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Hewlett-Packard: Creating A Virtual Supply Chain (A) Case No. Imd161

1) The document describes a case study about Hewlett-Packard's storage division and its efforts to create a virtual supply chain to reduce costs and improve efficiency. 2) Key issues included high overhead costs from managing hundreds of suppliers and stocking locations. Competition was increasing as customer demand for storage rose. 3) The recommendation was for HP to partner with Mitsumi, one of its contract manufacturers, to produce components from start to finish and create an "ultimate supply chain". This would streamline operations and help HP compete against industry leader Quantum.

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263 views5 pages

Hewlett-Packard: Creating A Virtual Supply Chain (A) Case No. Imd161

1) The document describes a case study about Hewlett-Packard's storage division and its efforts to create a virtual supply chain to reduce costs and improve efficiency. 2) Key issues included high overhead costs from managing hundreds of suppliers and stocking locations. Competition was increasing as customer demand for storage rose. 3) The recommendation was for HP to partner with Mitsumi, one of its contract manufacturers, to produce components from start to finish and create an "ultimate supply chain". This would streamline operations and help HP compete against industry leader Quantum.

Uploaded by

jacklee1918
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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HEWLETT-PACKARD:

CREATING A VIRTUAL SUPPLY CHAIN (A)


CASE NO. IMD161
MGMT 280-5
Daniel Kinchla
Daniella Mangakis
Ryan Welsh
Shirish Singh

I.

Key Facts
A. Players
1. Main characters or companies
Derek Gray Supply Chain manager
Carly Fiorina CEO
Danny Berry Supply Chain manager (OEM)
Davey Maclachlan Procurement Manager
2. Competitors
Sony
Seagate
Quantum (Market Leader in Tape Drive Business)
IBM
3. Partners
Sony
CM A, CM B, CM C
Sun Microsystems
Mitsumi (Outsourcing Partner for the DDS4 model)
IBM and Seagate (Partners in developing standards for Ultrium)
Philips (Suppliers)
B. Financial Performance
In 2000 sales were US$48.8 Billion and employed 89,000 which included
21.1 Billion from Computing Systems.
Storage was expected to be a large market, estimated at $46 Billion in 2003

C. Timeline of the Case


1997- HP decided to start developing the LTO standard together with
IBM and Seagate for Ultrium.
1997-2000 HP outsourced all its models in the DDS product family
1998 Involvement of HPs divisional finance function.
2000- Production of Ultrium
2001 (July) -Recommendations for moving toward virtual
manufacturing
II.

Issues
A. Conflicts
1. Management:

Hewlett-Packard Global Support Logistics (GSL) organization faced the


competing issues of a rapidly growing installed base and maintaining HPs
award-winning level of customer satisfaction. They encountered major
conflict trying to reduce costs in the management of field-replaceable units
(FRUs). Some of the issues they faced with their management are as
follows:
- Supply chain for FRUs involved hundreds of suppliers
- Semi-automated system for ordering parts, managing and planning
inventory, and payment management were inefficient due to large
number of suppliers
- Larger number of stocking locations between suppliers and customers
created delays and levied higher costs to move parts
As competition increased and costs skyrocketed, HP began to feel the
wrath of aforementioned issues during the turn of millennium. Similar was
the case in HPs tape drive unit. The need for enhanced visibility across
the supply chain, reduced inventory costs and increased customer and
supplier satisfaction was felt indispensable more than ever to gain the
competitive edge in the market.
2. Legal
Necessity of management of the operation in Ireland.
3. Ethical
B. Central Problem
Need to take manufacturing to the next stage
Customers business transformation created the exponential rise in
demand for storage.
Possibility of product obsolescence.
Getting product to market as quickly as possible
Tape technology was in transitional phase
Quantum was the market leader in the tape drive business.
Sales Linkage between tape drives and media (tape)
Lack of in-house special technology and expertise to produce main
components
OEMs were demanding but were larger in terms of volume and
consequently were less profitable than resellers.
Extravagance costs incurred by distribution centers
No more space or investment for manufacturing LTO standard
(Ultrium)
Compulsion to outsource all its models in the DDS product family

III.

Lack of overall organizational strategy


OEM customers ambivalent reaction to outsourcing
Limited number of staffs to manage two products as they were already
managing DDS2. Contract manufacturer were not properly
communicating.
Deterioration of relationship with contract manufacturer.
Evolution of complex supply chain.
High overhead costs to manage large number of relationships in the
supply chain
HPs lack of faith in its CM capabilities in tape engineering

Analysis
As pointed out by the case, tape technology was in a transitional phase and although
HP had enjoyed significant amount of success in traditional technologies of DDS and
DLT, its competitor Quantum was the major player in the market. Customer needs
were increasing and at the same time cost of production was skyrocketing. A strategy
was to be applied to bring down the costs incurred in various stage of production.
Some of the costs incurred are:
Production cost
Costs to CM
Costs to suppliers
Costs to storage
Logistics costs

Internal and External factors were both at play regarding increase in costs. Lack of
expertise and technology to produce main parts, outsourcing, and lack of good
coordination with CMs were some of the internal factors. Stiff competition from the
companies like Quantum, increase in demand from storage media, and the
performance and quality of the products as a qualifying criteria were some of the
major external causes.
The virtual supply chain when put in place promised to control the excess production
cost and bring down the high costs in managing products. Getting product to market
as quickly as possible was deemed critical factor for the company hence with the
implementation of virtual supply chain, large number of intermediaries could be
skipped to expedite the logistics. Smoothness and quickness in logistics is the main
focus of virtual supply chain.
IV.

Identify Alternatives:

Derek Gray had three alternatives to choose from when it came to application of
virtual supply chain.
1. Path of Least Resistance: HP would give the FAST and configuration and
distribution to Philips as they had good manpower and resources for those
processes.
Philips might not be interested to take on the business as it had high overhead
costs and the practicality of the alternative might not in accord with the
companys strategy.
2. The Ultimate Supply chain:
Emergence of Mitsumi as a major tape drive manufacturer in the future with some
support from HP in the areas like technology development helps to create the
ultimate supply chain. Partnering with Mitsumi meant producing everything from
scratch.
3. Consolidation:
Partnering with competitor is necessary to concentrate on supply chain efficiency
as it takes the focus away from the competition. In order to go head to head with
major player like Quantum this option is aptly suitable.
V.

Conclusion and Recommendation


Keeping mind the HP culture, Derek Gray should choose the ultimate supply chain
option as it would create less friction within the company and also proposes extensive
benefits for long period of time. Mitsumi is showing sign of advances in its
operations hence the matrimony between HP and Mitsumi to create products from
scratch could be easy to get the overall consensus.

VI.

Action
HP should support Mitsumi in technology development. It should fortify its positive
relation with Mitsumi. Mitsumi can focus on manufacturing parts and HP can look
after the logistics.

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