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Supply Chain Management of Hewlet Packard (HP)

Discuss Supply Chain Management of Hewlet Packard (HP) within the Elements Of Logistics forums, part of the PUBLISH / UPLOAD PROJECT OR DOWNLOAD REFERENCE PROJECT category; Hewlett-Packard Company (NYSE: HPQ), commonly referred to as HP, is an American multinational information technology corporation headquartered in Palo Alto, ...

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Supply Chain Management of Hewlet Packard (HP)
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Supply Chain Management of Hewlet Packard (HP) - December 29th, 2010

Hewlett-Packard Company (NYSE: HPQ), commonly referred to as HP, is an American multinational information technology corporation headquartered in Palo Alto, California, USA.. The company was founded in a one-car garage in Palo Alto by Bill Hewlett and Dave Packard, and is now one of the world's largest information technology companies, operating in nearly every country. HP specializes in developing and manufacturing computing, data storage, and networking hardware, designing software and delivering services. Major product lines include personal computing devices, enterprise servers, related storage devices, as well as a diverse range of printers and other imaging products. HP markets its products to households, small- to medium-sized businesses and enterprises directly as well as via online distribution, consumer-electronics and office-supply retailers, software partners and major technology vendors.

Hewlett-Packard’s supply chain is a competitive advantage as the company aims to press its vast economies of scale. That said, HP’s supply chain is very much a work in progress.

Tony Prophet, senior vice president of HP’s global supply chain operations for its personal systems group unit, spoke Wednesday at an RBC Capital Markets investment conference.

Prophet’s talk focused on HP’s supply chain and how the company has worked to become more efficient. The transcript of the chat was notable—at least for a supply chain wonk—because it shed light on the moving parts of HP and how the company gets goods from point A to B.

Here’s a look at HP’s supply chain by the numbers courtesy of Prophet:

$60 billion: Sum of purchases for what Prophet calls “the world’s largest IT” supply chain. That tally includes components, logistics, transportation, warehousing and services associated with the supply chain.

2: Number of PCs produced or shipped every second. Two printers are also produced or shipped every second.

15 seconds: Time it takes HP to produce or ship a server.

$50: Supply chain costs related to a PC. Prophet says supply chain costs refers to “transformation,” or manufacturing, and items like transportation and duties. The cost of manufacturing and transformation in a PC is now less than the cost of memory in a computer.

70 PC supply chain sites following the HP-Compaq merger. Prophet explained that these sites—known as nodes—had inbound and outbound hubs, unique IT connections and overhead to manage the network.

30 supply chain sites in 2009 after HP whittled down its PC supply chain complexity. Prophet said: “You can see that more than concentrated in more competitive locations, cost locations. You can’t see that few of them are Company-owned. And this is a blend of factories that HP owns and partner factories. But few of them are company-owned.”

4 for 4: The number of so-called BRIC (Brazil, Russia, India and China) countries where HP has manufacturing capacity. Prophet said HP has expanded capacity in Brazil; India, where HP owns a facility; Russia with a plant launched this year; and China, where HP has a factory in Shanghai and western China.

2 years ago: That’s when HP decided to start building plants in western China. By moving inland, HP had better access to labor, lower costs and proximity to a growing market. The first aim of this plant, which primarily makes notebooks, is to make PCs for China in China.

2: Links needed to export from China. HP is planning to export to other markets from that Western China facility. Prophet said:

We’re going to work on a rail-sea link to move by rail on a relatively expedited basis to the port in Shenzhen and then by sea to the various harbors of Long Beach and Rotterdam, etc. And the second link is an air link. Air terminals that are being built (with) an expanded runway, long enough for 747 freighters that positions us to export by air or by sea from Central China.

20 days: Transit time by ocean, port to port, for a notebook made in China to hit the port at Long Beach, Calif.

39 to 40 days: Transit time by ocean, port to port, for a notebook made in China to reach Rotterdam, The Netherlands.

3 to 4 days: Time it takes for that notebook to go from a China manufacturing facility to the U.S. or Europe (including customs clearance).

450: Total supply chain nodes HP has if you were to combine the PC supply chain and distribution points with the imaging and printing business. That supply chain tally covers everything from shipping points to manufacturing facilities, warehouses and other items. Related: HP’s supplier list.

10 hours: Interval between fully loaded flights of HP products out of Shanghai. This airfreight is carried on 747-400 freighters.

80 percent: That’s the percentage of industry standard components in HP’s industry-standard servers.

Mid- to high 90 percent: That’s the percentage industry standard parts in an HP PC.

1000s: Number of rough processes in HP’s supply chain across its various businesses.

25 percent: Percentage of HP supply chain processes that are shared between all supply chain activities today.

HP released the list “with the intent of promoting transparency and progress in raising social and environmental standards in the electronics industry supply chain.”

While this list may have transparency benefits, I find it a fascinating list because it exposes the HP ecosystem and results of a social responsibility audit. Most supply chain details are kept close to the vest and suppliers are largely unknown. HP’s list also surfaces a few companies–Elpida Memory, Kinpo Electronics and Pegatron to name a few–you’ve probably never heard of.

