Supply chain: the great enabler
Firstly, our supply chain is important for our customers. The way we interact with customers, and take, update on and deliver orders is driving customer satisfaction,” says Volker Schmitz, vice president and head of EMEA Supply Chain at HP Inc. His mission: for the supply chain to go above and beyond for customers, delivering a competitive advantage for HP’s business and its partners.
On November 1, 2015, after 76 years of innovation, the printing and personal systems divisions became a standalone business as HP Inc., with servers, storage, networking and services forming Hewlett-Packard Enterprise.
Such has been the seamless transition to what is now HP Inc., it is testament to the multifaceted and hugely complex work carried out by a company-wide cross-functional team that the business, and therefore customers, have suffered no disruption. In fact, the company’s global market position has actually strengthened over the course of the past year.
“The separation was the greatest cross-department collaboration the company has ever seen,” Schmitz explains. “The complexity was simply huge. Within Supply Chain we have changed so many structures, systems, logistics routes, supplier relations and organizational structures, and to do it in under a year was a huge achievement for the company.” HP also had a 76-year legacy to honour, an identity and hallmark of quality that is vitally important to keep intact.
Transition complete, the new company is already starting to reap dividends from a more flexible, agile supply chain setup, backed up by what is still a $48+ billion Fortune 100 organisation. “What has changed the most is our agility and how we are running our company,” Schmitz adds. “Before the separation our strategy was extremely broad, ranging from cloud services and software to various products, but now we are focused on two major franchises – personal systems and printing.”
With fewer organisational layers to navigate, quick decision making between strategically-aligned senior management has facilitated flexible, rapid development. A more nimble employee base of approximately 50,000 compared to 300,000 under Hewlett-Packard has also helped create a leaner organisation.
If HP needed any more proof that progress is being made, Gartner has listed its global supply chain as the 17th best in the world with a perfect 10 in corporate social responsibility, identifying the company as a long-term leader in this area. Not only is HP delivering satisfaction for customers receiving its products, but also economic and social empowerment for the communities in which it operates.
The great enabler
The supply chain is an important enabler in a number of areas, from customer satisfaction and cost effectiveness to cash flow and sustainability.
The ultimate result of a world class supply chain operation is to deliver numerous benefits to customers in terms of efficiency, reliability and cost, whether these be corporate clients running large scale business operations or a consumer ordering the latest HP PC or printer.
Schmitz and his team keep close tabs on net promoter scores, which assess the likelihood of customers recommending and promoting HP to others. What they have found is a clear correlation between improvements in speed and predictability of the supply chain and boosts in this customer satisfaction metric.
A key part of this is engagement between HP’s operational teams and its customers. Through continual dialogue and feedback, the company is able to communicate clarity and ensure reliability and responsiveness in its service. Strong customer engagement has doubtlessly lead to enhanced net promoter scores across the organisation.
Internally, HP’s supply chain is an enabler of cost effectiveness and ultimately increases in margins and profits. “We are in a business which does not allow mistakes on pricing,” Schmitz adds. “Our margins can be tight, so we are very focused on costs and making savings every day and every week.
“Cash flow is a big focus for us as well. It is not just about how we manage our inventories but also about how we manage our suppliers and customers. Cash is king and there are times where this is as important as cost reductions.”
Personal systems and print powerhouse
The ultimate consequence of continuous supply chain improvement is that HP can now deliver to customers its best ever product portfolio. It is the worldwide leader in commercial PCs, workstations and printing, and outright leader for all PCs and printing in EMEA.
Add to this renowned graphics solutions and rapidly-growing 3D printing prowess, and it becomes clear that the supply chain requirements to fulfil this stature are formidable.
Schmitz explains: “Although we have just two distinct franchises, the variety of products and consequent supply chain needs are huge. Within printing we start with volume printers and corresponding supplies, and end up with graphics solutions and now 3D printers. A 20-metre long printing press will require a very different supply chain compared to an ink cartridge that we sell millions of every year. Within Personal Systems we have high volume PCs and customized solutions, to high end workstations and accessories, which require targeted supply chain solutions.”
HP’s supply chain scale
To grasp an idea of the sheer scale of the supply chain operation required to keep HP’s global engine room running, Schmitz breaks down oft-cited annual numbers into facts and figures by the minute. Every 60 seconds the company ships 35 PCs, 26 printers and 280 ink and toner cartridges into more than 100 countries in Europe, Middle East and Africa – a supply chain which does not sleep.
