Integrating Closed-loop Supply Chains and Spare Parts Management at IBM

Ever more companies are recognizing the benefits of closed-loop supply chains that integrate product returns into business operations. IBM has been among the pioneers seeking to unlock the value dormant in these resources. We report on a project exploiting product returns as a source of spare parts. Key decisions include the choice of recovery opportunities to use, the channel design, and the coordination of alternative supply sources. We developed an analytic inventory control model and a simulation model to address these issues. Our results show that procurement cost savings largely outweigh reverse logistics costs and that information management is key to an efficient solution. Our recommendations provide a basis for significantly expanding the usage of the novel parts supply source, which allows for cutting procurement costs.