SJRATi.GY PROCESS VALUE

Spreading the Word Across HP

hcscdius. there is o^rowiti^i acceptance (il ing products with the suppK chain in mintl. We see more articles and success stories tout- ing the importance and impact of the " For several years, Hewlett-Packard (HP) for sLippiy chain" (DfSC) eoncepl. Furihcr. the DfSC approaches themselves—such as variety has run a design for supply chain (DfSC) management, logistics enhancement, common- program aimed at bringing supply chain ality and reuse, postponement, tax and duty reduction, and take- cost considerations to bear on product hack lacililatlon—are fast becoming staples of todays business vocabulan.' As multinational corporations adapt to increasingly design decisions.The program has been global supply chains, decisions are affecting their an unqualified success.To date, DfSC sLipply chain costs and efficiency to an unprecedented degree. efforts have resulted in aggregate cost Despite the growing attention, however, many large man- Lilacturers are still a long way from making DfSC an integral savings that exceed $100 million. |iart ot their product-development and product-management Here's a look at how design for supply missions and processes. There are many circumstances where cbain best practices are diffused managers may see some value in practicing DfSC. But other constraints-—limited time, scarce personnel resources, or lack of throughout HP lamiliarity with the benefit.^ of DfSC. for instance—stand in the way. \ he challenge lies in the diffusion of re.sponsibility Supjily chain cost savings are rarely reflected in the [lerlormance score- By Brian Cargille and Chris Fry card of a or marketing manager. New [iroduct introduction teams are already overwhelmed with directives to Brian Cargille is the Asia Pacific Japau "," and the\ prioritize their scarce resources to meet manuger of Strategic Phntiiiiig ami Modeling increasingly stringent cost and performance objectives, it is cru- lit Hi'u IL-lt'Packard Co. and was jtirttterty cial to find ways to ensure that professionals across functional tlw compmi) 's uorMwide Design for Supply areas understand and act on the DISC principles. Cluiiii prograni manager. Chris Fn is founder Our experiences at Hewlett-Packard (IIP) have shown that and president of Strategic Management there are effecti\e ways to spread DISC' best practices. Ilia's Solutions, a management considlancy. design for supply chain efforts hegan in (he early l'-)9()s with a few visionaries making innovative decisions for their |>rotiuct lines, Project-by-projeet DISC' elTorts haw reduced material, inventory, and logistics eosts LIS well as in improved serviee lo customers. In 2001, we hegan asking, "How can we harness and

34 SL'I>I>I \ (. II VI \ \1 \.\.\(;L 1 RiEV nivv • i V7AL f,L s i 2006 diffuse this knowledge across the company?" With more than jiackaging groups knew they needed an even stronger part- 30 different product lines, facilities in more than 70 coun- nership lo reach their new goals. So they looked clcisek at tbe tries, and upwards ol 120,000 employees, it was far from e^isy. OfSC: techniques tbat bad been proven elsewhere at HP—in Yet we have successfully developed a formal process that has devclopinent of DeskJet and LaserJet printers, for instance. helped us spread hest practices across all our businesses. I hey improved the all-in-ones structural rohustness so tbat it could handle rougher handling with less padding. They The Story of the All-In-One Printer kept the unit small and cube-shaped to make hetter use of Ihe power of drawing together design-lor-supply-chLiin f)est container . They stuffed the cahles and pens inside the practices that were developed aeross the company can he [irinter access door to further reduce final packaging size and seen in ilPs efforts to design a new all-in-one printer. In thus fit more units on a pallet. 2002, HP wanted to Uiunch an all-in-one printer at a price Otber enhancements enabled the generic printer to be comparable to thai of its existing low-end printers. Until to be sold in all of HP's markets hut configured for any lan- then, all-in-ones had sold well, hut they were relatively large, guage, managing variety while keeping assembly costs low. complex products. Soon, they would no longer be competi- The team employed old tricks such as using a 110/22()V uni- tive as inkjet printer prices dropped lower and lower. HP versal power supply. And it came up with some novel ideas. management set aggressive targets for material cost, assem- One example; shipping the all-in-one with a harcode lahel bly cost/complexity, and shipping expense; there was no slack that is scanned hy the user during startup. Tbe scan aetivates added to the launch sebeduie.- the unit's own software to configure the language tbat will laced with these constraints, our R&D, supply chain, and appear on its display, among other region-specific cbaracter-

