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R.H. Smith School of Business/Supply Chain Management Center -Sandor Boyson March 2006 All rights reserved

© 2005 Hewlett-Packard Development Company, L.P.The information contained herein is subject to change without notice

SupplyChain

Michael UramAmericas Supply Chain Solution DirectorHewlett-Packard [email protected]

ThankYouWelcome


Dr. Sandor BoysonDr. Sandor BoysonSupply Chain Management CenterSupply Chain Management CenterRobert H. Smith School Of BusinessRobert H. Smith School Of Business

Road Map To The Global Road Map To The Global Real Time Supply ChainReal Time Supply Chain


The Long Road To The Real Time Supply ChainThe Long Road To The Real Time Supply Chain

• The Real Time Supply Chain enables information processing simultaneously among all partners-customers, distributors, manufacturers & suppliers.

• A single event- a customer order- triggers multiple actions at once across the entire global supply chain-compressing time & costs and resulting in orders-of-magnitude performance increases.

• The Real Time SC is the result of highly streamlined physical, informational and relationship networks. It is the Apex of intensive organizational investment over many years.


Multi-Echelon Inventory Management

Tier 1 Core Suppliers

Pre-qualified AlternativeTier 1 Suppliers

Tier 2 Competitive Sourcing

E-Auctions

Store

Web

Phone

SRMCRM

Multi-Channel Real Time Supply Management

Multi-Channel Real Time Demand Management

Real Time Technology Systems

Flexible Third Party Logistics Relationships

Transport

Cross-Docking

Communications

The Core Challenge:Aligning Supply With Demand


ReRe--Engineering To A Real Time High Tech Engineering To A Real Time High Tech Electronics Supply ChainElectronics Supply Chain

Source: S.Boyson 2005

Key ResultsKey Practicesand Technologies:

Reengineering Goal:

Hewlett-PackardSC Challenge:

Rationalize over 50 separateand distinct Supply Chainsacross multiple go-to-marketmodels and channels (direct and indirect):

- retail- direct-to-consumer- public sector- SMB- large-scale enterprise

Create small set of Supply Chain categories that provide advantages economies of scale that adapt instantaneously to the unique demands of each category while adjusting to market volatility.

Rationalized Supply Chains using the SCOR model as a common yardstick andan “Adopt and Go”strategy.

Eliminated 19 SAPERP instances.

Linked SAP ERP toreal-time ODS using HP NonStop iHUB

• Inventory turns improved from 11 to 24

• 1% savings in direct materials

• 17% in procurement costs

• 50% reduction in PO cycle-time

• Automation of POs from 20% to 95+%

• $1.5B cost reduction


HPWorld’s Largest IT Supply Chain

($51B)• 32 manufacturing plants • 88 distribution hubs• 700 suppliers• 119 logistic partners

Broadest portfolio of IT

products/services

in the world

Broadest customer base

in the technology

industry

• Over 650 new products per year

• 200,000 SKUs• 25,000 patents

• 1 billion customers• 178 countries• Direct & indirect

2005 shipments: 50M printers, 30M PC’s, 30M Servers, 300M cartridges

Efficiency on a Massive Scale Efficiency on a Massive Scale

R.H. Smith School of Business/Supply Chain Management Center -Sandor Boyson March 2006 All rights reservedTime

Usa

ge

Common

Middle 60%of Companies

Stage 2Common

Stage 4Excellent

Top 5 % Companies

Leading edge practices based on new or emerging

technology or very innovative processes

Practices that are widely implemented

at leading edge companies

Practices that are widely used and

adopted

Practices that are used but may be considered

out of date

Stage 1Outdated

of CompaniesBottom 20%

AdvancedStage 3Advanced

Next 15%of Companies

Supply Chain Practices MaturitySupply Chain Practices Maturity


Source: S.Boyson 2005

Key Business Practice :

50% of P&G sales come from events or promotions by customer store chains. Two thirds of errors in corporate forecasts are caused by these events/ promotionsCollaborate with stores and suppliers to “sense and respond” to consumer demand.

Key Technology :

Developed online capabilities to give 80% of its suppliers visibility into its manufacturing process

Reengineering Goal :

Become a consumer

- driven supply network, with 72 hour product -to-consumer cycle

Proctor & Gamble’sSC Challenge:

10 -15% average stock -out rates in retail stores

ReRe--Engineering To A Real Time Consumer Engineering To A Real Time Consumer Products Supply ChainProducts Supply Chain


Sense & Respond Service ChainsSense & Respond Service Chains

Not for Duplication © Robert H. Smith School of Business 12/2004


Real Time Visibility Thru A Portal To A Specific Field SensorReal Time Visibility Thru A Portal To A Specific Field Sensor

Not for Duplication © Robert H. Smith School of Business 12/2004


© 2005 S. Boyson & T.Corsi-All Rights Reserved

Communicationnetwork

Events

ERP and SCM Systems

Supply ChainModels

Cyc

leTi

me

Day (Wk. Mth)

Decisions

Performance

Sense & Respond Supply Chains

Supplier DistributionManufacturer Systems

Sensor dataDisturbances


HP Supply Chain VisibilityHP Supply Chain Visibility• Dashboard with

operational information and performance data

• Capture of supply chain events and analytic processing

• SCOR-based metricsand KPI’s

• User selectable metrics to monitor

• Drill down capability• Early warning alerts• Track and trace key

events

• Role based secure access


Core Steps In Implementing The Real Time Supply ChainCore Steps In Implementing The Real Time Supply Chain

