1-Analytics in the HP Supply Chain
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Transcript of 1-Analytics in the HP Supply Chain
©2010 HP Confidential1
ANALYTICS IN THE HP SUPPLY CHAINApiruk Detwarasiti, Shawn Tay
Managers, Strategic Planning and Modeling (SPaM)
Hewlett-Packard
©2010 HP Confidential2
AGENDA
–HP’s supply chain•The Pan HP supply chain optimization
–Role of analytics in the HP supply chain
•Executing analytics and communicating their insights
–Business Analytics in companies
•Setting up an effective internal analytics consulting team
–Q&A
©2010 HP Confidential3 ©2010 HP Confidential3
HP’S SUPPLY CHAIN AND THE PAN HP OPTIMIZATION
©2010 HP Confidential4
THE WORLD’S LEADING TECHNOLOGY COMPANY WITH $120B REVENUE…
Imaging & Printing Group
20%
Personal Systems Group
32%
HP Services28%
Enterprise Storage & Servers
14%HP FinancialServices and other
3% Software3%
EMEA36%,
up 9% Y/Y
Asia Pacific18%,
up 14% Y/Y
Americas46%,
up 12% Y/Y
Q3 FY10 revenue: $30.7B
REVENUE BY SEGMENT REVENUE BY REGION
©2010 HP Confidential5
THE LARGEST
BUYER OF IT
INDUSTRY
STANDARD
COMPONENTS*
…AND THE LARGEST IT SUPPLY CHAIN
*Source: Gartner Research, January 2010
4 serversEVERY 60
SECONDS HP
DELIVERS120 PCs
HP purchases 1 of 6 X86
Processors
HP purchases 1 of 5 DRAM
Memory
HP purchases 1 of 8 HDD
100 printers
©2010 HP Confidential6
PAST PRINCIPLES AND GROWTH DROVE SUPPLY CHAIN COMPLEXITY
2009 BASELINE
• ~100 acquisitions since 1989
• ~450 physical nodes
• ~2000 suppliers
• ~1000 supply chain processes
• ~300 supply chain IT systems
• ~55K+ SKUs
PAST OPERATING
PRINCIPLES:
• Decentralized decision making
• Many autonomous business
units
INORGANIC GROWTH:
©2010 HP Confidential7
SUPPLY CHAIN OPTIMIZATION ACROSS HP
PROCUREMENT
AND PRODUCT
DESIGN
PHYSICAL
NETWORK AND
LOGISTICS
PROCESS AND
IT
APPLICATIONS
SERVICES AND
WARRANTY
STREAMLINE, SIMPLIFY, STANDARDIZE
THE PAN HP SUPPLY CHAIN OPTIMIZATION
WE ASPIRE TO BUILD THE INDUSTRY’S BEST SUPPLY CHAIN . . . A 10 OUT OF 10
©2010 HP Confidential8
PC Storage Array Non-stop ServerIndustry Standard
Server
ProCurve Switch
LEVERAGING SCALE THROUGH CONVERGENCE AND STANDARDIZATION
Driving component standardization across all HP product lines
Memory ProcessorsHard disk
drives
PROCUREMENT
AND PRODUCT DESIGN
PHYSICAL
NETWORK AND LOGISTICS
PROCESS AND IT
APPLICATIONS
SERVICES AND
WARRANTY
STREAMLINE, SIMPLIFY, STANDARDIZE
©2010 HP Confidential9
CONSOLIDATE HP’S GLOBAL FOOTPRINT
PSG PC
ESS
IPG
Distribution centers
Includes owned, third party and
facilities under construction
PROCUREMENT
AND PRODUCT DESIGN
PHYSICAL
NETWORK AND LOGISTICS
PROCESS AND IT
APPLICATIONS
SERVICES AND
WARRANTY
STREAMLINE, SIMPLIFY, STANDARDIZE
©2010 HP Confidential10
RATIONALIZE TOOLS AND PROCESSES
PROCUREMENT
AND PRODUCT DESIGN
PHYSICAL
NETWORK AND LOGISTICS
PROCESS AND IT
APPLICATIONS
SERVICES AND
WARRANTY
STREAMLINE, SIMPLIFY, STANDARDIZE
IMAGING & PRINTING GROUP
PERSONAL SYSTEMS GROUP
ENTERPRISEBUSINESS GROUP
5 GBUs
3 GBUs
5 GBUs
ACQUISITIONS
REGIONAL VARIATIONS
ROUTES TO MARKET VARIATIONS
A L L R E G I O N S
PLAN
PROCURE
PRODUCE
DELIVER
PLAN
PROCURE
PRODUCE
DELIVER
PLAN
PROCURE
PRODUCE
DELIVER140
70
50
60
500
180
190
175
Tools Processes
320 1045
©2010 HP Confidential11
SIMPLIFY SERVICES PHYSICAL SUPPLY CHAIN
Physical Network Alignment
(Co-habitation)
Operational & IT
ConvergenceCurrent State
Source: Pan-HP Supply Chain Physical Network, Services Team, February 2010
Physical Network
Optimization
SDA – Service
Delivery
Architecture
Pan-HP
Supply Chain
Optimization
IPG GSCO
PSG CEWS
TS GPSC
IPG GSCO
PSG
CEWS
TS GPSC
Co-Location
Pan-HP Services
PROCUREMENT
AND PRODUCT DESIGN
PHYSICAL
NETWORK AND LOGISTICS
PROCESS AND IT
APPLICATIONS
SERVICES AND
WARRANTY
STREAMLINE, SIMPLIFY, STANDARDIZE
©2010 HP Confidential12
SETTING THE PACE ON THE ENVIRONMENT
We will reduce energy consumption and associated greenhouse gas
emissions of all products by 40% below 2005 levels by the end of 2011.
