Commenting to my last post, Mutka asked the question on how HP handles predictability and reliability in its supply chain. I realized that to provide him with a thorough response, I should explain the HP Supply Chain in more details. I have taken the decision to do this in a number of posts, whose title will start with HP Supply Chain. So, look out for those.

Last year, the HP Supply Chain took care of more than 45 million PC's, 30 million printers and 2.5 million servers. This makes it one of the largest electronics supply chains in the world. Knowing that most of the production is outsourced, you can imagine the size of the task. To facilitate the process, HP implemented a couple simple concepts which I would like to highlight here:

The first concept, a Supply Chain Pipe is a specific set of standardized business processes, IT systems, physical and financial flows. Looking at it in a modular approach enables a flexible composition of various elements to meet a wide range of customer needs and the goals of our business.

The second concept, which is well known in the industry, is Postponement. This concept invented by HP in the 90's, consists in keeping a product as generic as possible as late as possible in the supply chain, and only perform the differentiation when an order or demand is available. If you are interested in more details, see "Case Studies of Postponement in the Supply Chain" by Susan M. Rietze.

The components of a Supply Chain Pipe typically include a factory, shipment (most often by boat), a postponement center, a distribution center, logistics (typically truck) and channel partners. Factories are typically off-shore. The positioning of the postponement and distribution centers change to provide the best customer service at the lowest cost. Our volume products typically use one of the following three pipes:

• The Value Added Pipe, where both the postponement and distribution center are in the region, is used when the quantities of products are relatively small and the demand rather unpredictable. Often this occurs at the introduction of the product and during the end-of-life period.
• The Low Touch Pipe, where the postponement is performed off-shore, is used when the demand predictability increases and when products are ordered per pallet for example.
• The No Touch Pipe, where the product is directly shipped to the channel, is used for products that can be shipped in large quantities (e.g. Containers). Both postponement and distribution is performed off-shore.

During the lifecycle of the product, the pipe used may change as demand changes. At regular intervals, the situation is reviewed and a decision is taken which of the pipes will be used for the next period.

In doing so, and in combining this with the management of our channel's inventory levels (which I will discuss further in one of my next posts), we are managing to keep a good handle on inventory and service levels. At the same time this allows us to react rather quickly to opportunities or downturns. It is not the only element that plays, but it definitely helps scaling up and down effectively.