“We can talk about billions of dollars and millions of units over the course of a year, but something more tangible to grasp the scale of HP’s supply chain is to picture what we ship in a single minute,” Schmitz says. “This is operating 24/7 and needs to be active 365 days a year.”
Orders are manufactured by a network of factories across the world, with the company’s largest factory base being in Asia. Regional factories nearer to key customers handle more specific, complex requirements. Distribution is handled through a network of distribution hubs and subcontracted logistics activities. Centres of excellence right across EMEA, staffed by hundreds of workers, manage this huge supply chain.
A considerable amount of activity is outsourced via several vital partnerships with big manufacturing and logistics companies. A very early adopter of the outsourcing concept, Schmitz believes that this is a crucial component in HP’s ability to achieve scale and remain agile.
The environmental and social sustainability performance of HP is another area which stems from its supply chain, recognised by Gartner with a perfect 10 rating for Corporate Social Responsibility.
Environmentally, the company has three major goals in place to achieve by 2020. These include commitments to using 40 percent renewable energy in global operations with a long term goal of 100 percent, zero-deforestation associated with HP paper and paper-based packaging, and a 25 percent reduction in its product portfolio’s greenhouse gas (GHG) emissions intensity compared to 2010. The supply chain is already one step ahead in this regard; HP’s supply chain is already 20 percent less GHG intensive than it was just six years ago.
HP is also reducing the environmental footprint throughout both its value chain and product lifecycles by shifting both product design and business models toward a materials- and energy-efficient circular economy. HP innovations that support a circular economy include core technologies such as inkjet and LaserJet cartridges made with closed loop plastics and breakthrough technologies like 3D print solutions as well as transformative business models that offer printing and personal systems as ongoing services rather than products to buy and replace.
On the social side, HP has a vital role to play in the communities it is present. This is no more apparent than in China, where much energy has gone into boosting economic areas inland. Schmitz explains: “We have been working closely with the Chinese government to establish economic activity inland, as historically a high proportion took place on the coast. We piloted the first factory inland which actually turned out to be a far better setup as workers don’t need to relocate for their jobs, and the area benefits from the development both of the factory itself and surrounding infrastructure.”
Such infrastructure includes the development of what is known as the new Silk Road, a train route connecting inland China with Duisburg in Germany, via Kazakhstan, Russia, Belarus and Poland. Opened in mid-2011, the line now carries up to five trains a week full of HP goods, greatly reducing turnaround times and cutting costs. And HP continues to pursue further development of this route. Recently, printers produced in southern China are also shipped via this route.
HP has also been championing the rights of workers in the supply chain for decades. For instance, in China the company has been working with its manufacturing partner to ensure legal rights in areas such as overtime payments. “Sustainability has been one of the best kept secrets about HP, but Gartner has rightly pointed it out as an area where we excel,” Schmitz says. “The big commercial customers are very conscious about where their goods come from and more and more this is becoming a key part in contractual agreements.”
In Europe, HP was in a leading position in supply chain management when it became visible in the revitalisation of the Greek port of Piraeus. Schmitz continues: “In the past all of our sea freight into Europe went via Rotterdam, but several years ago we identified an opportunity to go via Greece and worked closely with our partners to develop the harbour. We have used that base to reduce costs and turnaround times while also supporting the local economy.”
5 pillars of success – Customers first
The success criteria for a supply chain are often measured with financials, however for HP it is determined by the satisfaction of customers. And this means catering to wide ranging set of requirements.
Schmitz explains: “Different customers have different expectations, for example we know that big corporate customers want something different than a European retailer in our distribution channel. In some areas predictability is the key to customer satisfaction, in others it is about speed or special services. As well as using our own internal metrics, we communicate a lot with customers about their metrics of evaluating us to see whether we are performing the best we can.”
In recent years a concept of a ‘perfect order’ was introduced, which not only measures delivery performance but also follows the concept of the right product, at the right time, in the right quality and with the paperwork at the customer. A series of projects triggered strong improvements in the performance towards customers.
Some supply chains are more internal, however reaching out directly to customers helps HP to bring more external perspectives into the supply chain. For instance, managers in Schmitz’s team are all made an operational sponsor of a corporate account, which involves direct interaction with key customers to further improve the service provided to them.
