Supply Chain Management

for the adaptive enterprise

The innovation, success, and vision of
HPs Global Supply Chain

Executive summary

Dynamic business conditions create opportunities

for changefor better or worse. In the highly
publicized merger of Hewlett-Packard Company
and Compaq Computer Corporation, corporate
executives saw only positive opportunitiesa chance
to exploit the value derived from synergies between
the two companies.
HPs leadership embraced innovative applications
of the combined supply chain best practices
approaches that would allow the company to
maintain market leadership. HP used a multidisciplinary strategy to evaluate and execute adaptive
supply chain processes by exploiting key leverage

points. This experience provided HP with first-hand

experience about the difficulties presented by such
complex and monumental evaluations of merging two
industry leading companies, as well as insight into
how to best find the opportunities that can produce
maximum advantage.
The merger efforts have clearly succeeded. The
company cut $3.5 billion in annual costsone
billion more and one year earlier than was originally
promised to stakeholdersand $1.5 billion of this
cost reduction came from the supply chain. An
adaptive supply chain strategy was crucial to this
success. But HPs experience is not unique. Every
company can take advantage of the opportunity
to benefit from adaptive supply chain optimization.
Let HP show you how it can be done, and how
we can extend that knowledge to your company.
Weve honed our supply chain strategy to
serve our customers needs around the world,
says Dick Conrad, HPs Senior Vice President,
Global Operations Supply Chain. We can help
you do the same.

More than a half century of

manufacturing innovation
The 20th century produced unprecedented change
in global business practices, social structures, and
information transfer. This makes the legacy of HP that
much more compelling.
The well-known story of Bill Hewlett and David Packard
developing products in a garage was just the start. Upon
forming the company in 1939, one of HPs first clients
was Walt Disney Studios, which purchased electronic
instrument technology to create a new approach for
cinema sound for the movie Fantasia. Decades of
product and manufacturing innovation continuedwith
HP developing microwave signal and radar generators
during World War II, radio frequency counters and
oscilloscopes in the 1950s, analytical instruments and
desktop scientific calculators in the 1960s, handheld
calculators and microprocessors in the 1970s, and
becoming one of the largest global IT providers as the
world entered a new millennium.
Meanwhile, in 1982, three former Texas Instruments
executives met in Houston, Texas to design a portable
computer that could run IBM software. In a matter of
months, Compaq Computer Corporation had designed,
manufactured, and distributed its first product line. During
the decades that followed, Compaq designed and

manufactured increasingly powerful desktop systems and

servers. By the 1990s, HP and Compaq were industry
leaders in markets as diverse as personal computers, laser
printers, mainframes, workstations, imaging, and personal
digital assistants (PDAs). The manufacturing expertise and
record of innovation held by these two companies rivaled
any in the world.
Citing corporate synergies and the opportunity for joint
innovation, HP and Compaq merged in 2002. With
$72 billion in revenue and operations in 178 countries
around the world, HPs merger was the largest of its kind.
Not everyone was convinced it would succeed. Yet one
year after the merger, the new HP delivered $3.5 billion
in reduced costs. Of that, $1.55 billion was associated
with supply chain optimization and efficiencies.
Today, HP is the ninth largest industrial supply chain
in the world and the largest supply chain in high
technologyin terms of dollars, breadth, product
complexity, and global reach. The company excels at
creating exactly the products that customers need to meet
their business requirementsat affordable price points,
and with the technological leadership that the market
has come to expect. The merger fused the manufacturing
expertise, strength, and innovation that marked both
companieslaying the foundation for the continued
success of HP.

HPs four business units include:

Enterprise Systems Group (ESG)

Focuses on providing the key technology components of enterprise IT adaptive infrastructure solutions to increase
business agility. This group includes enterprise servers, storage, and management software.

Imaging and Printing Group (IPG)

Maintains HPs role as the leading provider of printing and imaging solutions for business and consumer use, as
well as digital imaging and digital publishing. IPG includes printer hardware, digital imaging devices such as
cameras and scanners, as well as industrial-sized printers that HP acquired through its 2001 purchase of Indigo.