Javier RoiTiaro

u v\ vv.stnir.com SLI>PI.V ti[ Rt\n-:\v • JULV/AL t;LS r 2006 35 Design

the unit's ov\n sohware to conCigLire the language thai w ill successes. At I IP. we perform this education through the work appear on its display, among other region-specific character- done by our internal constiltants—-members of HP's Strategic istics, Witb tbose and a few other devi-lopmcnts. the team Planning and Motleling (SPaM) team^in partnership with met its goals, and the [iroducl has heen very suceessful, protiuct-iine managers, SLICCCSSCS are publicized iiUernallv to I be outcome ol tbis partnership is an example of the hest huild excitcmetit abotit the a|i|iroaches. By reeogni/ing and that DISC' has to olicr at IIP, Instead of reiving on a single- rewarding early wins, v\e luiiitf a [xisitive reinforcement mech- minded, aeross-thc-hoard ptish for one tyjie of improvement anism to generate Itirther interest, granting more responsihil- ity, additional resources, and a wider range of leadership opportunities to those who generate HP follows a well-defined, four step the w ins. process to develop and diffuse design for supply One story v\'e tell is about the motinting I . . r 1 • I -I racks for HP's mid-rantic ser\'ers. When }W chain practices. It begins by proving the concept anti C"ompat| C'ompiiter merged some years ago, HP's siip|i!y chain managers lound (hat with early wins. the raeks on HP's ser\ers had round holes while those lor C'ompacj used square holes, sueh us commonality or postponement, different departmcn- That might nol seem to be a big issue, but it meant that the tal functions work together using multiple techniques in merged company had to order, stock, anddistribute 12 dit'fer- coneert so they can meet aggressive cost and schedule goals, ent rail kits for mounting scners to cabinet raeks—an unncc- 'Ihese techni(.|ues ha\e spread across all of HP's businesses, essary cost since the rack mounting did not matter to HP's including printing, personal computing, and ser\ers. customers. The eventual decision was to create H\c common rail kits for both families ol ser\'crs. The expeeted sa\'ings in A Four-Step Process materials and in\entory o\er the lilecycic of the prodticts: ,At 1 IP, we loliow a defined process (see b,\hihit I) to de\elop SM million. and dilluse design for supply chain practices,' We belie\e the lour-step process is generally applicable to other businesses Step 2: Formalize the concept. Torniali/ing the concept and other types of best practices. While each step is impor- in\()Kes making it easy to understand so it resonates with oth- tant to DfSC's diffusion, we vviN focus the second half of this L'rs, At HP, we came up with the "DISC' Si\ Pack" as a gra|)hi- article on an interesting and \aiuable process that is central cal rejiresentation ol the concept as a whole, (See fi,\hil)it 2 on to the (ourth step: what we call our "opportunity assessment" page XX,) Over the life of our program, we have redesigned the process. First, however, we review the overall diilusion pro- Si\ Pack se\eral times. Although we don't belie\'e it is periect. cess thai we iia\c usetl at fiP. the Si,\ Paek diagram pri'scnts j clear and tinderstandable mes- sage—something that has been marketable to a broati audience. Step i: Prove the concept with early wins. I his sleji I'ormali/ing tbe concc|Jt also ineltides developing eduea- in\ol\es demonstrating the viability of the concept tising earh lional materials stich as live courses, online training classes. success stories and developing collateral that summarizes the short case studies that we call "experience stories," and pub- . lisbed articles as a wav to establish I EXHIBIT 1 credibility and iacilitate knowledge Key Steps for Diffusing Best Practices sharing. Once tbe concept is clear Develop Collateral (not perfect, jusl clear), formalizing ihe jirogram can begin, I'or exam- (1) Prove the concept (2) Formalize (3) Formafize (4) Accelerate with early wins the concept the program adoption ple, tor DfSC!. we have iiroducetl

