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PRESENTATION ON

STRATEGIC

SOURCING AT

HP

Submitted By:

NEHA SINGLA

PARUN BANSAL

BINDIA CHANDEL

HIMANSHU SHEKHAR

RAMANDEEP SHARMA

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CONTENTS

vSteps in a strategic sourcing process.vKey chain program.vProcurement Risk Management.v

The PRM Framework.vHP Risk Contract-Valuation Analysis.vBenefits.

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Steps in a strategic sourcing process

Assessment of a company's current spendAssessment of the supply marketTotal cost analyses

Identification of suitable suppliersDevelopment of a sourcing strategyNegotiation with suppliersImplementation of new supply structureTrack results and restart assessmentNegotiate with the vendor about the payments terms of thespecific organisation.

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THE KEY CHAIN PROGRAM

Order and forecast collaborationInventory collaborationAuctions

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Inventory collaborationve-SMI.vInternet technologies and web-based solutions

AuctionsvInitially the focus of HPs e-Bazaar program was not in using auctions

for sourcing, but rather for supply chain execution.vSupport supply chain execution covered disposing ofexcess material.vRFP or RFQ process, as a decision mechanism forawarding business.

DECENTALIZED DECISIONSCONTD

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RFP(REQUEST FORPROPOSAL)/RFQ(REQUEST FOR

QUOTATION)

vQuotation Analysis FormvTechnical capabilityvDelivery and packagingvQuality

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STRATEGIC SOURCING

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Procurement Risk Management

Mathematical model.Business process.Software application.

v Launched at HP in August of 2000.v Framework to quantify the impact of product demand, component cost,and availability uncertainty on revenue, costs, and profits.v To support the risk management processv Manage procurement uncertainties and risks.v Training curriculum and consulting infrastructure to help HP

professionals .

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The PRM Framework

quantify the impact of product demand,component cost, and availability uncertainty.

A suite of software tools comprisesHPHorizon demand-scenario software,HPRisk component-cost-forecasting software,and HPRisk contract-valuation software.

A rigorous PRM business process toproactively manage procurement uncertaintiesand risks; and

A training curriculum and consulting

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HP Horizon Software

The analytics embedded in theHPHorizon software perform aregression analysis of historical

forecasts and shipments toquantify forecast bias anduncertainty.

then combines this information withcurrent demand trends to representthe uncertainty in the demand

forecast.

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The HP Risk cost-forecastsoftware

Hi-Tech exhibit significant costuncertainty.

hi-tech component prices typicallydemonstrate a long-term decline incosts due to technological andprocess-related improvements.

software performs a regressionanalysis of historical costs for aparticular component to determine

the parameters of price process to

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Structured Contracts withSuppliers

the risks are managed by settingup portfolios of structured contractsthat HP executes directly with

suppliers. binding commitments,

incorporating a complex

combination of quantity and pricingterms

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HP Risk Contract-ValuationAnalysis

these contracts be appropriatelyanalyzed to increase benefits anddecrease the risk

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BENEFITS

Material-cost savings: $128 million inmaterial-cost savings in FY06,

and over $325 million in material

cost savings. Assurance of supplyP:despite an

industrywide memory shortage

approxi- mately one year ago, thePRM contracts that HP businessunits had executed ensured that

they obtained 100 percent of their

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Contd

Inventory reduction:Therequirement for HP to holdinventory is reduced as suppliers

commit to providing defined upsideflexibility through flexible- quantitycontracts.

Supplier benefits:The quantitycommitments that HP makes tosuppliers, as opposed to just

exchanging nonbinding forecasts,

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THANK YOU !!