HP Services (HPS)

Delivers premier global IT services and solutions. It offers guidance, know-how, and a comprehensive portfolio of
services to help customers realize measurable business value from IT investments. These services require a steady,
cost-effective supply of spare parts in locations across the globe.

Personal Systems Group (PSG)

Focuses on supplying simple, reliable, and affordable personal computing solutions and devices for home and
business use; this group includes desktop PCs, notebooks, workstations, thin clients, smart handhelds, personal
devices and emerging technologies. Manufacturing in this business unit is heavily outsourced, creating an intense
demand for supply chain collaboration to meet business goals.

The challenge of streamlining

complexity
HP designs and manufactures an extremely broad mix of
products, from hand-held computers to cameras, large
UNIX servers, and ink jet printersall of which are sold
in countries all over the world. Doing so requires multiple
supply chains that can be extremely complex because of
diverse business needs.
HP faced a multitude of challenges
Complexity
A desktop PC with a six-month
product lifecycle has different
supply chain requirements from a
high-end Superdome computer that
requires long product lifecycles
and extensive customer materials.
Global reach
Two of the four HP business units
touch similar markets. Combined,
they have yearly sales of 40 million
printers, 18 million PCs, and
1.2 million digital cameras. These
products are sold by 100,000
retail outlets in175 nations.
Diversity
The services business unit serves
more than 250,000 accounts
worldwide. It supports an installed
base of over 70 million units with
warranty service as well as hot
spares requests, which are met
with two-hour response times.

These business needs vary based on the objectives of the

companys four business divisions. Each division is a multibillion dollar business that is the equivalent of a Fortune
500 company, having multiple business drivers, industry
pressures, and customer demands. Each unit has a goal
of operating profitablywith a competitive cost structure,
discrete manufacturing operations, and unique supply
chain characteristics.
Leveraging intellectual capital and
supply chain experience
In seeking supply chain innovation, during the merger
process HP looked inward first. With so much internal
intellectual capital, the company only had to unleash an
opportunity for creative ideas to form and take flight.
HP created a governance council, staffed by senior
management and executives from both of the original
companies, with expertise represented from the
information technology and business sides. Each of
the key business divisions in the new company was
represented. Council members were exonerated of their
former duties and given an executive commitment that
decisions would be rapidly executed.

The governance council collaborated to create a

corporate-wide view of HPs global business needs with
the goal of building the framework for a best-in-class
supply chain strategy. The team looked at business
goals and processes to identify and evaluate similarities,
opportunities for standardization, and prime areas
for consolidation, while eliminating duplicate efforts,
maximizing efficiencies, and minimizing cost structures.
In addition, HP strove to devise supply chain
processessuch as events, activities, interactions,
and transactionsthat could be performed once,
rather than multiple times across the company. With
more than 200,000 product offerings, customers,
and global supply chain points involving more
than100,000 suppliers, this was a lofty goal.
Another objective was to maintain a laser focus on
customer needs by utilizing and leveraging all of the
solutions and platforms to create additional value for the
companys customers. By embracing a total enterprise
focus, rather than just supporting an end-to-end supply
chain, the council hoped to extend opportunities for
collaboration beyond the supplier network to include
customers as well.
Through this assessment, the governance council
identified both differences and commonalities throughout
the supply chain. Areas of commonality that spanned
business units included:
Customer Relationship Management
Partner Relationship Management
Product Data Management
Planning
Order Management
Procurement
Logistics
eBusiness

HPs five supply chain models

Imaging and
Printing
Group

Personal
Systems
Group

Enterprise
Systems
Group

HP
Services

No-touch
Delivers goods directly from the
manufacturer to customers, with
no intervention of HP in the
physical flow.

Low-touch
Enables customer variety and
enhanced product offerings
through product localization and
customization while still leveraging
economies of scale in the
complexity of high technology
manufacturing.