• Use a combination of • Crystallize defniitiofis • Assign business owners • tJse metrics to identify more than 20 online and instruelor- business experts and and create incentives gaps in performance leil training moilules as wx'li as cal- internal consultants * Develop educational for success materials that identify • Conduct opportunity euiators and process guides tliLit are • Recognize and reward adopter concerns, • Establish metrics and assessments to help available on tiP's internal Web site. early successes provide relevant use them to measure the management prioritize examples, and give company's performance future applications These were itnaluablc in stantlard- • Create brief, positive reliable information i/ing the approaches, sharing the messages that appeal • Set up a process for to the needs of the • Promote discussion with nonexperts to learn skills, ideas, and creating huy-in across our adopters satisfied peer adopters adopt the practices, and broad and com|iic\ organization. connect with a network • Develop nol only live of experts for support courses but also online Step 3: iormalize the program. training, experience This step ealls for chartering a team stories, articles, etc. that is responsible lor diffusing and

36 MAN ACT JL v\,scrnr,i(Hi\ Design

inijilemenling the DISC' hest practices across the organiza- The Opportunity Assessment Approach tion. /\t HP, this team included internal supply chain and The DtSC opportunity assessment is an easy and relatively product design consultants along with managers from each t|uick \:ay to help businesses identify specific opportunities ol HP's business groups. By assigning specific project man- for applying DfSC in their product lines. It also helps pri- agement and technical support resources and estahlishing oritize opportunities according to their potential impacts on appropriate metrics and incentives (for example, cost reduc- operations and the hottom line. The assessment scans each tions per product line or number of units shipped per pallet), of the DfSC- Six-Pack techniques to pinpoint (jpportimitics the rate of adoption inereases. and attempts lo estimate the potential of each one. liach

Step 4: Accelerate adoption. Adoption occurs once sufficient attention is heing given to The design-for-supply-chain applying the techniques across a \\ ide range of opportunity assessmnt is an easy and products. At this stage, management must pri- oritize and focus resources to capture the most relatively quick way to help businesses identify value. In other words, having diseo\'ered appli- specific opportunities for applying DfSC in cations for DfSC. we must now focus attention on those of greatest value to the compan\- as a their product lines. whole. This can he challenging in corjiorations as hroad and fast-moving as I IP. where the "big value" opportunities may not he concentratctl in one place. assessment comprises a six-week in\estigation during which In fact, they may he spread across multijile product lines that the assessment team collects data and performs analysis, are managed from many sites around the world. That's what wrapping up with a week-long, face-to-face working session. makes adoption of DfSC dilficult. Here are its main elements;

Project Objectives EXHIBIT 2 • Identify opportunities lor ihc htisiness team HP'S "Six-Pack" View of DfSC to implement an\ or all of the six DfSC' The following graphic illustrates HP's view of what DfSC "is." HP has used these techniques techniques. successfully for more than a decade. • Estimate the potential \,iluc lit HP ol acting Variety Management Logistics Enhancement Commonaiity and Reuse on the icicntified oiiportunitics.

Project Timeline • Kickoff {om: week): Team meetings to revjev\- Platform Comttiotality the assessment process, roles, and responsi- Weigh costs of variety against Redesign product and pack- Make components, modules, hilities. Includes training for the team mem- sales impacts to determine agini) to improve density factor and interfaces common customer offering and size as well as optimizing across more products, now hers on how to complde their tasks dtiring # per pallet/load and in future the assessment. 'Phase 1 (four weeks): Data colleclion/prcpa- Postponement Tax and Duty Reduction Environment & Take-Back ration of initial findings—data collection and phone inter\iews. followed by offsiie analysis hy SPaM team. • Phase 2 (one week): ()n-site working ses- sion—joint working session for fi\'e days to Modify product to allow Cbanqe buil•d locatio n and Produc0t and packaging de\eiop final opporttinity list. process sequencing changes transfer prices to reduce tax changes to reduce reverse and postponed differentiation and duty burden supply chain costs Expected Outcome and Results • A list ol polenlial DISC impn)\ement oppor- tunities for the husiness team. To identify these opportunities, we have developed an f'or each identified op|iorltinity. a rotigh estimation of approach that ue call the DfSC. opportunity assessment. The its impact for I fP. assessment process makes the hest use ol' husiness manag- ers' limited time hy introducing them to the benefits of using Project Team DfSC techniques and helping them understand where t(j • Two SPaM consultants (.^0 percent of their time each). locus their teams. • Project manager (20 percent).