• Create Cross-Supply Chain Governance

• Conduct Continuous Network Optimization

• Improve Demand Forecasting

• Upgrade Warehousing Management

• Practice Multi-Echelon Inventory Management

• Capture Transportation Scale Economies

• Deploy Online Communities Of Practice For Large Customers & Suppliers


HP Supply Chain GovernanceHP Supply Chain Governance

Direct

Indirect

Cus

tom

er

Consumer

SMB

Public Sector

Enterprise

Demand Shaping

Design/R

&D

Configure-To-Order

No-Touch

Low-Touch

High-Value Solutions

Service

Order Fulfillm

ent

Procurem

ent

Logistics

Manufacturing

Functional Supply Chain Excellence

Design for Supply Chain

Planning


Supply Network OptimizationSupply Network Optimization

A semi-conductor manufacturer based in Japan, but with worldwide plants and warehouses, was able to reduce its numberof plants from 9 to 6, and its warehouses from 8 to 4.

The reduction of facilities significantly reduced all operating costs, with the exception of transportation:

Total supply chain costs dropped 14 percent-from $191 million to $165 million.

Profits improved 53% as better location of shipping facilities led to improved customer response and increased sales revenues.

Across projects, designing and implementing optimized worldwide supply chains cut costs from 7 per cent to 31 per cent with an average cost reduction of 17%.Bender, Paul “How To Design An Optimum World Wide Supply Chain”, Supply Chain Management Review, Spring, 1997, Vol. 1 No. 1


Army Network ModelingArmy Network ModelingVarious Reports in the HIMARS Launcher models tell the method and cost of the deployments.

–19 Launchers went from Fort Hood to Djibouti via Sea through SPOE Beaumont to SPOD Djibouti

$68,941

310 Hours

–19 Launchers went from Fort Bragg to Tashkent via Air through APOE Pope AFB to APOD Tashkent

$213,998

32 Hours


Network Optimization Network Optimization -- Issues Check ListIssues Check List

Do you have a network map that pinpoints the geographic clustering of your customers, the locations of your core suppliers (especially your suppliers of high volume items), your warehousing assets and core transport lanes?

In your mapping, have you segmented your demand signals by online, call center or in-store channels to hone in on variances in demand patterns across channels?

Have you done any baseline costing/optimization analysis of this map? How frequently do you update this analysis?

What software do you use to perform this analysis? Is the software web-based for remote user inputs?


Demand Forecasting MethodsDemand Forecasting Methods


Demand Forecasting Issues Check ListDemand Forecasting Issues Check List• Do you have a logical model of key customer behaviors? Do you know

what are the key economic or industry-level drivers that compel key customer behaviors?

• Given the volatility of demand signals, what is the best methodology to use for forecasting? In high tech industries with extreme spikes in demand, companies are moving to forecasting methods that incorporate real time data and are constantly re-forecasting every fifteen minutes.

• How are current forecasts validated for accuracy? Do you continuously track the variance between actual demand versus projected demand to refine forecasts?

• What procedures are in place to refine forecasts and manage riskthrough Collaborative Planning, Forecasting & Replenishment with core suppliers to reduce bullwhip effects?


MultiMulti--EchelonEchelon Inventory ManagementInventory Management

• Real-Time Visibility of fixed and in-transit inventory positions:-store stocking points-distribution centers-production staging areas-supplier warehouses

• Enables the enterprise to route inventory to emerging points of demand.

• Inventory Optimization Software can help manage these inventory routings.


MultiMulti--Echelon Inventory VisibilityEchelon Inventory Visibility


MultiMulti--Echelon Inventory Management Issues Check ListEchelon Inventory Management Issues Check List

• Do you have a logical model of inventory behaviors based on analysis of :– Point Of Sale data for finished goods; – Product lifecycle behaviors/prognostics;– Spare parts stocking policies; – Inventory in the pipeline.

• Which items and in what quantities should you hold in your own or suppliers’ warehouses -who should own title to inventory and when? – In high tech electronics, components depreciate 100% within

3 months.


TransportationTransportation

• Best practice companies regulate, measure and control multi-year partnerships with carriers, including master contracts with 3PLs.

• Identify current methods to aggregate inbound and outbound shipment volumes

• Explore current processes to assign transportation liabilities for freight

• Push the extent and frequency of freight bill auditing, particularly for f.o.b. destination where the supplier bundles the shipping costs into the total price and transport can be a profit center for suppliers.


Supply Chain Communities Of Practice (COP)Supply Chain Communities Of Practice (COP)

• COPs are secure Portal environments that provide target customersegments with specialized SC content, collaboration tools and automated workflows.

• COPs allow differentiated service levels based on the specific characteristics of the segment:– E-catalogues aimed at government high volume buyers working

under GSA requirements; – Real time views into available inventory for Fortune 1000 clients &

automated business rules to assign inventory on a priority basis to them; messaging aimed at discounts/special pricing on surplus inventory items.

– Shared applications for supply chain planning with customers/ distributors/ suppliers


ConclusionsConclusions

• Implementing a real time supply chain is not just about deploying an integrated enterprise architecture; web-enabled transactions & planning applications; and a shared corporate database - although these are crucial for the transition.

• Implementing a real time supply chain is all about corporate strategic intent- climbing the ladder of transformation over time.

• Network optimization, improved demand planning & inventory management, better warehouses, transport scale economies and more robust online channels to key customers & suppliers - these are the many rungs of the ladder to be climbed to reach the real time supply chain.


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QuestionsQuestions

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Michael UramAmericas Supply Chain Solutions Dir

[email protected]: 630-579-4052

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