Configure-to-order
Delivers high-volume configuration
capabilities to quickly assemble
products to meet customer
specifications.

High-value
Supports complex, highly
configurable products for the
solutions that businesses expect to
be engineered expressly for their
needs, such as infrastructure
solutions, servers, and high-end
printer products.
Services
Executes on a wide variety of
service level agreements to
ensure the right part is in the
right place, at right the cost,
and at the right time to meet
customer service requirements
and to support the consulting and
integration business of HP Services
global business units.
Although they are separate
groups, the HP units are
interwoven and work together
to create an adaptive
business environment.

A strategy in motion
After considering the business and internal requirements,
HP leadership recognized that synergizing the supply
chain also required innovative new approaches.
The council considered how HP could use the companys
best ideas and best practices to create an agile supply
chain environment, one that would provide competitive
advantage in the present while offering the flexibility
to adapt to changing business needs. Each business
unit had key touch points in its product development,
manufacturing/outsourcing, and distribution processes

that could be shared and optimized by creating horizontal

and vertical integration in specific functional areas. To
support this integration, the team honed 40 separate
geographical and product-line systems into five generic,
optimal supply chain models based on common
attributes. In this way, each business unit could
use the model(s) that best fit its processes by product;
this approach would allow each product line to
most effectively meet customer demand and
maintain customer satisfaction, while keeping
HP keenly competitive in quality, innovation, price,
and delivery.

For example, the Enterprise System Group, which

manufactures high-end infrastructure components,
servers, and storage devices, uses four supply chain
approaches in its operations. Driven by the divisions
business and market requirements, ESGs utilization
of the supply chain models is approximately:
25% no-touch
33% low-touch

We were determined to rise to the

challenges presented by todays
changing business
conditions.
Gilles Bouchard,
HPs Executive VP of
Global Operations
and CIO

29% configure-to-order
13% high-value
This split supply chain model allows ESG to leverage
the best supply chain channel based on business
drivers, industry pressures, competitive cost structures,
customer demands, and unique product and
support characteristics.
Another division, the Imaging and Printing Group,
expanded into the commercial printing market through
the acquisition of Indigo N.V., a Dutch manufacturer of
commercial and industrial printers. Because of HPs
adaptive supply chain strategy, IPGwhich traditionally
uses the high-volume low-touch/no-touch approaches
can now easily and flexibly use the supply chain
model that best meets the needs of its new, robust
high-end product.

The merger of two high-tech leaders empowered

us to seek cutting-edge solutions, says Gilles Bouchard,
HPs Executive Vice President of Global Operations and
CIO. We were determined to rise to the challenges
presented by todays changing business conditions.
In a global organization such as HP, the supply chain
is a complex, multi-faceted entity that includes myriad
practices, systems, transportation modes, warehousing
locations, vendors, and customers. Merely adjusting one
or two of these elements could not address the complete
supply chain process. By considering the companys
business and supply chain needs at a broad and
high level, the team was able to more clearly see
the end-to-end implications of their decisions. HPs
five supply chain models, mapped against the
identified points of commonality, have allowed
each business unit the increased responsiveness
and flexibility necessary to address dynamic industry
and market demands.
Further intensifying the complexity was the extension of
HPs supply chain to customers. By allowing customers to
electronically manage their interactions with HPby
configuring-to-order hardware and software solutions,
checking order status, viewing information on product
shipments, and receiving order confirmation, for
examplethe new organization provides the access and
control that enhances customer service and satisfaction,
keys to success in todays fast-paced high-tech market.

