While introducing SAP Supply Chain Management to enhance its manufacturing operations and supply chains, Hewlett-Packard (HP) collaborated closely with SAP on the design and implementation of SCM solutions. Now, not content with having optimized its own production processes, HP has joined forces with SAP to enable other manufacturers to benefit from the wealth of experience the two companies have gained in this key area.

What SAP and HP are aiming to deliver are end-to-end SCM solutions based on SAP Supply Chain Management (SAP SCM) and HP infrastructures and middleware for organizing globally distributed value-added chains. As one of the worlds largest manufacturers of computers and printers, Hewlett-Packard understands better than anyone the challenges of organizing complex supply chains that stretch right around the globe. Yet SAP SCM has enabled the company to successfully optimize its production operations making its forecasts more accurate, paring its stock levels right down, and slicing three days off the time previously needed to produce a sales forecast. And, already, these improvements have translated into happier customers and substantial cost-savings.

Moving over to mass production

Hewlett-Packard is a multinational enterprise with a highly localized organizational structure. It operates numerous production facilities around the world and markets a broad array of products, including computers, printers, data storage media, and peripherals. Each of the companys business units is responsible for designing, marketing and manufacturing its own products.

Right from its foundation in 1938, HP has nurtured a proud tradition of offering high-quality products at reasonable prices. However, the early 1990s saw the company embark on a new strategy. With its reputation growing and the electronics industry booming, HP realized that the time had come to branch out into the high-volume market for low-price products. In the years that followed, HP shrank its vertical integration and began buying in more and more components from suppliers. And in no time at all, the company had evolved into the foremost partner for component suppliers in the electronics industry. Today, as one of the worlds leading high-tech companies, HP relies on global, dynamic value-added chains to manage the design, manufacture and sales of its products.

The more complex and networked your production and logistics processes are, the more vital it becomes to possess accurate forecasting tools. Any errors in the sales volumes you forecast for your products can cause havoc in the supply chain. If you set production quantities too low, the result could be unfulfilled orders and empty shelves in high-street stores. Yet if you plan too optimistically, your warehouses could end up bursting at the seams.

In order to keep a firm grip on its complex manufacturing and logistics operations and make its processes more transparent, Hewlett-Packard decided back in the early 1990s to phase out its numerous legacy solutions and replace them with SAP R/3 as the standard ERP solution worldwide.

However, as the years passed, the demands placed on HPs supply chain and data workflow increased relentlessly. One of the very compelling needs certainly in our higher-volume products is inventory visibility, which certainly affects our ability to serve the customer and also to manage our cost structure. And so having the right visibility to inventory throughout the supply chain is one of the real burning platforms and real compelling business requirements for us to address, explains Craig Flower, Vice President and CIO at HP.

Thus, at the beginning of 2001, HP decided to implement SAP APO (SAP Advanced Planning and Optimization), the central element of SAP SCM, on a step-by-step basis throughout its global operations. The decision to go for SAP SCM was quick and unequivocal. Peter Knapp, Global SAP Alliance Manager at HP, explains why: Our underlying infrastructure and processes have to provide the flexibility to respond to the requirements of the markets we operate in. Therefore, we need integrated, consistent systems worldwide. Our goals are: localization on the one hand, and globally consistent control with robust planning capabilities for all supply-chain members on the other hand. Our analyses indicated that the SAP solution offered the best approach for us to achieve these goals.

Paving the way for SCM

It was Craig Flower and his team who were given the task of defining HPs goals for the SAP.com implementation, describing (and, if necessary, optimizing) the companys supply-chain processes, and implementing the SCM solution. Not exactly a walk in the park when you consider HPs size and complexity. After all, the more products and supply chains that are involved, the trickier it is to keep a handle on a project of this kind.

Nevertheless, the team embarked on implementing the new supply chain with three main aims in mind: to cut costs, increase transparency, and rapidly equip HP to embrace new business models.

Preparation was a key factor in the run-up to implementation. Not least because HP was using more than 20 different SAP R/3 applications that had evolved over time to meet the requirements of the various production sites and business units. As far as customers were concerned, particularly those who regularly placed large orders, this situation posed a considerable problem in their business dealings with HP. For example, if it received an order for items from more than one product line, HP was unable to issue one order confirmation, make one delivery, and print one invoice for all the items ordered. Instead, the customer received a separate order confirmation, delivery, and invoice for each individual product line.

With shortcomings such as this in mind, HP began by identifying exactly which departments, employees, suppliers and resources were involved in the various supply-chain processes and then mapped out the supply chain asis. Armed with this snapshot, the company was ideally positioned to define its objectives. The benefits of this approach are undisputed. In HPs experience, at least, the more thorough you are in preparing to implement a supply-chain solution, the quicker and easier it will be to attain the desired results.