38 I'i'i 1 C II \1 \\ At, 1. Ml \ I ill \ M w • J L 1 1 /AL ciL ST ioo6 wwM.scmr.t'om • Data collection coordinator (20 percent). opportunity.'' The typical postponement choice in high-tech • Finance representative (15 percent), marketing repre- products is between shipping finished-goods in\entor\' (FCJI) sentative (15 percent), operations representative (15 from a worfdwide factor)' directK to demand regions or ship- percent). ping a generic unfinished product from the factory' that wiff • Executive sponsor (5-10 percent), general manager (less undergo finaf assemhfy and test in each region. than 5 percent). For tbe first alternative, our example assumes a six-v\'eek !ead time for full assemhiy tbrough to finished goods at The effort culminates in a presentation to management the faetory in Asia, followed by four weeks in transit to the highlighting the identified opporttinities and potential value regional distrihution center (DC') in the United States. In tbe to the husiness. One |ioint to note: Although the assessment second situation, lead time lor partial assembly is just four is easy and fairly fast, it is no small commitment. If you cal- weeks; transit time is tbe same, but another two weeks are culate the aggregate person-hours required from the husiness spent later (at tbe DC) to eomplete tbe product. Delaying team, it calls for about one full-time equivalent staff for six differentiation of products often enables dramatic inven- weeks. But as we will diseuss later, the results make it well tory reductions while maintaining high service levels, hut it worth while. also carries increased manufacturing costs.'' Our opportunity An assessment might start when an f^i^D manager calls assessment teams compare the major cost elements under in our SPaM team to resolve design-for-supply-chain chal- each afternati\'e to assess whetber or not a savings opportu- lenges on a planned inkjet printer. In the first week, a forma! nitv exists. kickoff is held to make sure that the partieipants are in syne with the objectives and scope of the EXHIBIT 3 assessment. All relevant stakeholders agree to the Example of an Initial Opportunity List plan and resource commitments. 1 Variety Management , Logistics Enhancement Commonality and Reuse 1 lo conduct the assessment itself—which usu- • Reduce packaging variety • Reduce product size • Leverage key components ally takes place during weeks two through Hve—we • Manage SKUs • Change packing orientation • Improve supplier form a cross-functional team that comprises two • Decrease feature set • Eliminate in-box materials management ol our in-house SPaM consultants along with par- ticipants from finance, marketing, and operalions 1 Postponement Tax and Duty Reduction Take-Back Facilitation 1 groups that are already serving the product line • Add multi-ianguage Existing programs already Existing programs already being evaluated For DfSC. All those deployed are capability in place in place part-time on the project. The assessment is led h\ • Decrease touches the SPaM ci)nsultants working alongside a project • Manage increased lead time manager from the inisiness. Early in this phase, the data collection templates are coin[)lcted antl a series of TTie finisbed-goods inventory direct-sbip scenario may phone inter\iews takes place with key stakeholders—manag- require slightly larger boxes in ocean sbipment, which will ers from HiiD, marketing, antl o[ierations, for instance. By increase freigbt cost per unit. However, tbe freight cost the cut! ol the phase, an initial "'opportunity list' has heen increase may be offset somewhat by a reduetion in manu- de\eloped (see h.xhibit .^). facturing overhead at the destination region. By measuring 1 he project team works together lo collect data, conduct and combining these cost changes with the expected changes interxiews. anti perform an analysis to idenliK and measure in invcntor\-dri\'en costs for both stock and transit inventory, t!ie potential impact of opportLinities for im|ilementing DfSC' we can ohtain a rough approximation of the cost difference approaches in that husiness. The team re\icws the entire product line, using simple metrics to assess opportunities across the six technit|ties along w ith EXHIBIT 4 any additional opportunities itlenlified hy our in- of Simple Estimation Method house experts. Exhihit 4 shows examples of hasic Variety Management Logistics Enhancement Tax and Duty Reduction estimation approaches tised to si/e the identified Net complexity cost Freight savings from adding Savings if switch 100% opportunities. Of course, each case is different, so reduction from eliminating 1 layer to each pallet of production to lowest the approaches are adjusted as appropriate to the products contributing last tax region 5% of margin business situation.