We’re working to save customers 1 billion kWh by 2011 through improved
energy efficiency of HP’s high-volume desktop and notebook PC families.
We recovered 112,000 tonnes of electronic products and supplies for
recycling in 2009, avoiding an estimated 210,000 tonnes of CO2e emissions.
Our goal is to cut the energy use and greenhouse gas emissions from our
operations 20% by 2013, compared with 2005.
We’re on track to recycle 2 billion pounds (900,000 tonnes) of electronic
products and supplies by the end of 2010.
PROCUREMENT
AND PRODUCT DESIGN
PHYSICAL
NETWORK AND LOGISTICS
PROCESS AND IT
APPLICATIONS
SERVICES AND
WARRANTY
STREAMLINE, SIMPLIFY, STANDARDIZE
HP SUPPLY CHAIN RANK #1 IN LOW-CARBON AND ENVIRONMENTAL LEADERSHIP
IN THE ICT INDUSTRY BY GARTNER AND WWF
©2010 HP Confidential13 ©2010 HP Confidential13
ROLE OF ANALYTICS IN THE HP SUPPLY CHAIN
©2010 HP Confidential14
EDELMAN PRIZE WINNER:
– The Franz Edelman Award for
Achievement in Operations Research
and the Management Sciences
recognizes excellence in the execution
of operations research on the
organizational level
– HP won the Edelman Award in 2009 for
its work in “Transforming Product
Portfolio Management With Operations
Research”
©2010 HP Confidential15
THE CHALLENGES OF VARIETY
Cost
Customers
Suppliers
• Inventory-driven costs
• Product design costs
• Sales and marketing costs
• Forecast inaccuracies
• Excess & obsolescence
• Order cycle time
• Delivery time predictability
• Availability / stockouts
• Inventory-driven costs
• Design changes
Over 2,000
laser printers
Over 20,000
enterprise server
& storage SKUs
Over 8,000,000
possible desktop
& notebook PC
configurations
©2010 HP Confidential16
THE ORGANIZATIONAL DIVIDE
Supply Chain
Better forecasting
Precise buffer stocks
Less inventory
Lower cost
Shorter order cycle
Reliable deliveries
Marketing
More platforms
More SKU’s
More features
More market share
More choices
Happier customers
Marketing
©2010 HP Confidential17
Post-launch:
Portfolio Management with RCO
ROLE OF ANALYTICS IN HP’S
PORTFOLIO MANAGEMENT PROCESS
0
20
40
60
80
100
0 300 600 900 1200
Example Complexity ROI Calculator Example RCO Output
Pre-launch:
ROI Screening
# of products
% o
f re
venue c
overe
d
©2010 HP Confidential18
TRADITIONAL EVALUATION OF PRE-LAUNCH (NEW) PRODUCT PROPOSALS
Benefits of
adding new
variant
Costs of adding new variant
©2010 HP Confidential19
COMPLEXITY COST MODEL DURING PRE-LAUNCH PHASE
CategoriesKey driver
• Product
Volume
• Material costs (volume
discounts)
• Variability-driven costs
(inventory-related costs,
expediting, cost of lost sales
due to stockouts)
Variable
Complexity
Costs
• Resource costs in R&D, testing,
product management, etc.
• External cash outlays (e.g.,
tooling)
• Indirect impacts such as
warranty program expenses,
quality impacts, etc.
