Academic Excellence: Evolution of supply chain management

Evolution of supply chain management

Introduction

Hewlett Packard (HP) Company was founded in 1939 by David Packard and William Redington Hewlett. The firm has its headquarters in Palo Alto, California, US. The company I involved in the provision of technologies, products, solutions, software and a number of services to the small and medium enterprises, large businesses and consumers. There are a number of events that have taken place in the firm for instance the firm entered into a merger with Compaq around 2002 (Li, 2007). In 2008, the firm acquired EDS and it was able to raise its revenues to over $ 118.4 billion in that year. The firm was ranked at number 9 in the Fortune 500 companies in 2009. The firm was involved in further acquisition of 3Com in 2010. Supply chain is a network of the raw material procurement facilities, transformation into the intermediate and final products and then delivering the products to the customers through the use of a system of distribution. The supply chain includes the procurement, manufacture and the product distribution. The supply chain management of HP had been faced with also of problems in the late 1980s. The problems included billions of dollar in inventories were mounting at the firm and there were also there were a problem of customer dissatisfaction with the process of order fulfillment. The supply chain of the firm included the manufacturing of the circuits, assembly of boards, the final assembly of the products and then the final delivery of the products to the consumers of the firm. Due to the realization of the problems that were being experienced in the supply chain management of the firm, they engaged the services of an internal consulting group which was known as Hewlett-Packard Strategic Planning and Modeling (HP SPaM) (Blanchard, 2010). SPaM was involved in creating the strategies and the design of the supply chain of the firm so that the different problems that were being faced in the firm could be done away with.

Literature review

The management of the supply chain in a firm is a very important operation in a firm. The efficient order filling requires that the firm must have an understanding of the interrelationships and linkages with the key components of the supply chain. The supply chain of HP includes the consideration of the products manufacturing, R&D (research and development) which is usually undertaken in over 20 countries and final the consideration of the sales and marketing of the products of the firm which is undertaken in over 100 countries (Blanchard, 2010). The catalog of the products that are produced by the firm includes over 20,000 products. The efficiency and effectiveness of the management of the orders usually plays an important role in the competition in the industry where the firms operate (Min and Zhou, 2002). HP’s industry is not an exception thus the need for the firm to ensure effectiveness so that it could win the battle in the competitive computer industry. In 1993, the CEO of HP, Platt Lew, came to the conclusion that successful order fulfillment was a way through which the firm could be able to capture the market.

The managing of the various element of the supply chain of the firm was of outmost importance in the firm due to the fact that the products of the firm were complex and diverse. The main consideration would be on the fact that uncertainties and variability could occur on the different sections of the supply chain. This would lead to late orders to the customers or even the receipt of raw materials that are substandard. The effect of such uncertainties would be imperfect or faulty products from the production process. Also, there can be a breakdown in the production process (Monette, 2000). The consideration of the supply chain components was also important to HP due o the fact that the demands or the products was highly uncertain thus the managers of HP were required to understand the various effects of the uncertainties that were being faced in the firm. The use of analytical modeling has been known to be the surest way through which the managers of the firm will be able to understand the uncertainties so that the manufacturing design and the process of the products distribution can be made in such a way that the order fulfillment of the firm could be cost effective and efficient (Lee and Billington, 1995).

Due to the need for the model, HP formed SPaM in 1988, so that they could be able to develop models that could be used to support the management’s decisions regarding the supply chain management of the firm. The group was required to be engaged supply chain management innovations developments and introductions into the systems of the firm. The first model that they developed was based on a quantitative methodology where costs at the plant charters were captured in terms of either being variable or fixed costs. This model was instrumental in the determination of the costs but was not effective in painting accurate pictures regarding the uncertainties that the firm faced from the order fulfilling, quality of the service to the customers and the costs of the inventories investments. The model that was developed did not help in the resolution of the problems of high inventory costs and the inefficiency of the order processes. This called for the development of a new model which could be used to understand the problems. The strategy which was employed in the firm was that which was focused on ensuring that they could build a supply chain management (SCM) system that was working. The evolution of the supply chain at HP followed two main paths; expansion of the functional boundaries and the expansion of the methodology (Lee and Billington, 1995).