Keys to execution:
collaboration, consolidation,
and extended processes
Executing the new HP supply chain approach required
three primary steps: collaboration among the supplier
community, consolidation of the IT infrastructure, and
extension of supply chain processes.
HPs supply base collaborated
The supplier base had to be simplified and standardized
to reduce costs, complexity, and risk in HPs existing
supply chain. This process included outsourcing nonstrategic processes and selected distribution assets, as
well as analyzing HPs total supplier base. Using a model
designed to emphasize value capture, HP considered
supplier price, service, value, and benefit.
Several key realities emerged from this analysis, including
the realization that some suppliers dealt with different
organizations as individual unitssetting prices and terms
on a case-by-case basis. To take strategic advantage of
its enormous buying power, the company encouraged
business partners who serviced different divisions to
now view HP as a whole. In this new light, suppliers
were asked to provide the best possible terms, improve
pricing, and create more cost-effective, consistent
business practices.
In addition, the rationalization process gave HP a global
perspective on its suppliersa view that helped the
company to consolidate the total number of business

partners. The remaining partners faced increased HP

expectations for integrated collaboration with both HP
and other suppliers up and down the supply chain
models. HPs tremendous purchasing volume created a
real incentive for business partners to cooperate with
these changes. For example, HP is the worlds largest user
of contract manufacturing, and it consumes 15% of the
worlds dynamic-memory chips. Suppliers of these goods
and services had every incentive to collaborate in support
of HPs business.
In rationalizing the supply base, HP effectively leveraged
its most powerful toolthe volume it buys from suppliers
and manufacturers. Further, by outsourcing non-core
processes, reducing suppliers, and increasing integration
and collaboration with existing partners, HP increased
supply chain efficiencies and has saved approximately
$1 billion thus far. From an earnings perspective, there is
nothing more important than the leverage we can drive
off of our supply chain, says Connie Spiess, HPs
Vice President of Supply Chain Integrated Solutions.
HPs IT infrastructure consolidated
In parallel, HP assessed and mapped its existing IT
infrastructure to the new supply chain models and
identified areas that could be consolidated. Using
new tools and methods that allowed visibility into
information flows, HP was able to identify opportunities
for consolidation that would help enhance the quality of
data, increase response time, lower operational costs,
remove redundancy, and increase visibility into the supply
chain environment.

A view inside HPs real-time logistics and distribution processes

One global instance

170,000,000 supply chain events
Queried every 3.7 seconds

New direct
ship capabilities
gained a 62%
improvement
in delivery
lead time.

Order details on 26,000 customers

130 countries
241 transportation carriers
391 plants
1,900 suppliers

The IT consolidation effort created higher quality data that

allows better business decisions and responsiveness along
the supply chain. It maximized the utility of every IT asset,
and it integrated processes into a more uniform, easily
managed and modified environment that is more adaptive
to business change.
HP now interacts with its extended supply chain more
rapidly and efficiently. It has lowered costs and increased
quality of real-time information. Moreover, suppliers and
customers find the company easier to do business with.

HPs supply chain processes extended

Further, HP integrated key supply chain components into
a uniform, extended supply chain. We realized that
delivering more agility in the supply chain is all about
measuring, architecting, and operating IT as efficiently
and effectively as every other business process, says
Fred Spalanzani, Director of Supply Chain and Business
Intelligence IT. IT requires solutions, services, and
technology that link not just business processes and
applications to the supporting IT infrastructure, but that
also connect customers, partners, and employees.
Some examples of how HP has extended and integrated
its supply chain reach include:
Procurement and sourcing: KeyChain is the HP
real-time networked supply chain hub that enables
HP businesses to move to a world-class cost structure,
increase profitability, and realize the full potential of
supply chain integration. KeyChain handles many-tomany relationships and hundreds of trading partners; it
accepts various ERP systems and business processes, as
well as the supply chain models used by the four HP
business units. Last year 500 million transactions ran
through the system, and KeyChains total ROI in 2003
increased to $20 million as it added more HP business
units and partners.
Product lifecycle management: HPs adaptive PLM
strategy allows all divisions the interoperability to create
and support the unique solutions they need to satisfy
customer demand. Business benefits enabled by HPs
PLM environment include timely coordination of

With extended supply chain

functionality, employee, supplier,
and customer transactions are
more consistentproviding cost
savings across the enterprise.

competitive new product introductions; more efficient

service and support; cost savings through elimination of
duplication, inconsistency, and redundant information
and processes; opportunity for IT consolidation; and
consistent interaction with customers and partners.

