Johnny-come-latelys knocking on the door after they've sold their capacity and they have developed technologies that someone else needs. We are investing in them, bringing them to where they need to be late this year and the year 2000," he says.

By investing in them, IBM can help steer their technological direction. While the majority of the dram market is expected to use Rambus architecture, IBM will require some suppliers to make dram that use double data rate or synchlink architectures rather than Rambus. "We try to coach, cultivate, and develop them, give them feedback on their deficiencies. We have targeted them and are betting money in resources and time that they are going to be key suppliers to us in the year 2000 and 2001."

Winterbottom says Taiwanese suppliers are where Samsung was in 1988. "Samsung grew up in 1991-1993. Now they are the most formidable supplier," says Winterbottom. They are first with the technology and capacity. Samsung left to their own devices will try to leverage their position. We need to not become totally over reliant on them and we need to develop competition," he says. "That's what we are doing with Hyundai and LG and that's what we are doing with the Taiwanese. Samsung has grown up and can stand on its own two legs. We have invested a lot in them and got a lot of benefit from them, but we have to protect ourselves."

E-commerce is key

Being aligned with the right suppliers is crucial to IBM's future success, but so is the way that IBM does business with these suppliers. Right now about 90% of IBM's purchasing transactions are handled by electronic data interchange (EDI). But IBM expects to be doing electronic commerce with its suppliers over the Internet. It expects to have 80% of its suppliers Internet-enabled to handle e-commerce transactions by the end of the year.

"I've been in procurement 38 years and it drives me insane when I think how hard it was to go to EDI," says Richter. "It was a real battle. Suppliers didn't understand it; we didn't have common systems, common formats, and the whole industry had to standardize. It was a painful, difficult thing to do. The Internet is so easy. It's technically a no-brainer," he says.

The Internet is important to IBM as a procurement tool because it will automate the transactional part of purchasing and allow buyers to make better use of their time. "Of the 3,800 men and women in procurement globally, we are 70% tactical and 30% strategic with the way we spend our time," says Richter. "We think we can flip those percentages through e-commerce just because of the simplicity of the tool. It's going to make an enormous difference to IBM's bottom line."

He says most suppliers like e-commerce. Only those suppliers who are still doing paper POs aren't comfortable with the idea of using the Internet for purchasing transactions. But it's easy to convince them it's a good idea. "Initially they balk at the idea, but when they hear all they need is a PC and a browser, they come around," says Richter.

One of the biggest advantages of the Internet is that it saves procurement time. "The quotation process can be really painful," says Richter. "You send out an RFQ and something may not be clear. You either get funny quotes from $1.00 to $5,000 because people can't figure it out. Or you get, 'I need some more information before I can quote.' Then you have to give all suppliers the same new information," he says.

With the Internet, a buyer can just type in the new information and send it to everyone at the same time. "It's a big time saver. If you can cut the time out of the quotation process, then you get the purchase order sooner," says Richter.

Some buyers fear they will lose their jobs because of the efficiency of Internet buying. "If you want to look at the Internet as a head count reduction, you could, but we are not looking at it that way," says Richter. Rather, IBM views the Internet as a way to free buyers from the transactional part of purchasing, allowing them to work on more strategic issues to help IBM be more competitive. "We have shown in the past few years that if we can get the time and we can concentrate, we know how to save big--billions of bucks--and help IBM become much more competitive. If you're deep into paperwork, you can't do that," he says.

"The world is going to change enormously with e-procurement," says Richter. "It's a revolution. Paperwork has always been the Achilles heel of the procurement function. Suddenly, we are going to jettison all that and we are going to be able to do our job more strategically. That's a revolutionary change."

The purchaser entrusted with carrying out the revolutionary change is Patrice Knight . She would seem to have what would appear to be an impossible mission. By the end of the year, Knight, director of e-procurement and reengineering, and her staff are working to get IBM's 10,000 suppliers Internet-capable so they can handle purchase orders, invoices, and other transactions over the World Wide Web.

"It's a huge ramp," says Knight. "We want to conduct the procurement process via the Internet. We're trying to position the Internet as the next stage of procurement reengineering," she says. "It's the next logical step."

Suppliers have been told that doing business with IBM via the Internet is a requirement, not an option. However, IBM is working closely with suppliers, especially medium and small suppliers, offering them advice and technical services on implementing electronic commerce. "We have implementation managers throughout the world with schedules of times when suppliers are to become e-commerce enabled," she says.

The move is being undertaken because IBM wants to save several hundreds of millions of dollars by moving purchasing transactions to the Internet. IBM began its Internet initiative last year. By the end of the year it was buying about $1.8 billion worth of goods and services from suppliers over the Web and saved $70 million. This year it expects to have most of its suppliers on the Internet and expects to save a whopping $240 million.

"Through our Web investment we want to reduce procurement expense and lower the cost of what we buy," says Knight. She says the Web can be instrumental in finding new sources of supply and for finding data that can help IBM buyers when they are negotiating.

IBM initially wants to send purchase orders to suppliers and receive invoices from them. But the goal is to put all purchasing transactions on the Internet, automate all purchasing transactions, and eliminate paperwork. "E-commerce is paper-free," says Knight. "There are no paper invoices. No faxes."