There are a number of industrial interactions between the problems at HP and those that are faced by the other firms that operate in almost all the major industries. There are common problems and the best practices of supply chain management that have been developed in the different industries over the years (Lambert and Pohlen, 2001). Supply chain management is a fundamental process in the business as slight changes that may be initiated usually have a huge impact on the operations, the actual performance and also have wanted or unwanted impacts on the satisfaction of the consumers of the firm (Blanchard, 2010). There is thus a need for technological transfer from the industry to the educational institutions and vice versa.

Methodology

There are a number of problems that were faced by the firm in their consideration of the supply chain. First the firm set out to deal with the pitfalls that the supply chains were faced with and also a consideration of the measures of the performance of the supply chain of the firm. The supply chain considerations of the fir began with a model structure that was preconceived before the actual problem could be delved into. The first problem that was noted is the fact that there were problems with the data recording as some data was wrong and there were some data that was missing from the database. The other main problem that was faced was managing the inventories and various processes of the production of the firm that were being carried out in the different countries of the world (Blanchard, 2010).

The main problem was the lack of the optimization of the supply chain managements of the firm in the different countries where there were manufacturing activities, the sourcing of the raw materials and also the production of the intermediary and the final products of the firm. This was a great problem in the firm as it was believed that it contributed towards bringing about the inefficiencies in the order processing activities in the firm (Davis, 1993). This is due to the fact that the orders of the customers cannot be acted on in time due to the inefficiencies associated with the points of production and the sales and marketing point’s non-integration (Swaminathan, Smith and Sadeh, 1998). Secondly, the high costs of maintaining the inventory will also occur in the firm due to the fact that the orders will take a lot of time before the orders could be moved from the warehouse.

The other problem that was being faced by the operations of HP supply chain is the wild increases in the costs that were being incurred in carrying out the various actions and activities that were playing an instrumental in ensuring smooth running of the operations of the firm (Swaminathan, Smith and Sadeh, 1998). Another problem that was faced at HP was the way in which the intellectual capital that was available at the firm could be leveraged so that it could be effectively used in the experience of the supply chain (Lambert and Pohlen, 2001). There was a lack of initiatives by the firm to unleash the creative ideas that the different employees of the firm had. The greatest problem was with regards to the executions and commitment to the decisions that had been made in the firm with regards to the supply chain of the firm.

Data collection

The data collection began with the consideration of the supply chain of the PC. An understanding of the problem was the first issue that was considered. The data that was collected included those related to the breakdown of the machines, the number of changeover times, and the efficiencies of the manufacturing. The data was also collected from the databases of the firm so that the efficiency could be established (Lambert and Pohlen, 2001). A single site inventory model was used to represent the various operations in the supply chain management of the printers of HP especially the DeskJet printers which has sold over 600,000 units in 1990 thereby generating total revenues of $400 million in that year. The different sites where the DeskJet printers were being dealt with were included in the supply chain so that the different operations can be modeled into two activities; the production and the receiving of the operations of the firm (Blanchard, 2010). There is also the benchmarking of the service and inventory trade-offs in the firm so that the most efficient frontier of the trade-off could be established. There would also be an assessment of the operational inefficiencies and uncertainties on the performance of the operations of the supply chain. The designs of the products will also be analyzed especially with a keen focus on how they impact on the value chain of the firm (Blanchard, 2010). This data was collected through secondary data regarding the actions that HP had undertaken in the streamlining of its SCM operations and also a consideration of the logistics of the firm, the management of the orders, procurement, and relationship management for instance CRM and Partner Relationship Management.

Data analysis

The efficient data management and recording is important for all the activities of a firm. When a firm ensures consistency across all the data definitions, the different problems of inefficiencies in the processing of the consumer orders and the general order processing in the firm will not exist anymore as the firm can be able to act on the orders promptly without any delays and or omissions. HP was involved in a number of developments in the supply chain. First, the firm was engaged in the design for the localization of the manufacturing and production of the DeskJet’s (Li, 2007). This was done due to the fact that the high demand could be undertaken efficiently if the orders were made direct to the point at which the products were being made. This was build on the concept of lean manufacturing which saves costs on the maintenance of the inventory as well as a consideration of the needs and preferences of the customers of the firm (Min and Zhou, 2002). The products of Hewlett-Packard were grouped into a number of categories which are shown in the figure 1 below.