• Product
VarietyFixed
Complexity
Costs
©2010 HP Confidential20
IMPLEMENTING THE SOLUTION: COMPLEXITY ROI CALCULATORS
One-time
analysis
Identify and estimate key
complexity cost impacts of
variety
Spreadsheet
tool
Codify relationships into
complexity return on
investment (ROI) calculator
Ongoing
business
process
Screen new product
proposals using complexity
ROI calculator
©2010 HP Confidential21
Traditional approach
Rank products by revenue
generated or units shipped
Limitations
Ignores interdependencies
among products
POST-LAUNCH VARIETY MANAGEMENT
Use order history to understand products’
relative importance
• Improve operational focus on key products
• Evaluate unimportant products for
discontinuance
Post-launch product portfolio management
©2010 HP Confidential22
ORDER COVERAGE
– A customer order is covered by a product portfolio if all of its products are included in the portfolio
–
– Order, revenue or margin coverage of a portfolio is the number, revenue or margin of historical orders that can be completely fulfilled from the portfolio
A product portfolio
covered order
non-covered
order
©2010 HP Confidential23
REVENUE COVERAGE OPTIMIZATION (RCO)
– Rank products according to their importance to revenue coverage
– RCO ranking corresponds to efficient frontier of revenue coverage and portfolio size
– Use RCO ranking to identify:• Core Portfolio
• Extended Portfolio
• Possible candidates for discontinuance
# of products
% o
f re
ve
nu
e c
ove
red
0
20
40
60
80
100
0 300 600 900 1200
©2010 HP Confidential24
SUMMARY OF BUSINESS IMPACT
• Over $500M in savings and $180M in ongoing annual savings
• Significant order fulfillment improvements
• Thousands of SKUs eliminated
Our customers are the real winners!
Marketing Supply Chain
Fact-based discussions
Data-driven decisions
Analytics
©2010 HP Confidential25
COMMUNICATING ANALYTIC INSIGHTS TO NON SUPPLY CHAIN STAKEHOLDERS
©2010 HP Confidential26
Simulation helps highlight impact of early and infrequent
replenishment to DC, also compared against what is going on today
Inventory under various replenishment policies at DC
0
50000
100000
150000
200000
250000
1-
May
8-
May
15-
May
22-
May
29-
May
5-
Jun
12-
Jun
19-
Jun
26-
Jun
3-Jul 10-
Jul
17-
Jul
24-
Jul
31-
Jul
7-
Aug
14-
Aug
21-
Aug
28-
Aug
4-
Sep
11-
Sep
18-
Sep
25-
Sep
Date
Un
its
Current practice - 28 DOS Current policy (replenish 50:30:20 of monthly demand) - 18 DOS
Weekly policy (replenish 4x25 of monthly demand) - 12 DOS Weekly policy (replesnish weekly demand) - 6 DOS
Historical demand Month end
ANALYTICS: SIMPLE SIMULATION OF OPERATIONAL DATA
©2010 HP Confidential27
Typical “OTD vs Cost” trade-off shows that more
locations (more expensive) implies better TAT…
…which can be validated if that was really the
case (historically)…
TAT performance of products having 5 DCs
0
0.1
0.2
0.3
0 1 2 3 4 5 6 7 8 9 10 >10 Days
% o
f
dem
an
d
TAT performance of products having 2 DCs
0
0.05
0.1
0.15
0.2
0 1 2 3 4 5 6 7 8 9 10 >10 Days
% o
f
dem
an
d
90th Percentile
90th Percentile
…and why it was (not) so
TAT performance of products having 5 DCs
0
0.1
0.2
0.3
0.4
0 1 2 3 4 5 6 7 8 9 10 >10 Days
% o
f
dem
an
dShipped from wrong DCs
Shipped from right DCs
Cost vs OTD Tradeoff
16.6
16.8
17
17.2
17.4
17.6
17.8
18
18.2
18.4
18.6
18.8
8 9 10 11 12 13
OTD
Un
it c
ost
Demand allocation by DCs
DC1 10%
DC2 15% 15% 10% 5%
DC3 7% 10% 15% 15% 20%
DC4 8% 15% 15% 20% 20% 30%
DC5 60% 60% 60% 60% 60% 70%
ANALYTICS: OPTIMIZATION AND VALIDATION OF PERFORMANCE DATA
©2010 HP Confidential28
Market data, e.g., futures, is used to predict
range of future prices…
Range-based oil prices
0
50
100
150
200
250
Jul-
03
Jul-
04
Jul-
05
Jul-
06
Jul-
07
Jul-
08
Jul-
09
Jul-
10
Jul-
11
Jul-
12
US
D
Historical Price 90th percentile
Futures Price 10th percentile
Today
Sensitivity of key strategy to key drivers
-15 -10 -5 0 5 10
Asia Labor Rate
Asia Rent Rate
Asia Utility Rate
Capacity per line
Air/Ocean Mix
Oil Price
Air freight costs
Ocean freight costs