For HP, competitive

success has always
been tied to the
innovation of our
manufacturing
processes and
IT support.
Craig Flower,
VP and Group
Information Officer
for Global
Operations IT

Logistics and distribution: HPs cost proposition (that is,

percentage of revenue) in this area is superior, thanks
to an integrated suite of supply chain visibility and
reporting tools that examine processes from the
customer order to final delivery. These tools have
improved customer turn-around time, reduced costs, and
improved velocity by providing a horizontal view of the
HP supply chains in near real-time. The tools monitor
transactions by geographies, product lines, sales,
purchase and production orders, shipments, invoices,
carrier status, and goods receipts.
With this extended supply chain functionality, employee,
supplier, and customer transactions are more consistent
providing cost savings across the enterprise.

The benefits and real value

of HPs adaptive supply chain
management strategy
HPs adaptive, integrated supply chain initiative created
numerous business benefitsfor the enterprise, suppliers,
and customers.
Benefits to HP
The adaptive supply chain strategy has delivered
dramatic benefits to HP, including adaptation and
responsiveness to changing business dynamics; faster
time-to-market with new and competitive products;
decreased manufacturing production, distribution, and
channel costs; increased customer satisfaction; faster
service and response time; and continued leadership in
the high-tech market.
HP has realized a significant improvement in gross margin
for the company as well as a substantial contribution to
the companys earnings per share growth.

The companies that are winning in the marketplace

and will continue to winunderstand that there is no
separation between information technology and
business change, says Craig Flower, Vice President
and Group Information Officer for Global Operations IT.
For HP, competitive success has always been tied to
the innovation of our manufacturing processes and
IT support.

Supply chain savings since the merger of HP and Compaq

1,555

1 year since merger ($millions)

1,107

444
459

309

339
160

Manufacturing area

Procurement
Direct
materials

169

115

Supply chain and operations

Product
re-design

Indirect
procurement

Subtotal

Logistics

Mfg and
labor
overhead

Systems and
programs

Subtotal

Global Total

Benefits to suppliers
For HPs strategic suppliers, the key benefits realized
from implementing the changes recommended by the
council include:
Ease of doing business
The supply chain strategy allows a single point
of collaboration with HP, simplifying suppliers
interaction with HP, increasing business collaboration,
and lowering costs for both parties.
Enhanced supply and demand visibility
This visibility improves participants ability to predict
demand. It also enables suppliers to build purchasing,
manufacturing, and logistical efficiencies into their
own supply chains. Further, it enables suppliers to
pass associated discounts onto customers such as HP.
Elimination of non-value-added steps, such as
administration, and costs

Benefits to customers
As HP exploits the new efficiencies of its supply chain,
customers benefit in several ways, including:
Incremental product value delivered for the same or
even lower purchase cost
HP now offers a one-stop shopping experience for
global corporate customerswith the ability to procure
everything from PDAs to commercial printers and servers
from the same source
The economies of scale have helped HP focus on its
legacy of manufacturing innovationbuilding and
delivering precisely the product that customers need and
want to buy. As an example, the HP Multifunction and
All-in-One office devices for the small and home office
market combine three formerly separate units (fax,
copier, and printer) into one moderately priced
appliancesaving customers money, space, and time.
HPs adaptive supply chain strategy facilitates faster
shipments, quicker response times, and greater
customer service response and control anywhere in
the world. As a result, customers receive the right product
at the right price, available through the right channel,
at the right time.

10

Building on the adaptive supply chain

IT infrastructure impact

Fully deployed, plan

for next generation
Partners deployed,
first customers
deployed
Internally developed,
first partners
deployed

Supply chain impact

Small, select internal

supply chain
community

Leveraging
e-business

Advanced
supply chain

Supply chain
optimization

Time

This concept stresses the need for

agile processes that can be used to
respond to changing business
requirements and conditions,
wherever they existincluding
globally, or by country, region,
or location.

