HP Supply Chain Strategy: Agile and Lean Pipeline Designs

Introduction: Supply Chains and Competitive Advantage

Research indicates that supply chains help organizations attain competitive advantage. In turn, the successes or failures of such supply chains are determined in the open market by end consumers. Delivering the right product, at the right price, at the right time to the consumer is not only the fundamental aspect of competitive success but also a vital element of survival (Christopher and Towill, 2001). Given the complexity of supply chains today — due in part to globalization and outsourcing — the way in which supply chains are structured can make the difference between an organization generating profit or loss. Different types of structures give management the option to select the one that best suits consumer expectations. However, it is essential that the chosen pipelines align with the business strategy of the supply chain (Christopher and Towill, 2002).

In their article "Developing Market Specific Supply Chain Strategies," Christopher and Towill (2002) propose three feasible pipeline designs, all of which are relevant to the global apparel and electronics supply-chain framework. First, predictable demand for standard items can be met by means of a lean pipeline, perhaps sourced from overseas manufacturers. Second, unstable and volatile demand for specialty items can be met through an agile pipeline, perhaps sourced from domestic manufacturers. The third pipeline design addresses rapid replenishment of standard products for which there is unanticipated demand for particular colors, sizes, volumes, and similar variables (Christopher and Towill, 2002).

This paper elucidates how one or more of these pipeline designs for supply management fits with the strategy of global electronics company Hewlett-Packard to optimize materials and product flows. Further, the paper develops and presents a strategy for implementing change within the organization, with the objective of bringing about a transformation that will secure competitive advantage through improved performance, coordination, and innovation.

Hewlett-Packard and Supply Chain Management

Hewlett-Packard Company (HP) is one of the largest information technology (IT) corporations in the world. Centered in the information systems industry, HP is a technology organization that specializes in storage computing, hardware, software, and network services. HP is well known for providing technological solutions to individual consumers, businesses, and other entities across the globe, competing with IBM in providing CPUs, printers, lasers, and other products (Hewlett-Packard, 2012). Hewlett-Packard has undertaken a journey to institute and drive greater efficiencies in the supply chain while simultaneously leveraging its competitive edge through a responsive, integrated, and commercial approach to supply planning and consumer satisfaction. With a consumer-centric approach to operations within its supply chain, Hewlett-Packard continues to invent new ways to segment and serve a wide range of consumer needs (Johar et al., 2014).

According to Lee (2004), the most effective supply chains are able to identify structural changes — sometimes before they occur — by capturing the latest data, filtering out noise, and tracking major patterns. Subsequently, they shift facilities, alter supply sources, and where possible, outsource manufacturing and production. For example, when HP began manufacturing inkjet printers in the 1980s, the company established both its manufacturing and research and development divisions in Washington (Lee, 2004). The company wanted its product development and manufacturing teams to work in tandem, since inkjet technology was in its infancy and the primary printer market was in the United States. As demand increased in different regions of the globe, the company established manufacturing facilities in Singapore and Spain to meet demand in Asia and Europe respectively (Lee, 2004).

Despite Washington remaining the location where new printers were developed, Singapore grew into the largest production facility because HP required economies of scale for its continued survival. By the mid-1990s, the company recognized that manufacturing technologies for printers had advanced sufficiently that it could subcontract manufacturing entirely to wholesalers. Subsequently, Hewlett-Packard achieved significant cost reductions and continued to be a leader in an extremely competitive market (Lee, 2004).

To sustain its position as a leader in the IT industry, HP must keep pace with continuous advances in technology in an intensely competitive marketplace. Each fiscal year, the company releases thousands of new products, causing older ones to lose their value quickly (Billington et al., 2005). With fierce market competition, it is vital for HP to appropriately design, build, and improve the supply chain wherever possible. As a result, cost factors — such as write-offs, material devaluation, and scrap costs — have become the single largest drag on profitability (Billington et al., 2005).

HP has addressed this challenge by first identifying, and then reducing, inventory-driven expenses through a combination of in-house worksheets and the modeling capabilities of Hewlett-Packard's internal Strategic Planning and Modeling group (SPaM) (Billington et al., 2005). Through this approach, suggested strategies for supply chain management typically encompass integration, harmonization, and partnership both within the organization and across organizations throughout the supply chain. Internally, SCM accounts for varied activities such as inventory allocation, demand forecasting, and network alignment (Amaral and Kuettner, 2008).

