products, the value of the inventory plummeted. The "hot potato" was responsible. Who should
pay for the change in value? The distributor? IBM? The discussions were a barrier to growth.
Gaming behavior reigned. No trading partner wanted to be left holding inventory requiring a write-
off. To combat the problem of aging product, IBM price protected sales to the distribution channel
partners for 45 days. It helped, but when the price protection expired, distributors stopped buying.
To boost sales, IBM extended price protection. The company was in a crazy non-win cycle. To
remedy the situation, the Company would try to promote old inventory, only to get it back as a
return. The teams were spending millions to get the inventory out of the channel while the supply
chain pushed products into channel distribution.
At times, IBM would be running out of supply while writing-off inventory. The Company couldn't
seem to get it right. The distributors would have many weeks of sales, but it was the wrong stuff,
and the group would miss market opportunities. It was a constant struggle. The IBM research
team offered to study the situation and make
recommendations.
As a starting point, the IBM research team started with
channel data. The team ran a simple regression on the
channel information to better understand patterns and
determined the rates of sales per channel node based on
historical data. Their work evolved to include lead times
and seasonality, along with insights on the variability of
the product and how the product should sell. The iBAT system recommended supply level for
each distributor. The business partners liked that. They loved it so much that they used the
recommendation from iBAT to beat IBM over the head. Tension mounted between internal sales
teams and distributors to rationalize the channel inventory levels.
Changing Behavior After the implementation of iBAT, things got better. Customer service improved and the write-offs
were fewer. However, basic channel behaviors did not change. The business partners didn't want
to hold inventory, but the IBM salesforce would come in at the end of the quarter and ask the
distributor to load up their warehouses. IBM would always give them an incentive to pre-buy. The
business partners bought on incentives, and then the inventory became poison. In the first years,
the iBAT tool became a good way for communication between the distributors and the IBM sales
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