E-business for the

adaptive enterprise

Get house in order

Enhance partner
relationships

The future of HPs adaptive

supply chain
HP will continue to examine and deploy business and
IT efficiencies throughout its supply chain. At the same
time, HP has an eye on tomorrows best practices and
processes. For instance, HP will continue to review and
evaluate business and IT processes that were originally
designed for manufacturability, determining whether
design for supply chain better benefits the company and
customer objectives. For example, designing for supply
chain considerations may reduce assembly times through
the use of common parts. It could also help companies
select the optimal facility for final assembly, based on
geographic proximity to other manufacturing facilities or
to end customers. Designing with these considerations in
mind can help HP meet specific business objectives, such
as reducing costs or improving customer satisfaction.

Capitalizing on
collaboration

Business and IT
synchronized

HP may also apply other innovative uses of its adaptive

supply chain strategy, including a concept called design
for x. This concept stresses the need for agile processes
that can be used to respond to changing business
requirements and conditions, wherever they exist
including globally, or by country, region, or location.
In a given situation, the company may design for
supply chain, logistics, recyclability, or environmentally
responsible disposal of waste materials; the supply chain
processes should be able to support these critical
demands without radical or costly change.
Balancing the costs and opportunities related to
supply chain concerns is no longer just a manufacturing
problem; it is an enterprise business issue with many
stakeholders. Achieving maximum efficiencies and
economies of scale requires an agile supply chain
strategy that is truly global, will integrate and evolve
cost-effectively, can adapt to dynamic business changes,
and benefits all key stakeholders.

11

Vital statistics:

$72 billion global corporation

Leader in high technology infrastructure solutions
140,000 employees
Sales and service operations in 178 countries
$200 million per day in revenue
200,000 products
100,000 suppliers
Millions of customers
Multiple business models
Billions of dollars per year in direct material costs
5 distinct supply chain models integrated at pivotal
points for optimization

Today, HP is
#1 globally in imaging and printing
#1 globally in management software
#1 globally in UNIX and Windows servers
#1 globally in enterprise storage

Capitalize on HPs experience

For every business, innovating as a means of achieving or

maintaining competitive advantage is not an optionit is
a means of survival. In todays global economic and
competitive climate, all organizations must review their
internal and external processes and policies in an effort to
rid themselves of inefficiencies. Your company can do this
tooand benefit from the expertise of a company that
has been through supply chain optimization before.
HP understands the difficulties in the process, knows
where the opportunities are, and can extend that
knowledge to your company. No other IT company on
the planet can provide the global reach of HP, says Dick
Conrad. Weve honed our supply chain strategy to serve
our customers needs around the world. We have proven
performance and execution in supply chain processes.
We can help you do the same for your company.
Every day we help forward-looking companies seize
innovative practices and technology to achieve maximum
business and competitive results.

With the merger of HP and Compaq, an opportunity

emerged. HP seized that opportunity to innovate in supply
chain operations. But our experience is not unique.

12

HPs impressive experience creating an adaptive

supply chain is only the latest example of our talent
for innovation. Throughout the 20th century, we
consistently responded to changing business and
consumer conditions with exactly the innovative
new technology solutions that customers needed.
Today, HP has the expertise to transform extreme
business change into tomorrows opportunity. We
understand how an adaptive supply chain can help
companies streamline processes, cut costs, improve
customer responsiveness, and better the bottom line.
Let us help you.

www.hp.com
2004 Hewlett-Packard Development Company, L.P. The information contained herein is subject to change
without notice. The only warranties for HP products and services are set forth in the express warranty statements
accompanying such products and services. Nothing herein should be construed as constituting an additional
warranty. HP shall not be liable for technical or editorial errors or omissions contained herein.
5982-2878EN, 03/2004