1-Analytics in the HP Supply Chain

©2010 HP Confidential1

ANALYTICS IN THE HP SUPPLY CHAINApiruk Detwarasiti, Shawn Tay

Managers, Strategic Planning and Modeling (SPaM)

Hewlett-Packard


AGENDA

–HP’s supply chain•The Pan HP supply chain optimization

–Role of analytics in the HP supply chain

•Executing analytics and communicating their insights

–Business Analytics in companies

•Setting up an effective internal analytics consulting team

–Q&A

©2010 HP Confidential3 ©2010 HP Confidential3

HP’S SUPPLY CHAIN AND THE PAN HP OPTIMIZATION


THE WORLD’S LEADING TECHNOLOGY COMPANY WITH $120B REVENUE…

Imaging & Printing Group

20%

Personal Systems Group

32%

HP Services28%

Enterprise Storage & Servers

14%HP FinancialServices and other

3% Software3%

EMEA36%,

up 9% Y/Y

Asia Pacific18%,

up 14% Y/Y

Americas46%,

up 12% Y/Y

Q3 FY10 revenue: $30.7B

REVENUE BY SEGMENT REVENUE BY REGION


THE LARGEST

BUYER OF IT

INDUSTRY

STANDARD

COMPONENTS*

…AND THE LARGEST IT SUPPLY CHAIN

*Source: Gartner Research, January 2010

4 serversEVERY 60

SECONDS HP

DELIVERS120 PCs

HP purchases 1 of 6 X86

Processors

HP purchases 1 of 5 DRAM

Memory

HP purchases 1 of 8 HDD

100 printers


PAST PRINCIPLES AND GROWTH DROVE SUPPLY CHAIN COMPLEXITY

2009 BASELINE

• ~100 acquisitions since 1989

• ~450 physical nodes

• ~2000 suppliers

• ~1000 supply chain processes

• ~300 supply chain IT systems

• ~55K+ SKUs

PAST OPERATING

PRINCIPLES:

• Decentralized decision making

• Many autonomous business

units

INORGANIC GROWTH:


SUPPLY CHAIN OPTIMIZATION ACROSS HP

PROCUREMENT

AND PRODUCT

DESIGN

PHYSICAL

NETWORK AND

LOGISTICS

PROCESS AND

IT

APPLICATIONS

SERVICES AND

WARRANTY

STREAMLINE, SIMPLIFY, STANDARDIZE

THE PAN HP SUPPLY CHAIN OPTIMIZATION

WE ASPIRE TO BUILD THE INDUSTRY’S BEST SUPPLY CHAIN . . . A 10 OUT OF 10


PC Storage Array Non-stop ServerIndustry Standard

Server

ProCurve Switch

LEVERAGING SCALE THROUGH CONVERGENCE AND STANDARDIZATION

Driving component standardization across all HP product lines

Memory ProcessorsHard disk

drives

PROCUREMENT

AND PRODUCT DESIGN

PHYSICAL

NETWORK AND LOGISTICS

PROCESS AND IT

APPLICATIONS

SERVICES AND

WARRANTY



CONSOLIDATE HP’S GLOBAL FOOTPRINT

PSG PC

ESS

IPG

Distribution centers

Includes owned, third party and

facilities under construction

PROCUREMENT

AND PRODUCT DESIGN

PHYSICAL


PROCESS AND IT

APPLICATIONS

SERVICES AND

WARRANTY



RATIONALIZE TOOLS AND PROCESSES

PROCUREMENT

AND PRODUCT DESIGN

PHYSICAL


PROCESS AND IT

APPLICATIONS

SERVICES AND

WARRANTY


IMAGING & PRINTING GROUP

PERSONAL SYSTEMS GROUP

ENTERPRISEBUSINESS GROUP

5 GBUs

3 GBUs

5 GBUs

ACQUISITIONS

REGIONAL VARIATIONS

ROUTES TO MARKET VARIATIONS

A L L R E G I O N S

PLAN

PROCURE

PRODUCE

DELIVER

PLAN

PROCURE

PRODUCE

DELIVER

PLAN

PROCURE

PRODUCE

DELIVER140

70

50

60

500

180

190

175

Tools Processes

320 1045


SIMPLIFY SERVICES PHYSICAL SUPPLY CHAIN

Physical Network Alignment

(Co-habitation)