Example of tho Opportunity Analysis Here's an example of the results from one section of an assessment for evaluating a postponcmenl

SUPPLY CH,\I\ RtviEW • J LI.V/ALCLSI" 2006 39 Design

EXHIBIT 5 tools to lacililate deployment. The challenge WLIS to balance the need tor a standard approach lor all ot HPs businesses Example of Costs Comparison for a with the need for some ol eustomi/ation lo address the Postponement Opportunity diversity of the company's business activities. We created a suite of tools and templates to aid the DfSC experts in Final Assembly Cost Differential delivering fast, reliable, and eonsistent assessments, Tbese include: •A project memorandum of understanding (MOU) tem- Freight Costs plate describing the prohlem statement, project objec- tives, and project approaeh, • ,'\ customizable kiekoff-presentation template, which Transit Inventory gives a week-by-week timetable tor tbe project witb a breakdown of wbu is doing what, Stock Inventory • A projeet data-collection template, whieh clearly defines the financial and operational data required and provides Postponed Assembly FGI Direct a format that team members can use to inptit their information into. between the two alternatives. (See Exhibit 5.) •Analysis tools that automate a portion of the analyses, In our exampit'. there were actu;iiiy higher inventor\' costs so as to expedite the workflow for our consultants. under the postponement scenario (contrary to the popular •A template for the presentation of results, usiially tea- wisdom about postponement) because each base unit was turing a waterfall diagram that categorizes the impact linked onl\' to one single finished product. When one base across each of the six components ot the Six Pack, unit is used in many end products, inventory pooling ben- • A process guide that describes bow to deliver the assess- efits generally outweigh the added cost of additional stockpil- ment, ing, changing the economics of the decision, 1 his is a good Togetber, this Iriimeuork and the accomininying tools get example of how- a rigorous opportunity assessment exercise tbe team aliotit hallway to a complete high-quality assess- ean turn up findings that managers may not be expecting. ment, making the proeess quick and re|ieatable, Tbe other A variety of techniques exisl lor creating rough, yet 50 percent ot the journey calls tor domain knowledge, busi- realistic, assessments of opportunity size. For examples of ness judgment, and |)roject management skills—traits that other techniques we use at IIP, see the September 2001 eaeh SPaM consultant must bring to tbe table. and September 2005 issues ot Supply Ckahi Management Revieiv/' Results of the Opportunity Assessment In the last week ol the opporttinity assessment project, the So is it worth going to such lengths to perform such an assess- business leadership decides how to proceed with the oppor- ment? Do the residts merit this kind ol statt invoKement tor tunities identified, I he initial opportunity list is reviewed by as long as six weeks'? The questions are not inapprofiriate, the whole projeet team. Final working sessions allow for revi- particularly for managers more accustomed to making t|uick sions to the list and refinement of the impact estimates. The decisions and taking adion than to deliberating over inputs team then presents the opportunities to the managers. Fhe to tbose decisions. Six Pack fraTnev\ork now acts as a color-coJed "opportunity At HP, we ba\e no doubts about tbe value of the opportti- map" that pro\ ides an at-a-glance idea ol the potential impact nity assessment approach. We not only sec measurable ben- for each initiative identified. (See Exhibit (l.)

Senior managers may decide not to take EXHIBIT 6 action on some opportunities it priorities clash or if the potential for savings seems small. DfSC Assessment Results They may also choose to pursue opportunities Variety Management $X-Y I Logistics Enhancement $X-Y I Commonality and Reuse SX-Y independently without further support, or they Reduce packaging variety Reduce product size Leverage key components may request additional help from HP's DfSC Manage SKUs Increase pallet-loading Improve supplier experts. efficiency management Postponement $X-Y | Tax and Duty Reduction | Take-Back Faciittation The Opportunity Assessment Decrease touches Existing programs already Existing programs already Toolkit Manage increased lead time in place in place ln order to deliver the opportunity assessment repeatedly across HP, it was important to devel- ^f' Significant opportunity Moderate opportunity op a striicttired proeess and a reusable set ot