Market-Specific Supply Chain Strategies

Within any industry, an organization can utilize three different approaches to attain a competitive advantage over rivals and achieve superior performance. These approaches consist of differentiation in product offering, cost leadership, and focus. Differentiation in product offering involves providing consumers with a unique product or service compared to prevailing options in the marketplace. The focus strategy involves offering a product or service while concentrating on a particular group of buyers, target market, or market segment. The cost leadership approach involves offering consumers a product or service at a lower price than competing alternatives, attracting consumers by offering greater value (Tanwar, 2013).

According to Christopher and Towill (2002), companies that utilize a lean supply strategy are continually striving to attain competitive advantage through cost leadership. By contrast, companies that utilize an agile supply strategy constantly endeavor to gain an edge through product and service differentiation. In the lean supply strategy, the key emphasis is on reducing waste in order to achieve cost leadership, and the major component involves proper management of relationships within the supply chain (Christopher and Towill, 2002). Manufacturing through the lean supply strategy requires strong relationships between suppliers and consumers, giving rise to a high degree of shared knowledge and mutual reliance. To sustain lean manufacturing benefits, every position within the lean supply chain should reflect high levels of information sharing, rapid improvements in supplier performance, and minimal transaction costs. The lean supply approach therefore expects suppliers to participate enthusiastically in eliminating all waste within the product pipeline (Davis, 2015).

The key goal of an agile supply chain strategy is to facilitate flexibility in order to generate product or service differentiation through service levels. Key elements of the agile supply chain include responsiveness to substantial changes in market requirements, realignment of production practices, and resolution of communication and relationship challenges (Christopher and Towill, 2002). Manufacturing through the agile supply strategy requires strong consumer–supplier relationships that create a high degree of cooperation and trust. Implementations within the agile supply chain should account for the perspectives of personnel and management, and also reflect the organization, design, and marketing of a product (Christopher and Towill, 2002). Effective agile supply chain positioning is therefore reliant on the alignment of environmental decisions, strategic approach, and adopted expertise, procedures, and structures (Christopher and Towill, 2002).

According to Christopher and Towill (2002), companies should ideally seek to benefit from the strengths of both agile and lean supply chain strategies. Both approaches can function at particular points within the same setting, or they can function concurrently in distinct settings within a firm's supply chains. As noted by Christopher and Towill (2002), through the application of the Market Winners/Market Qualifiers Framework, firms may need to design the leanest possible agile system or the most responsive possible lean system. Decisions along the lean dimension trail cost as the competitive edge; decisions along the agile dimension treat availability and accessibility as the competitive edge (Davis, 2015). Notably, both cost and availability function simultaneously as market qualifiers under the Market Winners/Market Qualifiers Framework (Christopher and Towill, 2002). Hewlett-Packard illustrates this duality well, as the company both retails and manufactures hardware, software, and associated services for consumers and enterprises.

Conclusion

In a strategic sense, supply chain management is recognized as a key mechanism for achieving business process advantages. Having healthy relationships within the supply chain is essential to ensure the harmonization of consumer requirements, supplier capabilities, and market conditions. Extensive research on Hewlett-Packard aligns with the proposition advanced by Christopher and Towill (2002) that there are three feasible pipeline designs for supply chains, based on product characteristics and production practices. Supply management decisions within HP's strategy — which support improvement in prevailing practices — typically involve altering the organizational structure alongside communication channels that reflect the conditions of the external environment. A clear example is HP's decision to implement the agile supply strategy through operationalized postponement methods, aimed at achieving competitive advantage in a fast-changing technology industry (Davis, 2015).

In the technology industry — and particularly in the computer manufacturing segment — conforming to quality standards is an important element in securing consumer orders. Nevertheless, the most significant element is the capacity to develop cutting-edge technologies while also ensuring product accessibility. The ability to customize consumer orders creates remarkable opportunities for greater flexibility, reduced inventory investment, and enhanced service levels. Based on Hewlett-Packard's supply chain management experience, implementing the agile supply chain strategy for product customization is a key product and service differentiation approach for competing effectively in international markets (Lee et al., 1993; Davis, 2015).

References

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