Operational & IT

ConvergenceCurrent State

Source: Pan-HP Supply Chain Physical Network, Services Team, February 2010

Physical Network

Optimization

SDA – Service

Delivery

Architecture

Pan-HP

Supply Chain

Optimization

IPG GSCO

PSG CEWS

TS GPSC

IPG GSCO

PSG

CEWS

TS GPSC

Co-Location

Pan-HP Services

PROCUREMENT

AND PRODUCT DESIGN

PHYSICAL


PROCESS AND IT

APPLICATIONS

SERVICES AND

WARRANTY



SETTING THE PACE ON THE ENVIRONMENT

We will reduce energy consumption and associated greenhouse gas

emissions of all products by 40% below 2005 levels by the end of 2011.

We’re working to save customers 1 billion kWh by 2011 through improved

energy efficiency of HP’s high-volume desktop and notebook PC families.

We recovered 112,000 tonnes of electronic products and supplies for

recycling in 2009, avoiding an estimated 210,000 tonnes of CO2e emissions.

Our goal is to cut the energy use and greenhouse gas emissions from our

operations 20% by 2013, compared with 2005.

We’re on track to recycle 2 billion pounds (900,000 tonnes) of electronic

products and supplies by the end of 2010.

PROCUREMENT

AND PRODUCT DESIGN

PHYSICAL


PROCESS AND IT

APPLICATIONS

SERVICES AND

WARRANTY


HP SUPPLY CHAIN RANK #1 IN LOW-CARBON AND ENVIRONMENTAL LEADERSHIP

IN THE ICT INDUSTRY BY GARTNER AND WWF


ROLE OF ANALYTICS IN THE HP SUPPLY CHAIN


EDELMAN PRIZE WINNER:

– The Franz Edelman Award for

Achievement in Operations Research

and the Management Sciences

recognizes excellence in the execution

of operations research on the

organizational level

– HP won the Edelman Award in 2009 for

its work in “Transforming Product

Portfolio Management With Operations

Research”


THE CHALLENGES OF VARIETY

Cost

Customers

Suppliers

• Inventory-driven costs

• Product design costs

• Sales and marketing costs

• Forecast inaccuracies

• Excess & obsolescence

• Order cycle time

• Delivery time predictability

• Availability / stockouts

• Inventory-driven costs

• Design changes

Over 2,000

laser printers

Over 20,000

enterprise server

& storage SKUs

Over 8,000,000

possible desktop

& notebook PC

configurations


THE ORGANIZATIONAL DIVIDE

Supply Chain

Better forecasting

Precise buffer stocks

Less inventory

Lower cost

Shorter order cycle

Reliable deliveries

Marketing

More platforms

More SKU’s

More features

More market share

More choices

Happier customers

Marketing


Post-launch:

Portfolio Management with RCO

ROLE OF ANALYTICS IN HP’S

PORTFOLIO MANAGEMENT PROCESS

0

20

40

60

80

100

0 300 600 900 1200

Example Complexity ROI Calculator Example RCO Output

Pre-launch:

ROI Screening

# of products

% o

f re

venue c

overe

d


TRADITIONAL EVALUATION OF PRE-LAUNCH (NEW) PRODUCT PROPOSALS

Benefits of

adding new

variant

Costs of adding new variant


COMPLEXITY COST MODEL DURING PRE-LAUNCH PHASE

CategoriesKey driver

• Product

Volume

• Material costs (volume

discounts)

• Variability-driven costs

(inventory-related costs,

expediting, cost of lost sales

due to stockouts)

Variable

Complexity

Costs

• Resource costs in R&D, testing,

product management, etc.

• External cash outlays (e.g.,

tooling)

• Indirect impacts such as

warranty program expenses,

quality impacts, etc.