40 SLPPLI MANACLMLNI RLVILU • jLLv/ALit.usi 200b cfits but also find that the effort has a powerful proselyti/ing Aitthors' note: The authors thank HP managers Bill effect. 'rhroLighnut the assessment exercise, team members Craiidali, Director of Global Sen'ices: Scott gain a much greater understanding of DfSC prineiplcs and Ellis, Director of Strategic Planning and Modeling- and practices overall—to the point where thc\' can implement Eric Skinner, Director oj Glohal Operations Learning and and sustain those practices themseK'cs. Development, for supporting ayid championing Design for Stipply Chain at HP. Bill proposed the idea oj the oppor- We've seen an explosion in DfSC tunity asscssiiieiii and, with Eric Skinner, he sponsored the development oj ihe technique and supporting meth- activity in Hewlett-Packard's odologies, ihanks also tojui Pin Er, R&D Director oj businesses over the last few years, with HP's Business Priutiiig Division, who enabled develop- iiient oj the opportunity assessment fraiiieivork hy request- aggregate cost savings that exceed $100 ing an assessment and providing the resources to serve as million to date. an initial test case for the approach. In the example described, the opportunity assessment pointed to significant benefits from a simple packaging Endnotes change for an inkjet printer model that would reduce variety 1 See for example: David Simchi-Le\i. Pliilip Kaniinsky, and F.ditli trom 100 to less than 40 options without affecting the range Simchi-Levi, "Coordinated Product and Supply Chain Design," ot products themscKes. A similar exercise on a personal com- Designing ami Mamighig the Supply Chain, McCraw-Hill, 2000. puter product yielded comparable benefits. Together, the two Bradley Keup, "DFA Transforms Computer Chassis," Assembly OfSC' opportunity assessments identified more than $16 mil- Magazine, ]une 2003. Mark Gottfrcdson and Keith Aspinall, "hinination Versus Comple\ity: What is Too Much of a Cood lion in cost-saving and revenue-enhancement opportunities. Thing:" Han'ard Business Heriew, November 2005, Laurent Dumarest, Ciilis Junk, and Bart van Dijk, "Learning a New $100 Million and Counting Complexity Language," Executive Agenda. First Quarter 2004. We've seen an explosion in DfSC acti\ity in Hewlett- 2 "HP's Design Measure Reorientation," case study lor Operations Packard's businesses over the last few years, with aggregate Management Roundtjiblc (now Su])ply Chain Lxetutl\e Board), eost-sa\ings results exceeding $100 million to date. The use 2002: v\ww.sceb.f\ecutiveboard.com of opportunity assessments to prioritize resources, followed 3 Developed based on principles Irom Di;ine Dormant "The ABCDs hy focused improvement efforts with consultative support, of Managing Change," Introduction tn Perfiirnitince Technology, has helped to speed both the diffusion of methods and the cd. Martin Smith, International Society lor Performance Improvement, 1986: pp 238-256, and Fvcrctt M. Rogers, amount of value captured across HP. Diffusion of Inninalioiis 4th edition, The 1-ree Press, 1995. We firmly believe that these experiences are transfer- 4 Ail data presented arc for illustrative purposes only and do not able to a wide range of industries—particularly those with reflect actual material, freigbt, manuliiLturing inerhead, or inven- frequent new product launches, worldwide markets, and a tory-driven costs for HP products. broad footprint spanning multiple product lines, manufactur- 5 Hau L. Lee, Corey Billington, and Brent Carter, "HP Cains ing sites, and regions. While we believe tbat tbe opportunity Control of Inventory and Sendee through Design for Localization" assessment approacb and the OfSC' principles are relatively interfaces vol. 23, issue 4 (July-August 1993): pp 1-11. simple and easy to apply, tbey do require work, commitment, 6 See Brian Cargille and Robert Bliss, "How Supply Chain Analysis and a formalized process. For HP, tbe impacts on our supply Enhances Product Design," Supply Chain Management Review, cbain ba\'e far outweighed the costs of the investment, gen- September/October 2001: pp 64-74. Jason Amaral and Brian erating significant benefits for our shareholders. We wish you Cargille, "How 'Rough Cut Analysis Smooths HP's Supply Chain," Supply Chain ManageuienI Review, September 2005: pp luck in the application and diffusion of these techniques in 38-45 your business.

w.scriir.com CHAIN Rt\ i t\v • JL i V/AC<;L'ST IOO6 41