Each chapter in my next book, The New Technology Elite, has a case study or a guest column. The text is going through the publisher’s edits and subject to change. Here are some excerpts from the HP case study in Chapter 2.
This was written before the new CEO Meg Whitman announced HP was not divesting the PSG division. She cited its efficient supply chain described below as one of the reasons to keep the unit
“It could be your darkest hour or your finest” says Tony Prophet as he discusses the impact of the Iceland volcano explosion and the Japanese tsunami and other disruptions on HP’s supply chain. Prophet, a senior vice president, oversees hardware purchasing and logistics for HP.
It is a massive operation – the largest in the technology industry with over $ 60 billion in components, warehouse, transportation and other logistics costs. The HP machine churns out two personal computers a second, two printers a second, and a data center server every 15 seconds. It is also a constantly evolving operation - with a changing mix of company owned factories and contract manufacturing and air/ship/rail logistics from/to most countries around the world. So those challenging “hours” Prophet talks about come with alarming regularity.
One of those defining hours Prophet talks about was after the Eyjafjallajokull volcano explosion in Iceland in April 2010. That ended up disrupting flights to Northern European airports for weeks. HP flies many of its products from Shanghai, China to those airports. On many days, HP is the biggest single buyer of outbound airfreight from Shanghai. Fully loaded 747-400 cargo planes with HP notebooks and other products often take off 3 times a day from that airport.
Prophet’s team immediately decided to switch shipments to northern airports like Frankfurt, Germany to southern airports like Barcelona, Spain and Naples, Italy. Except that they could not find sufficient commercial flights for those destinations from China. So, they booked charter flights. Even as HP products were arriving in Europe, competitors found charter freight prices had gone up 50% or were not available any more. HP’s 72 hour lead turned out to be significant.
In March 2011, Prophet was woken up at 3.30 am to be informed about the massive Japanese earthquake and tsunami.
If those short term maneuvers are dazzling to watch, even more impressive are the long term shifts Prophet talks about.
“One of our on-going projects has been to streamline our supply chain especially after major acquisitions like Compaq or Palm or 3Com.”
The HP-Compaq merger, a particularly large one, afforded plenty of streamlining opportunities over the last several years. “In 2006, we had a combination of 70 (HP and Compaq) supply chain nodes worldwide, most company-owned and in relatively high-cost locations. Also, most were geared to making desktop PCs and the notebook market was taking off”
As Prophet told a meeting of financial analysts in December 2010
“Each of those nodes had inbound hubs, outbound hubs, unique IT connections, and drove a tremendous amount of overhead to support the complexity of these nodes”
but it has been streamlined to
“About 30 nodes and significantly fewer of them company owned. Obviously biased more towards lower-cost locations, but not exclusively. We continue to operate a plant in Indianapolis. We continue to have a plant in Japan, so where it makes sense for proximity to the customers, to serve those customers with high velocity, we're there”
Across the whole business, HP had more than 1,000 processes and 300 IT applications. “So our objective is to cut the processes by an order of magnitude and cut the IT applications by more than a third. We're moving to common IT applications to drive those processes, and so that to our suppliers and to our customers we look like one company.”
“We've got a path, a strategy charted to build what we think will be a “10 out of 10” supply chain, and we're about a year into this transformation.”
You cannot serialize these projects. They all have to march forward in parallel and they all have to adjust to the short term hiccups, and shifts in the market as the recent market move in many Western markets to tablets away from notebooks.
Prophet in that presentation to analysts highlighted some of HP’s global reach.
“First multinational to manufacture PCs in Russia.”
“Upgraded our operations in north central India”
“Significantly upgraded our operations in Brazil”
“We believe we'll be the first multinational manufacturing PCs in Turkey. That'll allow us to effectively serve central Asia, Eastern Europe and the Middle East, the Mediterranean region particularly.”
But particularly impressive is the HP pioneering expansion into Western China.
If you a draw a circle out 750 miles from Chongqing, you are looking at about 300 million people – which by itself makes it one of the largest PC and other gadget markets in the world. So that is our first focus here in the West of the country – made in China, for China”
Indeed the Chongqing plant has already produced for the domestic market what is being called a “rural” laptop – designed to handle intense heat and rain, and is also seeing demand in other regional countries.
Even more impressive is the infrastructure the Chinese are building around Chongqing. There is the high-speed freight rail line to the port-city of Shenzhen. The route run by a contractor, Cosco takes 53 hours and is expected to go down even more over time, and emphasizes “five fixed” services - fixed stops, fixed trains, fixed timetables, fixed routes and fixed rates. Shenzhen is well equipped to handle bulk shipping to most major destination markets.
Next particularly encouraged by HP, the airport at Chongqing was extended by 400 meters in a rapid construction project to allow fully laden 747s (with merchandise and extra fuel) to fly nonstop to Europe.
But probably the most exciting development is that of the next “Orient Express” – a rail service between Chongqing and Duisburg, Germany covering nearly 7,000 miles in 13 days. That is 26 days quicker than the current rail-sea combination, and considerably cheaper than the air option. And it should get even quicker as China shares its growing high-speed rail experience with countries along the path - Kazakhstan, Russia and Poland.
Photo Credi: HP. Students in Chongqing , China watch video on the HP Mobile Experience bus.