From theory to practice

One of the first areas to implement the new solution, and the one that now boasts the greatest experience of SAP APO and SAP SCM, was HP Imaging and Printing Systems (IPS -Commercial/ CBO (Consumer Business Organization) Supplies). Based in Bblingen, near Stuttgart, this area is responsible for selling HP printers and printer accessories throughout Europe. Its network of internal and external suppliers spans the globe, and its largescale manufacturing operations mean that its processes are highly complex. Printers and printer accessories are among Hewlett-Packards most successful products: it ships millions of printer units and cartridges every month. With sales figures on this scale, it stands to reason that HP Imaging and Printing Systems cannot afford to be without accurate forecasting and planning functions.

In the past, our centrally driven supplies forecasting system was based on assumptions that applied to the US but not necessarily to Europe, explains Isabell Hrle, project leader for the implementation within CBO Supplies. Our quarterly forecasts were not accurate enough, so demand often outstripped supply.

To complicate matters still further, the various enterprise areas in Bblingen (including sales and marketing) were on different systems. With each system producing a different forecast version, there was little chance of the resulting decisions tallying, and delivery bottlenecks were therefore a frequent occurrence.

Benefits of SCM at HP

Thanks to SAP SCM, HP has successfully transformed its supplier-oriented supply chain into a customer-oriented one. As a result, it is now scoring high in the two areas that determine success in the printer market: product availability and customer satisfaction.

Since implementing SAP SCM, HP has recorded increases of up to 5% in its forecasting accuracy, and expects this figure to steadily climb as it becomes more familiar with the new system. Measured against the companys colossal sales volumes, increases in forecasting accuracy of just a few percentage points already translate into significant cost-savings through reduced stock levels, for example. Whats more, the automatic forecasting function in SAP APO is faster than its manual equivalent and much less prone to human error. Clearly then, the improvements brought about by the new SCM solution have not only bolstered customer service, but are actually saving HP money to boot. After making this sort of impact, its not surprising that SAP APO has rapidly evolved into a business-critical tool for HP.

The printer division has realized four key benefits from deploying SAP SCM:

• Better customer requirements planning
• Optimized resource management for materials, capacity, and personnel
• Maximum availability combined with minimum stock levels- Better response to the various requirements of local markets

Moreover, SAP SCM has not only enabled the division to slice three whole days off the time required to produce a forecast, but it also ensures that everyone whether they work in sales, marketing or manufacturing is referring to exactly the same data and planning results. The global deployment of SAP SCM throughout HP is helping us to operate more efficiently in increasingly complex and competitive environments, reports Craig Flower. We expect to see significantly lower manufacturing cycles and costs, as well as improved on-time customer delivery early on in the deployment of SAP SCM.

Now, HP Consulting and HP Outsourcing are channeling the experience gained during this pioneering project into other SAP SCM implementations. Currently, work is under way to introduce SAP SCM at a number of other HP manufacturing facilities as part of the companys global rollout plan.

Alliance for customers in manufacturing industry

But its not just HP business units that are profiting from the wealth of experience HP and SAP have built up together. Last year, the two companies took their long-standing relationship a step further and formed an alliance aimed at uniting the SAP SCM solution with HP technologies and services to support joint customers who are looking to develop and leverage flexible supply-chain networks.

Implementing an end-to-end supply-chain management solution from SAP and HP offers a slew of attractive benefits:

• Happier customers: delivery times are shorter because the solution is tailored to fit the user environment
• More competitive muscle: accurate forecasts allow a rapid response to changing market conditions
• Financial savings: automated ordering and trimmed-down stock levels mean lower fixed costs
• Tried-and-tested algorithms, better system performance, greater PC power, and improved memory allow more accurate and flexible planning/ monitoring
• Experts with practical experience make the implementation quick and hassle-free
• Fine-tuning and a customer-specific integration mean that you get the very best out of your application
• Your hardware and software deliver maximum availability
• Information remains secure and reliable beyond departmental and corporate boundaries

Making all these benefits available to companies in the manufacturing industry and enabling them to enjoy a rapid and trouble-free implementation is the responsibility of the Global Solution Centers, which were set up by SAP and HP for the purpose of preconfiguring and testing supply-chain solutions. Our Global Solution Centers have all the information, methodologies and tools required to complete similar projects for any other manufacturer, explains Peter Knapp. Our customers thus benefit from the rich experience and conceptual expertise we have gained through the deployment of SAP SCM in our own manufacturing environment.