I don’t normally comment on customer wins, but the recent news of Geodis “acquiring IBM’s global logistics flow management platform” warrants some attention because this announcement could be viewed as a new strategy in logistics outsourcing. For the past couple of years, I’ve been saying that the business models of logistics service providers, technology companies, and consultants are starting to converge. I’ve highlighted, for example, how i2 Technologies, LeanLogistics, and Transplace have effectively combined technology with managed services to differentiate themselves in the marketplace. This deal between Geodis and IBM is yet another validation point, albeit a different one from the examples I’ve discussed in the past.
IBM has been promoting its supply chain and logistics expertise for several years. The quick back story: IBM spent several years transforming its internal supply chain and logistics organization during the 90s. In 2003 IBM formed a single strategic business unit, Integrated Supply Chain (ISC), to drive operational excellence in supply chain management across the entire company. Today, ISC has about 15,000 employees in more than 50 countries, and it manages over $45 billion in spending. According to IBM, this supply chain transformation has saved them over $20 billion in the last three years.
And it’s this success that IBM points to when positioning its Supply Chain Business Process Outsourcing services to clients. But what impact will the Geodis deal have on IBM’s BPO offering in SCM? This was the first question that popped into my head when I read the press release. The second question: what prompted IBM to make this move? Last Friday, I spoke with Gary Smith, VP of Global Logistics at IBM’s Integrated Supply Chain, to get some answers.
The reason why IBM decided to outsource is not a big surprise. IBM asked itself a basic question: Is logistics an area that we want to continue making strategic investments in? IBM decided that seeking a strategic logistics partner was the best approach. According to Smith, “If we continued within IBM, we weren’t going to make the necessary investments to take our capabilities to the next level. So we looked for an opportunity to marry the best of IBM’s supply chain expertise and capabilities with the best an LSP has to offer, and in the process create a new platform for growth and value for our clients.”
In many ways, Smith’s comments are no different than what I hear from other companies that decide to outsource: our plan is to focus on our “core competencies” and outsource everything else. What’s interesting in this case, however, is that logistics is a core competency for IBM; it’s just that the company has decided to invest its strategic dollars elsewhere. The intriguing part of Smith’s answer is how this deal creates a new platform for growth, which relates to my question about how this deal would impact their SCM BPO practice.
In a nutshell, the Geodis deal won’t change things much for IBM in the near term. The key areas where IBM has been the most successful with its SCM BPO practice are supply chain transformation, procurement services, and supply chain visibility. The company will continue to offer these services directly to clients moving forward. Telstra, a leading telecommunications company in Australia, is one of IBM’s best case studies in this area. But IBM didn’t gain much traction managing logistics operations on behalf of clients, the traditional role of a logistics service provider, and this is where Geodis comes in, and where the partnership potentially creates a new platform for growth.
In other words, Geodis could serve as a channel for IBM’s SCM BPO services, and IBM could serve as a channel for Geodis’ logistics services. From a client perspective, the story would go like this: IBM will help you with the strategic side of the equation (supply chain transformation, procurement, and IT), while Geodis will focus on the execution side (people, processes, and infrastructure) to drive supply chain operational excellence on a global basis. At least that’s the opportunity, as I see it, for IBM and Geodis.
This deal could be a new platform for growth for IBM, and it could motivate other companies (especially in this economic environment) to take similar action. Or it could be more of the same, just another large company outsourcing its global logistics operations to a “lead logistics provider.” Time will tell.
Finally, I asked Smith why they selected Geodis. His response included the usual factors: existing 10 year relationship with IBM, including as lead logistics provider in Europe; financial strength of the company (Geodis is the fourth largest LSP in Europe with €4.8 billion in revenue last year, and they are owned by France’s SNCF); and alignment of strategies. But Smith also mentioned that about seven years ago IBM and Geodis entered into a similar (albeit smaller) deal in Europe, where about 800 IBM employees were transferred to Geodis. This transaction was very successful, and virtually all of the transferred employees are still with Geodis today. And this was another important factor for IBM. One of IBM’s reasons for outsourcing was to provide its employees with a valuable and ongoing career path, which based on past experience, Geodis will provide. After all, it’s the talent and expertise of IBM’s supply chain and logistics employees that Geodis is primarily investing in, as the company seeks to strengthen its presence outside of Europe, particularly in North America and Asia.
So, what do you think? Is this deal between IBM and Geodis truly different? Will other companies take similar action? Is this a new strategy in logistics outsourcing?
