IBM is transforming its manufacturing into a leaner, more efficient operation. By using deep business analytics, simplifying its offerings and product development and implanting test clouds, the company is is cutting costs and getting products to market more quickly.

Ross Mauri is is IBM vice president, enterprise process transformation.

Cheaper, faster, better.

Those used to be the prevailing goals for most supply chain managers. But today, those objectives are only part of the equation. The supply chain of the future relies on new approaches that employ everything from sensor technologies to analytics, simulation and cloud computing to not just sense and respond, but to predict and act in ways that were never possible before.

Simply put, technology is giving supply chains the characteristics that enable them to work smarter. Information that used to be created by people is increasingly being machine-generated - flowing from sensors, RFID tags, meters, actuators, GPS and more. The result: inventory counts itself, containers detect their contents, and pallets report back if they end up in the wrong place.

The entire supply chain is becoming connected - not just customers, suppliers and IT systems, but also parts, products and other smart objects used to monitor the flow of goods and services. This connectivity will enable worldwide networks of supply chains to plan and make decisions together.

IBM is in the midst of revamping its supply chain as part of a business-wide transformation that began more than eight years ago. By thinking global scale and integrating previously discrete supply chain tasks, IBM reaped billions of dollars in annual cost savings over the past decade. But this next, smarter phase is not just focused on increasing efficiency and cutting costs, but also on producing growth for the company.

Our journey on the road to becoming smarter has forced us to critically examine how we have traditionally conducted our business. While this has not been easy, the results have been dramatic and worthwhile.

For example, success in using optimization software in manufacturing has enabled IBM to improve chip yields, detect problems before they emerge and optimize performance across our complex manufacturing operation. This has delivered some $32 million in savings while producing $21 million in annual revenue.

Smarter approaches are required to keep finding new sources of productivity improvement. This led us to redesign our hardware product management process to support profitable revenue growth by delivering less complex designs and a leaner menu of hardware offerings that clients value. By leveraging less complex designs, we can eliminate low performing technology, reduce supplier costs, and increase the use of preferred parts and the reuse of existing building blocks across hardware brands. We are taking an end-to-end approach to how we manage the hardware product design and development process. As a result, we reduced our hardware systems by 40% by simplifying offerings around those that provide customers with the greatest benefits. This is expected to yield hundreds of millions of dollars in savings through 2015.

Our product development and test cloud is helping to dramatically speed up a key step in how we get products to market. IBM developers now have a self-service computing environment to provision servers in just a few hours, a process that used to take five days. Over the next few months, we expect 80% of our product development and test activity will be supported in this cloud.

In addition, IBM’s Blue Insight Cloud – the world’s largest private cloud computing environment for business analytics – is helping us manage inventory and resource needs based on analysis of demand from our clients. Besides the new business opportunities it is generating from new and existing customers, Blue Insight is expected to deliver tens of millions of dollars in savings over five years.

The complexity of the global marketplace has created a new playing field for all businesses and their supply chains. Those organizations that embrace new thinking, smarter approaches and the new frontier created by emerging technologies like cloud and analytics will be the biggest winners.