• Product

VarietyFixed

Complexity

Costs


IMPLEMENTING THE SOLUTION: COMPLEXITY ROI CALCULATORS

One-time

analysis

Identify and estimate key

complexity cost impacts of

variety

Spreadsheet

tool

Codify relationships into

complexity return on

investment (ROI) calculator

Ongoing

business

process

Screen new product

proposals using complexity

ROI calculator

http://www.truereckoning.com/download/attachments/2162719/NPI-NPD.jpg


Traditional approach

Rank products by revenue

generated or units shipped

Limitations

Ignores interdependencies

among products

POST-LAUNCH VARIETY MANAGEMENT

Use order history to understand products’

relative importance

• Improve operational focus on key products

• Evaluate unimportant products for

discontinuance

Post-launch product portfolio management


ORDER COVERAGE

– A customer order is covered by a product portfolio if all of its products are included in the portfolio

–

– Order, revenue or margin coverage of a portfolio is the number, revenue or margin of historical orders that can be completely fulfilled from the portfolio

A product portfolio

covered order

non-covered

order


REVENUE COVERAGE OPTIMIZATION (RCO)

– Rank products according to their importance to revenue coverage

– RCO ranking corresponds to efficient frontier of revenue coverage and portfolio size

– Use RCO ranking to identify:• Core Portfolio

• Extended Portfolio

• Possible candidates for discontinuance

# of products

% o

f re

ve

nu

e c

ove

red

0

20

40

60

80

100

0 300 600 900 1200


SUMMARY OF BUSINESS IMPACT

• Over $500M in savings and $180M in ongoing annual savings

• Significant order fulfillment improvements

• Thousands of SKUs eliminated

Our customers are the real winners!

Marketing Supply Chain

Fact-based discussions

Data-driven decisions

Analytics


COMMUNICATING ANALYTIC INSIGHTS TO NON SUPPLY CHAIN STAKEHOLDERS


Simulation helps highlight impact of early and infrequent

replenishment to DC, also compared against what is going on today

Inventory under various replenishment policies at DC

0

50000

100000

150000

200000

250000

1-

May

8-

May

15-

May

22-

May

29-

May

5-

Jun

12-

Jun

19-

Jun

26-

Jun

3-Jul 10-

Jul

17-

Jul

24-

Jul

31-

Jul

7-

Aug

14-

Aug

21-

Aug

28-

Aug

4-

Sep

11-

Sep

18-

Sep

25-

Sep

Date

Un

its

Current practice - 28 DOS Current policy (replenish 50:30:20 of monthly demand) - 18 DOS

Weekly policy (replenish 4x25 of monthly demand) - 12 DOS Weekly policy (replesnish weekly demand) - 6 DOS

