It is Friday as we pen this posting and there has been no shortage of major supply chain related news this week, including the continuing human and physical effects of the monsoon flooding occurring in Thailand.  The final icing however was last night’s announcement from Hewlett Packard that reverses the company’s prior decision, two months ago, to explore options for spinoff its B2C PC division.

The open question for Supply Chain Matters now focuses on how much collateral damage has been caused in terms of both consumer and supplier perceptions, and what needs to come next?

Business media has been adding all sorts of spin to the decision, including lots of blame directed at former ousted CEO Leo Apotheker, or the first bold decision undertaken by new CEO Meg Whitman.  The positive aspect to the reversal announcement was Whitman’s admission that HP “confused the market pretty dramatically.” We would add HP’s extended supply chain to that admission. We also reject that it was Meg Whitman’s boldness that led to this resolution, since she was a member of the HP’s board when the prior decision was publicly announced. It was rather a statement of the obvious.

According to an article published by select writers of the San Jose Mercury News, HP CFO Cathie Lesjak pegged the cost of spinning out the PC division to be $1.5 billion, which included costs to launch as a separate entity and create a new global brand.  Of course, that statement alone begs the question of why this analysis was not conducted earlier, before going public with an announcement.  A syndicated Associated Press article reporting  on the reversal decision noted the following: “The company said that its evaluation of the business unit revealed a deep integration across key operations, such as its supply chain and procurement. Ultimately, the review found that the cost to recreate these operations in a standalone company outweigh any benefits of selling the PC unit.”  Most all of our readers would have already known that the study would have pointed to these realities. In previous commentary, we opined that either a clear supply chain leadership voice was not present at the decision table, or other voices were drowning out the facts of the compelling dependencies that HP’s value-chain has on its hardware product offerings.

Now to the question of what comes next, beyond the repairing of a badly bruised HP reputation.

There are analysts advocating that HP needs to streamline and reduce its PC product offerings and provide clearer, more compelling choices for consumers and small businesses.  HP cannot ignore the compelling wave toward tablet and mobile computing, and has already botched a jewel in having acquired the Palm webOS operating system. Others note that the strategic analysis of options for PSG needs to now move into another direction. Supply Chain Matters concurs with all of these.

The next option may lie in what IBM elected to do so many years ago, namely transfer supply chain operational, branding and service responsibilities for PSG to a major contract manufacturer, one that has the capability to assume such a global role, while also supporting the supply chain strategy and efficiency needs for HP’s servers and other hardware products.  Lenovo is what it is today because of that IBM decision. The question is which manufacturer has the capability, resources and willingness to take on the HP opportunity?

In our view, the next best decision for Meg Whitman is to appoint an HP Chief Supply Chain Officer, reporting directly to Ms. Whitman. He or she should be tasked with the responsibility to evaluate the strategic options and logical next step for HP’s procurement and supply chain strategies and capabilities that can best support strategic product direction.  That person should also have an open mind in that in the end, the task ahead may be to outsource PSG.

Bob Ferrari

©The Ferrari Consulting and Research Group LLC, and Supply Chain Matters- All Rights Reserved

Anyone following business headlines these past few weeks could not miss the less than flattering headlines surrounding the recent decision by Hewlett Packard’s board of directors to oust CEO Leo Apotheker with newly appointed CEO Meg Whitman.  These headlines have particular significance for supply chain implications because of HP’s previous publically announced decision to explore strategic options for possibly shedding its PC division.

In our Supply Chain Matters commentary surrounding the ouster we observed that the PC division decision raised yet another bomb of uncertainty for HP’s customers and supply chain partners, that could  also threaten to unwind HP’s high volume leverage in contracting and procurement of strategic hardware components such as displays, memory and other key components.

Today, business media is now reporting that HP is actively re-thinking its previous decision.  The Wall Street Journal reported that fresh analysis conducted by HP indicates that the cost implications related to a spinoff may well outweigh the benefits. Specifically cited in the WSJ reporting is that the company is acknowledging that separating the PC division “would significantly diminish H-P’s buying power with component makers because H-P would lose economies of scale.  It could complicate H-P’s supply chain and decrease profit margins on some products, the analysis suggest.”

For most procurement and supply chain management leaders, this new HP development should be a no-brainer, since grounding in supply chain’s strategy’s impact to business bottom line results comes with the designation of supply chain leader.  The obvious question remains- were any of HP’s former senior leadership team actively voicing such cautions, and why was this recent analysis not completed prior to the announced spin-off decision? Only insiders can provide a true account.

From a broader perspective, Supply Chain Matters believes that it brings forth a very current and real reminder that C-level executives residing in any manufacturing or retail firm need to possess a solid understanding of the tradeoffs of supply chain strategy.  Some argue that senior operational and former supply chain executives, for instance Tim Cook, the current CEO of Apple, are adequately experienced in leading manufacturing and branded companies because of their supply chain roots.  Others, including ourselves advocate that a senior supply chain or operations executive  needs to have a meaningful voice at the senior management table for business strategy discussion.

There is credence for both approaches.