IDC Rate
Asia Currency
Millions
Lower than base case Higher than base case
Regional Central20%
20%
20%
20%
50%
20%
20%
$250
12.0%
15%
-20%
-20%
-20%
-20%
20%
-20%
-20%
$100
5.0%
-10%
Base case
…which are then incorporated into sensitivity
analysis of choices to uncertainties
Range derived
thru volatility of
historical
change in
Futures price*
ANALYTICS: SENSITIVITY ANALYSIS ON FUTURE MARKET DATA
©2010 HP Confidential29
-
0.200
0.400
0.600
0.800
1.000
1.200
1.400
1.600
1.800
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
1 3 5 7 9 11 13 15 17 19 21
-50000
0
50000
100000
150000
200000
250000
May
-06
Jul-0
6
Sep
-06
No
v-0
6
Jan
-07
Mar-0
7
May
-07
Jul-0
7
Sep
-07
No
v-0
7
All SKUs 3-Period moving Avg
By combining relevant data, e.g., seasonality of product
family, lifecycle of precursor SKUs, etc,…
…product volumes over lifecycle can be forecasted even
for products with no history
ANALYTICS: LIFECYCLE FORECASTING WITH NO HISTORY
©2010 HP Confidential30 ©2010 HP Confidential30
BUSINESS ANALYTIC CONSULTING IN COMPANIES
©2010 HP Confidential31
• Talent development for HP by recruiting from top PhD/MBA programs1 and consulting firms2
and within HP
• Training and coaching across HP on supply chain, analytics, and consulting skills
• Service provider to HP businesses through a consulting engagement model
• Shared resource of experts (~15 HC) in analytics, consulting and operations management
• Neutral third party to drive data-driven decisions in HP operations
1. Including MBA and PhD degrees from Stanford, MIT, Cambridge, Kellogg, Georgia Tech, and other top programs.
2. Including consulting positions at McKinsey, BCG, Booz-Allen, Deloitte, and SDG.
SPaM is an analytics team working through an internal consulting model to support operational innovation and operations strategy
Talent Development
High-Impact Projects
• Knowledge broker across HP
• Network of academic & industry contacts
• 20+ year track record of innovation and support for diffusion (postponement, IDC metric, PRM, DfSC, ...)
Innovation
SPaM
STRATEGIC PLANNING & MODELING (SPAM)
©2010 HP Confidential32
ENSURING THAT YOU HAVE THE RIGHT SKILLS IS CRITICAL
Spre
adsheet &
F
inan. M
odelin
gD
ata
Analy
sis
Deci
sio
ns
Under
Unce
rtain
tyP
redic
tive
Modelin
g
Optim
izatio
n
Sto
chastic
M
odelin
g
Supply Chain
Forecasting
Portfolio Mgmt.
Pricing
Customer Analytics
Marketing Analytics
“Must
have” Skills
Analytics Skills Consulting Skills
Good in All, Great in Some
Specia
lty 1
The Generalist (T)
Specia
lty 2
The Specialist (I)
World-Class in Some
Specia
lty 1
Specia
lty 2
Problems will require varying
skills but all analytics projects
require modeling and data
analysis skills
For high impact analytical
business consulting, we need
T’s (not I’s)
©2010 HP Confidential33
Basic
• Spreadsheet
Modeling
• Data analysis
Advanced
• Optimization
• Simulation
• Probability and
Statistics
• Decision / Risk
Analysis
• Financial /
Economic
• Problem-
framing,
structuring and
synthesis
• Project
management
• Neutral
facilitation with
total shareholder
value view
• Supply chain strategy and
design
• Operations tools and
processes
• Pricing analytics
Operations
Management
Expertise
Consulting
Experience2
SPaM
Analytics
Skills1
1. Including MBA and PhD degrees from Stanford, MIT, Georgia Tech, Kellogg and other top programs.
2. Including post-MBA level consulting positions at BCG, Booz-Allen, Deloitte, and McKinsey.
SPAM’S SUPPORT COMBINES ANALYTICS, CONSULTING, AND OPERATIONS EXPERTISE
©2010 HP Confidential34
Project PartnershipB
U (
Bu
sin
es
s U
nit
)
manages resources, schedule, and communications
facilitates data collection
provides specific business knowledge
provides guidance on frame, scope, alternatives
- Joint Recommendation -
SP
aM
leads the consulting effort
conducts analysis, interviews, and presentation
provides functional and modeling expertise
ANALYTICS REQUIRES COLLABORATION WITH OPERATIONS TO HAVE IMPACT
©2010 HP Confidential35 ©2010 HP Confidential35
Q&A