Historical demand Month end

ANALYTICS: SIMPLE SIMULATION OF OPERATIONAL DATA


Typical “OTD vs Cost” trade-off shows that more

locations (more expensive) implies better TAT…

…which can be validated if that was really the

case (historically)…

TAT performance of products having 5 DCs

0

0.1

0.2

0.3

0 1 2 3 4 5 6 7 8 9 10 >10 Days

% o

f

dem

an

d


0

0.05

0.1

0.15

0.2

0 1 2 3 4 5 6 7 8 9 10 >10 Days

% o

f

dem

an

d

90th Percentile

90th Percentile

…and why it was (not) so


0

0.1

0.2

0.3

0.4

0 1 2 3 4 5 6 7 8 9 10 >10 Days

% o

f

dem

an

dShipped from wrong DCs

Shipped from right DCs

Cost vs OTD Tradeoff

16.6

16.8

17

17.2

17.4

17.6

17.8

18

18.2

18.4

18.6

18.8

8 9 10 11 12 13

OTD

Un

it c

ost

Demand allocation by DCs

DC1 10%

DC2 15% 15% 10% 5%

DC3 7% 10% 15% 15% 20%

DC4 8% 15% 15% 20% 20% 30%

DC5 60% 60% 60% 60% 60% 70%

ANALYTICS: OPTIMIZATION AND VALIDATION OF PERFORMANCE DATA


Market data, e.g., futures, is used to predict

range of future prices…

Range-based oil prices

0

50

100

150

200

250

Jul-

03

Jul-

04

Jul-

05

Jul-

06

Jul-

07

Jul-

08

Jul-

09

Jul-

10

Jul-

11

Jul-

12

US

D

Historical Price 90th percentile

Futures Price 10th percentile

Today

Sensitivity of key strategy to key drivers

-15 -10 -5 0 5 10

Asia Labor Rate

Asia Rent Rate

Asia Utility Rate

Capacity per line

Air/Ocean Mix

Oil Price

Air freight costs

Ocean freight costs

IDC Rate

Asia Currency

Millions

Lower than base case Higher than base case

Regional Central20%

20%

20%

20%

50%

20%

20%

$250

12.0%

15%

-20%

-20%

-20%

-20%

20%

-20%

-20%

$100

5.0%

-10%

Base case

…which are then incorporated into sensitivity

analysis of choices to uncertainties

Range derived

thru volatility of

historical

change in

Futures price*

ANALYTICS: SENSITIVITY ANALYSIS ON FUTURE MARKET DATA


-

0.200

0.400

0.600

0.800

1.000

1.200

1.400

1.600

1.800

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec

0

0.2

0.4

0.6

0.8

1

1.2

1.4

1.6

1 3 5 7 9 11 13 15 17 19 21

-50000

0

50000

100000

150000

200000

250000

May

-06

Jul-0

6

Sep

-06

No

v-0

6

Jan

-07

Mar-0

7

May

-07

Jul-0

7

Sep

-07

No

v-0

7

All SKUs 3-Period moving Avg

By combining relevant data, e.g., seasonality of product

family, lifecycle of precursor SKUs, etc,…

…product volumes over lifecycle can be forecasted even

for products with no history

ANALYTICS: LIFECYCLE FORECASTING WITH NO HISTORY


BUSINESS ANALYTIC CONSULTING IN COMPANIES


• Talent development for HP by recruiting from top PhD/MBA programs1 and consulting firms2

and within HP

• Training and coaching across HP on supply chain, analytics, and consulting skills

• Service provider to HP businesses through a consulting engagement model

• Shared resource of experts (~15 HC) in analytics, consulting and operations management

• Neutral third party to drive data-driven decisions in HP operations

1. Including MBA and PhD degrees from Stanford, MIT, Cambridge, Kellogg, Georgia Tech, and other top programs.

2. Including consulting positions at McKinsey, BCG, Booz-Allen, Deloitte, and SDG.

SPaM is an analytics team working through an internal consulting model to support operational innovation and operations strategy

Talent Development

High-Impact Projects

• Knowledge broker across HP

• Network of academic & industry contacts

• 20+ year track record of innovation and support for diffusion (postponement, IDC metric, PRM, DfSC, ...)

Innovation

SPaM

STRATEGIC PLANNING & MODELING (SPAM)


ENSURING THAT YOU HAVE THE RIGHT SKILLS IS CRITICAL

Spre

adsheet &

F

inan. M

odelin

gD

ata

Analy

sis

Deci

sio

ns

Under

Unce

rtain

tyP

redic

tive

Modelin

g

Optim

izatio

n

Sto

chastic

M

odelin

g

Supply Chain

Forecasting

Portfolio Mgmt.

Pricing

Customer Analytics

Marketing Analytics

“Must

have” Skills

Analytics Skills Consulting Skills

Good in All, Great in Some

Specia

lty 1

The Generalist (T)

Specia

lty 2

The Specialist (I)

World-Class in Some

Specia

lty 1

Specia

lty 2

Problems will require varying

skills but all analytics projects

require modeling and data

analysis skills

For high impact analytical

business consulting, we need

T’s (not I’s)


Basic

• Spreadsheet

Modeling

• Data analysis

Advanced

• Optimization

• Simulation

• Probability and

Statistics

• Decision / Risk

Analysis

• Financial /

Economic

• Problem-

framing,

structuring and

synthesis

• Project

management

• Neutral

facilitation with

total shareholder

value view

• Supply chain strategy and

design

• Operations tools and

processes

• Pricing analytics

Operations

Management

Expertise

Consulting

Experience2

SPaM

Analytics

Skills1

1. Including MBA and PhD degrees from Stanford, MIT, Georgia Tech, Kellogg and other top programs.

2. Including post-MBA level consulting positions at BCG, Booz-Allen, Deloitte, and McKinsey.

SPAM’S SUPPORT COMBINES ANALYTICS, CONSULTING, AND OPERATIONS EXPERTISE


Project PartnershipB

U (

Bu

sin

es

s U

nit

)

manages resources, schedule, and communications

facilitates data collection

provides specific business knowledge

provides guidance on frame, scope, alternatives

- Joint Recommendation -

SP

aM

leads the consulting effort

conducts analysis, interviews, and presentation

provides functional and modeling expertise

ANALYTICS REQUIRES COLLABORATION WITH OPERATIONS TO HAVE IMPACT


Q&A

1-Analytics in the HP Supply Chain

Documents

hp confidential procurement

seconds hp

hp confidential source

hp supply chain rank

pan hp optimization

hp financial services

organizational level

supply chain processes