“First and foremost we need to run an operation that is the best it can possibly be, and there are many ways you can look at this,” Schmitz says.
A supply chain function will never operate at its best when not closely embedded into business processes and functions. It is key to be a reliable partner for internal stakeholders to deliver on their objectives such as revenue and market share. In addition, it is also about influencing other functions on programs which improve the end-to-end process, such as projects around forecast accuracy.
“On the one hand we can judge by our success in the market, which proves we can deliver the 35 PCs every minute. But on top of that we need to look at how we deliver those 35 PCs – you could simply do it with a lot of firefighting, but we are firm believers in strong process management.”
This means drawing on a network of experts who own various processes in the supply chain. For each process HP has identified a process manager who is always looking for ways to improve, using all available metrics to make informed decisions.
Automation is another area which is helping HP boost operational excellence. Robotics and smart automation techniques hosted in the cloud are taking on manual, repetitive tasks, cutting out human error and speeding up important processes. Around 300 such smart robots are currently operating at HP worldwide.
World class financials
“A supply chain is not just responsible for simply producing and delivering, but doing so within a sustainable cost frame. We are in a business where competition is tough and products can change every two or three months. Whether it’s planning, sourcing, producing or delivering, we have functional owners who operate with the mantra ‘make it better’, finding new opportunities to save money on a component wherever they can or improve processes to reduce costs or improve cashflow. This ultimately helps us to have competitive prices on the market.”
“For me this is a triangle made up of inventory, costs and customer satisfaction, and balancing on the tips of this triangle is what we must do,” Schmitz adds.
A winning team
Continuous development of employees makes up the fourth pillar. Employees based in European centres of excellence pool together knowledge from different functions into one place, which is backed up by extensive training programmes.
“In supply chain it is very important that we have specific skills and capabilities, and to ensure that we have very targeted development programmes, whether it be on analytics and spotting trends in data or being certified to run big projects,” Schmitz says.
“As a company we have a new learning concept which involves a greater focus on interactive ways of learning, not just training classes but online support and groups which connect people looking for the same outcomes.”
Futureproof through innovation
Finally, and perhaps the most significant in terms of strengthening HP’s position at the front of the printing and personal systems industry, is supply chain innovation. “To operate a supply chain as described, it is also important to spend sufficient time and energy on innovation and improvements – this is what often is called ‘Bi-modal’, Schmitz continued.
One example in a series of initiatives to drive innovation is Instant Ink, a new subscription service to cater for replacement ink supplies. Customers pay a monthly fee and in return receive ink as soon as the printer communicates to HP that it is running low – this ensures a continuous supply of ink while removing the need for clients to manually order.
Schmitz explains: “If you have a printer and run out of ink the usual step is to visit a contract supplier or retailer to acquire more, but we are asking why this can’t be done for you. We started this in several countries and are seeing huge growth rates and, because it is so easy, customers continue using it. It is one of the fastest growing web services in the world – and for us it is like a digital supply chain.”
In the future, Instant Ink is likely to fill printers made with components that have themselves been printed. While 3D printing is not new for HP, the latest product launches are based on technology that the company has developed in-house with its own intellectual property.
There are many implications for the supply chain when launching new categories like 3D printing, where a new ecosystem will need to be generated with a new supplier network.
“The really compelling thing is that we have started to 3D print components for our own printers,” Schmitz says. “There is no reason why we can’t print plastic components and when we started to change the design of those plastics, it has helped us to realise strong cost savings. We believe this can change the way manufacturing is done in the world, and HP is in a position to lead the growth of this. We are partnering with companies in sectors such as automotive, fashion and chemicals to explore opportunities and speed up this development.”
It is innovation in areas such as subscription printing and 3D printing technology that will allow HP to maintain its global market-leading status, with Schmitz determined to deliver this at a sustainable cost and at speed.
He adds: “The quicker and cheaper we can develop this, the more we can increase volumes and make it a profitable venture. We did this with thermal inkjet printers decades ago, and we can disrupt the market again.”
Continual innovation in the supply chain will be key to enabling HP to further improve customer satisfaction levels in the months and years to come, maintaining a competitive advantage not only for itself but also its network of partners around the world.