Figure 1: Products of HP

From the secondary data that was reviewed from a number of sources, the study was able to discover the various activities that HP has been engaged in. First, the WINO (Worldwide Inventory Network Optimizer) model was conceived. This model work is a very special way by using the demands for the end products as the demand for the intermediate products of the firm thus also forming the basis for the demands for the raw materials. This was a way through which the uncertainties that were being faced in the firm could be dealt with (Lambert and Pohlen, 2001). Each node in the WINO acted as an order up-to level system of inventory. This enabled HP to be able to measure the level of customer service that was received when they used the final products of the firm for instance the printers, the PC or Laptops. The SPaM project allowed the managers at HP to be able to understand the trade-off between service and inventory so that the functioning of the supply chain of the firm could be effective (Blanchard, 2010). The supply lead times were reduced 30 days to 10 days and the lead time uncertainties that were previously faced by the supply were reduced to zero. The new system that was being adopted by HP led to the complete elimination of the demand uncertainties. Also, it was noted that inventories were able to reduce in the various operations of the firm especially in the two segments or divisions of the firm where they were applied.

The levels of customer satisfaction at HP have also been increasing. In a survey that was undertaken by HP (Beamon, 1999), it was reported that the satisfaction of the customers with the various elements of the operation of the supply chain especially the management of the orders of the customers has been on the rise (figure 2 shows the percentage of customers satisfaction from 1994-1997). The consideration of the needs of the customers in the supply chain, the business units at HP have been able to map the points of commonality and thus a better service to the customers (Blanchard, 2010). It has also been established that most of the customers (57 per cent of the total customers of the firm) have been able to continuously manage their interactions with the firm. This was made possible through proper configuration of the software and hardware to order, an ability to view the shipment of the products and also allowing the customers to be able to receive a confirmation of the orders that they make to the firm.

Figure 2: Customer satisfaction 1994-1997 (in percentage).

The firm also achieved a consolidation of the supply base which led to a general reduction in the costs that were being incurred by the firm. The firm used its enormous size and the huge purchasing power so that it could be able to reduce the costs of the different products which the firm was buying from the different suppliers. There was also a consolidation of the IT infrastructure through the use of new tools and methods. The firm was able to identify opportunities such as lower costs of operations, increased visibility in the environment of the supply chain and the removal of information redundancies (Li, 2007).

Recommendations and Conclusions

Due to the high costs that the outsourcing activities that HP currently engages in, HP can increase its manufacturing outsourcing so that it can be able to maintain its competitive advantage. The firm can engage in the buying of products at the best price and then selling those products to the manufacturers at the market price. The products that are developed are sold back to HP at an agreed price. The firm could also employ the concept of dynamic replenishment, which is a form of supplier managed inventory, so that the responsibility for the inventory can be shared between HP and the supplier. This leads to reduction of costs on the part of the firm (Blanchard, 2010).

In conclusion, the firm must focus greatly on the concepts of designing for the supply chain so that the different benefits that are shown in the paper can be realized. The firm, through the use of the strategy, will be able to improve the customers’ satisfaction as well as significantly reduce the costs that are incurred. The businesses supply chain management must also make use of agile processes that can be able to respond quickly to the changing conditions and requirements in the environment where HP operates in. The firm through the above steps can be able to achieve economies of scale and also maximize the efficiency of the processes of the supply chain.

Bibliography

Beamon, BM 1999, "Measuring supply chain performance", International Journal of Operations & Production Management, 19(3): 275 – 292

Blanchard, D 2010, Supply chain management: best practices, Hoboken, N.J: Wiley

Davis, T 1993, "Effective Supply Chain Management", Sloan Management Review, summer,

Lambert, DM and Pohlen, TL 2001, "Supply Chain Metrics", International Journal of Logistics Management, Vol. 12(1): 1 - 19

Lee, HL and Billington, C 1995, "The Evolution of Supply-Chain-Management Models and Practice at Hewlett-Packard", Interfaces, 25(5): 42-63

Li, L 2007, Supply chain management: concepts, techniques, and practices enhancing the value through collaboration, Hackensack, NJ: World Scientific

Min, H and Zhou, G 2002, “Supply chain modeling: past, present and future”, Computers & Industrial Engineering, 43(1-2): 231-249

Monette, CJ 2000, Dynamic Modeling for Supply Chain Management, Lake Linden, MA: C.J. Monette

Swaminathan, JM, Smith, SF and Sadeh, NM 1998, “Modeling Supply Chain Dynamics: A Multi-agent Approach”, Decision Sciences, 29: 607–632

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