Suffice to reiterate that for manufacturers and retailers, supply chains do matter a lot in formulating and deploying change in corporate strategy. Supply chain input is also crucial in tactical decision-making when overall service level, bottom-line cost, and asset tradeoffs are being considered.

Readers may recall that under the leadership of former CEO Mark Hurd, HP elected to de-centralize its supply chain voice several years ago, folding that voice within separate business units. HP lost that voice and input at the senior management ranks, and we trust that it quickly returns before it is too late.

Bob Ferrari

©2011 The Ferrari Consulting and Research Group, LLC and Supply Chain Matters

The saga of Hewlett Packard and its missteps continue.  Financial and news media are reporting that HP’s board of directors is this evening considering the ouster of current CEO Leo Apotheker after eleven months of turbulence and  controversy, with his successor noted to be recently appointed board member and ex-CEO of eBay, Meg Whitman.  The latest headline comes from the New York Times. The ongoing comedy is that these decisions are supposed to be confidential until announced officially, but then again HP’s board tends to have lots of apparent leaks, extending back to the ouster of two other CEO’s.  Also interesting, HP’s stock has risen as a result of this speculation.

From a supply chain perspective, this new development drops yet another bomb of huge uncertainty, both for HP’s existing customers such as our office, as well as HP’s supply chain partners..  Will the new CEO revisit the decision to spin-out the PC division or go ahead with the decision?  Does Meg Whitman understand supply chain strategy, or does she care? Will HP lose its leverage in the volume procurement of key electronic components, or then again, will HP exit the hardware segment? Will HP sell-off its tablet and Palm WebOS mobile operating system IP?

Our previous Supply Chain Matters commentary noted that the key player in the catbird seat with all of these developments is Apple, who stands to keep eating into the revenue erosion of current PC and tablet producers.  Perhaps we should speculate that Apple’s board, Tim Cook and the senior management team are popping the champagne corks this evening, yet again.

Stay tuned to this streaming set of HP events since more is sure to come.

Bob Ferrari

No sooner had we published our Supply Chain Matters commentary, Palm Reaches the Crossroad, than the announcement came that Hewlett Packard will be acquiring Palm for an estimated $1.2 billion.

I had not planned to revisit my two previous conclusions so soon, but the temptation is too great not to.  Conclusion one noted that Palm can no longer remain an independent company. Never underestimate the power and influence of private equity and venture capitalists when they begin to cast the nets of a company looking for an acquirer.  The question in my mind was whom, and I must admit that HP was somewhat of a surprise. Then again, the networks of silicon valley are deep, sometimes to the detriment of Asia based companies. Conclusion two noted that end-to-end supply chain capability must always be aligned to the needs of the overall business.  While Palm badly stumbled, HP is an entirely different story.

There is no doubt that there is lots of speculation on the merits of HP as the potential new player in the smartphone market.  HP officials note that they plan to leverage Palm’s webOS operating system in a host of mobile devices which could include tablet computers, netbooks as well as smartphones, and this strategy makes lots of sense to this blogger.  Where Palm was weak in integrated marketing, HP is superb.  Where Palm didn’t quite understand the power of leveraging channel partners, HP surely does.  While Palm might have struggled with the planning and ramp-up of suppliers and contract manufacturers, HP does not.

Some industry observers are already noting that when this deal is consummated, HP will have a lot of catching-up to do.  This blogger is looking forward to noting how HP jumps into the battle of Apple, Google, Microsoft, Samsung, LG, Lenovo and others to come.  It is about time that a new global savvy player now competes with the ‘magnificent arrogants’.

What’s your view? Are you surprised that HP turned out to be the suitor?  Is HP a viable competitor in this market?

Bob Ferrari

It seems that there is no firm, whether big or small, that does not have a concern these days about its products being ripped-off by unscrupulous operators, or finding security concerns within an overseas supply chain. However, when you are a very large global OEM who happens to sell a very profitable product, the mechanisms to attack such activity are wide reaching.

A posting in SiliconValley.com notes that Hewlett Packard is accusing several Asian companies of selling inkjet cartridges that allegedly infringe on HP patents, and in some cases, include components stolen from HP’s contract manufacturing plants. A lawsuit alleges that Microjet Technology of Taiwan and PTC Holdings of Hong Kong sold cartridges that infringe on HP designs. It further accuses another firm, Mipo Technology of selling cartridges containing alleged stolen components. The article notes that from 2005 to 2008, HP has conducted 4620 investigations to seize nearly $800 million worth of counterfeit products within its supply chains.

Lawsuits are a familiar weapon utilized by high tech companies when profits are threatened. In the case of HP vs. Microjet Technology, lawsuits date back to 2001. It seems that in any given year, HP has some sort of lawsuit underway protecting its IP interests in inkjet cartridges. Apple Computer has also been in the headlines of late as it has also filed lawsuits with a major contract manufacturer to protect its intellectual property and patents.  Apple is another high tech company that does not shy from this policing activity.

Not every firm has the resources of an HP to police its supply chain for patent infringement, counterfeits or stolen materials. Constant diligence and supplier monitoring are an unfortunate necessity within today’s extended supply chains.

 Bob Ferrari