The list–delivered in HP’s 2007 Global Citizenship Report–includes contract manufacturers, electronic manufacturing services providers, original design manufacturers and commodity suppliers. If other companies follow HP’s lead, the list may become a way to cross-reference suppliers, find investments and also just point out emerging trends and companies we should watch.

HP’s supply chain social and environmental responsibility (SER) program is based on a four-phase supplier management system that aims to build suppliers’ capabilities (see graphic below). Over the past seven years, all of our key production suppliers have completed the introduction and assessment stages. These first two stages now comprise mainly new suppliers. Suppliers move to the validation phase based on risk assessments (see below), before entering the capability-building phase, where we develop programs to address key training needs, ensuring lasting performance improvement. Currently, we concentrate our efforts on validation and continual improvement. Our experience is that suppliers’ performance improves most in these two stages.

In 2009, we expanded our program to include many more nonproduction suppliers. We have targeted 24 global strategic suppliers, ten high-risk suppliers in Latin America and 27 high-risk suppliers in Asia Pacific. Since the start of this initiative, 90 percent of our targeted nonproduction suppliers have signed SER agreements and completed SER assessments (See Assessment in graphic below).
Four-phase supplier management system*
Line chart showing four-phase supplier management system
* The gap between introduction and assessment represents sites that are low risk based on the company or country they are in. The gap between assessment and validation represents sites whose self-assessments indicate they are low risk. The increases in introduction and assessment in 2009 are largely due to the expansion of our program to nonproduction suppliers.

The following sections explain each step in the four-phase supplier management system.
Phase 1: Introduction

HP assesses potential suppliers according to our risk-based approach outlined below. This helps us establish the appropriate level of participation in our program for a supplier. Once the assessment is complete, we confirm the SER requirements in our contract.
Phase 2: Assessment

HP requests that high-risk suppliers complete a self-assessment questionnaire link to PDF to identify potential SER performance risks. Self-assessments help suppliers understand our expectations for conformance to HP’s Electronic Industry Code of Conduct link to PDF.

HP reviews and provides feedback on the self-assessment, and suppliers create and implement an improvement plan, if required.
Phase 3: Validation and Improvement
Validating conformance

HP believes that auditing will always remain a critical part of supplier engagement.

We have developed a network of local internal auditing teams, backed by independent verification. We do not rely on supplier certification to external standards, because standards can vary among certified companies, and suppliers without certification can have equally rigorous SER management systems. Instead, we use three types of audits:

* Audits conducted by HP employees
* Audits conducted by an external organization to verify the results of HP audits or to investigate allegations
* Joint audits by an external organization on behalf of HP and other Electronic Industry Citizenship Coalition member companies

Responding to nonconformance

We rank nonconformance to HP’s Electronic Industry Code of Conduct (EICC) using standard ISO guidelines.

* Major nonconformance A significant failure in the management system that affects its ability to ensure that conditions conform to HP’s EICC link to PDF or General Specification for the Environment.
* Zero-tolerance major nonconformance The most serious type of major nonconformances are zero-tolerance items, which include underage workers (below the legal age for work or apprenticeship), forced labor, health and safety issues posing immediate danger to life or serious injury, and violation of environmental laws posing serious and immediate harm to the community. If such an item is uncovered, our zero-tolerance policy requires auditors to escalate it immediately. The issue must then be rectified within 30 days of the original audit. HP returns between 30 days and 90 days after the audit days to confirm resolution of the issue.
* Minor nonconformance Not a systemic problem and typically an isolated finding, such as an overdue corrective action from an internal audit or a procedure that has not been revised to reflect a change in regulations. Suppliers have between 180 and 360 days to address minor nonconformances.
* Observation Not considered a nonconformance to HP’s EICC. It recognizes there could be better monitoring or documentation processes.

HP requires suppliers to provide a detailed corrective action plan addressing all identified nonconformances within 30 days of receipt of the site audit report. Suppliers need to demonstrate to us that they have addressed major nonconformances within 180 days. They can do this by delivering to us appropriate documentation or other evidence of resolution. For major nonconformances that require physical checks, we return to all audited sites within two years. We typically see substantial reductions in nonconformances between initial and follow-up audits. See more in Audit results.
Phase 4: Capability building

We believe that remaining engaged with suppliers and providing support is the best way to help them improve their long-term performance.

If a supplier rejects the continual improvement approach, we emphasize that we will not tolerate serious or repeated violations of HP’s Electronic Industry Code of Conduct and will terminate the relationship. Terminating a contract can mean the loss of jobs, so we prefer to collaborate with suppliers to improve factory conditions. See the Proactive engagement section for more information.
Risk-based implementation

We conduct risk assessments to prioritize implementation of our supply chain SER. Our first-tier suppliers (see diagram) select and manage their own suppliers (second-tier suppliers).

The risk factors we use to prioritize suppliers are:

* Location Risk is higher in some locations than others.
* Procurement category Risk is higher in some procurement categories, such as manufactured parts, components and real estate construction services, and lower in others, such as software licensing, marketing services or telecom services.
* Company information Information from previous audits, press articles, incidents or accidents may impact our assessment of supplier risk.
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Last edited by abhishreshthaa; April 29th, 2011 at 05:01 PM..
   
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