Theresa Metty, vice president of global customer solutions and general procurement, says e-procurement will make MRO buying more efficient. "We are putting as much stuff as possible on the Internet and keeping buyers out of it," she says. "We are putting them on finding the next opportunity to reduce cost."

While POs and invoices are the first transactions to go on the Internet, others that will follow include forecasts, ship notices, and quoting. "We are reengineering our process on quoting and bidding so that in commodities where it makes sense we can actually open up to potential suppliers," says Knight. "That will take buyers out of the administrative loop of quoting."

Many large suppliers are doing electronic data interchange (EDI) systems that use value-added networks (VANs) with IBM today. That will continue for awhile, but eventually the Internet will supplant EDI.

"The reason you have VANs today is system-to-system integration," says Knight. "Technology on the Web today does not have back-end integration, so if someone moves all of their transactions to the Web today he may lose something in high volumes. But when XML (extensible markup language) technology creates the back-end integration, you would do that and take the value-added network out of it," she says.

There is more to IBM's Internet initiative than purchasing transactions. While it may save million of dollars, it also will be an essential tool to manage and communicate with suppliers, says Paterson, IBM's production procurement chief. "I believe that the Web creates the platform upon which these truly strategic relationships can be built," he says. "It takes a lot of effort and energy to have a meaningful strategic relationship with suppliers 12,000 miles away."

Paterson says the Web can create a "virtual organization" linking IBM engineers with suppliers' engineers and IBM buyers with suppliers' logistics people. "You can have simultaneously running on the Web a video conferencing session, while exchanging data and engineering drawings," says Paterson. "This is the future and there is no other way. It's absolutely where we are heading as fast as we can possibly go."

He says the Internet is a much more useful tool and a lot easier to implement and use than EDI. "I remember the trauma of getting suppliers on to EDI. It was a big deal and involved a lot of investment in time, money, and skills. And the running costs are high," says Paterson. "We put suppliers on the Web on an hour's notice with EDI transactions. It's simple."

Paterson says there was some resistance from smaller suppliers who had never had any experience with EDI. "But when we discuss the benefits with them, they sign on to it." Suppliers benefit the same way as IBM does--using the Web cuts their procurement costs and improves productivity, says Paterson.

A different kind of procurement

Another innovative change at IBM is the creation of Customer Solutions Procurement, an organization with about 200 buyers that was formed to support IBM's Global Services division. Customer Solutions Procurement provides IT solutions for corporate customers. Last year Global Services did about $29 billion of business, and its business is growing about 20% per year.

The idea of Global Services is to provide one-stop shopping for a company buying IT. The company hires IBM to determine its corporate computing needs. The customer may need a few thousand PCs, software, several hundred printers, someone to install the equipment, and computer programmers.

The customers may buy IBM computers but want Hewlett-Packard printers and Microsoft software. Customer Solutions Procurement buyers will buy the printers and software and hire the installers and the programmers on behalf of the customer.

"This is a different type of procurement," says Richter. Most procurement people buy for an internal customer or buy parts that go into end equipment. "This is unique because we specify and buy, but it's delivered to the customer. Or we hire temporary help to show up at the customer's doorstep to install equipment or to train people how to use it," he says. It's also different because they work with IBM's marketing people even before a sale has been finalized.

"We have buyers working on proposals together with the marketing team," says Linda Cantwell, director customer solutions procurement. They are involved early because they need to understand what the marketing team is selling to the customer and what the customer's requirements are.

"We need to be involved early enough to understand the content of the solution so we have influence over which suppliers are used," Cantwell says. "We want to drive as much as possible to our pre-negotiated leveraged contracts that we have with suppliers."

IBM has such contracts for much of the equipment it buys, including workstations, servers, peripherals, software cabling equipment, and telecommunications equipment. Sometimes a customer may have somewhat unique requirements. A school system buying computers and software may also need some special audio-visual equipment, for example. "We'll buy that, too," says Cantwell.

Cantwell says customer solutions procurement buying is dramatically different than production buying. "Production buying is more stable in terms of how requirements come into the procurement organization, how procurement does its strategy and planning. If we get a major new contract in global services, it can require seven or eight procurement people to work on that proposal immediately," she says.

Buyers involved in the proposal stage tend to go from deal to deal. Once the deal is done, a purchasing transition team takes over and executes purchase orders and makes sure the customer gets the equipment and services.

The skills that a customer solutions procurement buyer needs are often different than a production or general procurement buyer. Some buyers are hired out of marketing and then trained in procurement. "Marketing people often have field contacts and credibility working with a client," says Cantwell.

Customer solutions procurement, commodity councils, supplier development, e-commerce--all have had a big impact on IBM's purchasing. "Procurement is now a lot more important to IBM than it used to be," says Richter. "Ten years ago when we were vertically integrated, procurement was not mission critical. We were doing tactical buying. Today, procurement is strategic to the company. We went from being guardians of secret information to facilitators of communication between IBM's manufacturing and engineering people and its suppliers," he says. "We have learned to communicate and team across divisions and we are much stronger. We truly have come a long way."