Adapting to an adaptive supply chain

Robert Gifford on how the HP/Compaq merger produced a supply chain superstar

When the merger of high-tech manufacturers Hewlett-Packard Co. (www.hp.com) and Compaq Computer Corp. finally cleared all of the regulatory and shareholder hurdles, the real work of consolidating the two companies' supply chains into a single logistics entity began. Much of that job ended up being assigned to Robert Gifford and his team.

As HP's vice president of worldwide logistics and program management, Gifford handles all logistics operations, from procuring services to managing operations, and everything in between — no small task for a company with customers in more than 160 countries on five continents. Though the newly formed company had multiple and duplicate supply chains spread across numerous products and regions, HP ultimately succeeded by creating a flexible and adaptive supply chain framework (see sidebar, “Savings in the supply chain”).

Gifford spoke to Logistics Today about how HP's supply chain and operating model is able to leverage functions, horizontal processes and organizations to improve company effectiveness and reduce costs.

Logistics Today: How do you manage your logistics activities?

Robert Gifford: Logistics is probably the number two cost driver — other than direct materials— that supply chains have nowadays. So it is an absolute necessity to consider logistics activity when deciding whether to source from a specific point. Logistics is part of our overall supply chain strategy.

We just don't say, “We're going to put up a factory here,” then figure out how we'll move product. We need collaboration across the entire supply chain to find the optimum way to bring a given product to a specific marketplace.

At HP we're focused on an adaptive supply chain, which we consider a core competency. An adaptive supply chain is a product-agnostic supply chain portfolio that allows multiple supply chains.

For example, we have supply chains that direct-ship from Asia to a customer in Western Europe, eliminating any crossdocking and distribution. We have post-completion centers where we take advantage of low cost manufacturing, bringing product close to the market and then configuring it to the customer order at that last load touch configuration.

We have configured supply chains where an order is placed and we will build it at that facility exactly as the customer ordered.

Our focus is on the supply chain models that address our customer segments and on gaining the synergy over those models for our size and scale that brings a competitive advantage.

LT: How do you gain that synergy?

Gifford: It depends on what we're trying to solve. For example, all products in all regions are monitored with a single home-grown track and trace tool. All internal and external HP customers can log onto this tool and view the movement of the goods. Because of our size and scale, we weren't able to find such a solution offered by a commercial supplier.

On the other hand, for freight payment, we use an off-the-shelf tool with which we partner with a key vendor. With it we have a single freight payment and audit tool that we're rolling out worldwide.

We're not really convinced that we have to use only homegrown tools invented here. Where partnerships make sense, we'll do them.

LT: Do you use outside suppliers for functions like warehousing?

Gifford: Yes, third-party logistics providers (3PLs) are a critical part of our overall supply chain. We utilize not only their ability for warehouse management, but also their full product portfolios.

Do we use the 4PL concept for buying transportation? Not very often. The reason is our size and scale allows us to procure transportation probably better than anybody else in the industry. With $2 billion in transportation spend alone, HP probably outspends almost every 3PL.

Our 3PL partnerships are absolutely key. We do not own warehouses, and we don't want to own warehouse management systems. We want to utilize what's best.

LT: In some companies — no matter the size — the logistics function doesn't get the attention it deserves. How does it work for you?

Gifford: HP as a corporation understands the importance of the supply chain. The supply chain as a whole manages 74% of our overall spend.

When you're talking about customer satisfaction — predictability and reliability — you're talking about your logistics infrastructure. We measure customer satisfaction from the top on down. It's part of every executive's measurement. So we not only have recognition, but it's ingrained at HP that the movement of goods is critical to our customer satisfaction.

LT: How do you manage logistics across a company the size of HP?

Gifford: Everyone wears multiple hats at all times. However, we like to think we manage our logistics regionally, giving us regionally focused, cross-business units. Then we coordinate globally so we have an international aspect to logistics as well as commonality and simplicity.

LT: How do you evaluate supply chain success?

Gifford: Everyone has to feed in proof of deliveries the same way. We have a single tool to analyze how fast they are coming in and to ask questions like: Who's not doing well? Where can we improve our supply chain? What's the length of time for a certain lane and how is it performing?

We measure our performance for, say, lane transit time, as a percentage of attainment of established goals. In other words, if a given lane is created with our partners to operate in three days, we measure our partners on their times. What's their percentage of goal attainment? That gives us insight into problem areas.

Key Performance Indicators are set by those directly involved in logistics operations. It is beneficial to have the people who are negotiating contracts sitting next those who have to deal with the outcome of those contracts. So we get together the people who are on the program teams, the strategy teams and the contract teams, as well as the people who are doing the day-to-day warehouse and partner management.

LT: How far along is HP in its radio frequency identification (RFID) initiatives?

Gifford: We've got 18 sites fully RFID-enabled. We will meet the Wal-Mart requirement and the DoD requirement. We've already sent shipments into the Dallas area for Wal-Mart. We have warehouses up and running that are fully RFID-enabled. We're also offering our technology and our expertise as a lead systems integrator.

With every new technology, caution is the key. We've all seen technologies come and go that haven't produced the ROI. However, on RFID, we're measuring our warehouses, and we are seeing throughput and visibility advantages.

LT: Where do you do most of your business?

Gifford: 60% of our revenue comes from outside of the U.S. North America is obviously a very big marketplace, but so is Western Europe, Asia and Latin America, and even Australia. We are focused on a global environment. Size and scale with market and product focus is what we're all about. LT

Savings in the supply chain

The Hewlett-Packard/Compaq merger — the largest merger to date in the high-tech industry — has led to impressive savings throughout its realigned, “adaptive” supply chain:

  • $1.1 billion — direct material procurement annual savings
  • $525 million - indirect procurement annual saving
  • $295 million — manufacturing overhead reductions
  • $235 million - annual logistics savings
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