Shipper profile: HP traces outsourcing back to its roots
After making a few miscalculations in its global operations during the early days, Hewlett-Packard looked for a North American “partner” to take charge of its international shipping and sourcing operations. A complex story? You bet it is.
By Patrick Burnson, Executive Editor -- Logistics Management, 8/1/2009
To say that Tom Healy has seen it all at Hewlett-Packard Co. (HP) over the years would be a gross understatement. Having joined the company at the dawn of the printing era in 1982, he was charged with creating a supply chain and distribution strategy in a rapidly expanding marketplace. Demand for HP’s printers and peripherals was surging as that time too, and as director of DC operations, he was running at full tilt just to keep up.
“We had just started making a very heavy, high-end computer, but it wasn’t the best in the industry at that point,” Healy recalls. But we were producing the most advanced laser and ink jet products in the business; so it was then that I first began to question if logistics was going to be part of HP’s core competency.”
Healy and HP were still trying to do it alone, however. Healy was charged with oversight of an HP multi-tiered warehouse in Europe armed with state-of-the-art picking and packing technology. The new and gleaming structure had everything a logistics manager could desire, but when it came to actually getting product out the door, a more classic system worked best.
“We eventually figured out that it was more practical to palletize the loads of printer components,” he says, “rather than box them. It was the kind of misstep that drove us to look for a 3PL partner.”
Distribution “partnership” forged
In the early 1980s Healy served in a broad range of leadership positions covering every aspect of the supply chain, including customer fulfillment, procurement, manufacturing, logistics, demand/supply planning, and distribution.
“This was an exciting time to be in the business because it coincided with the revolutionary changes in shipping and globalization,” he says. “I spent a lot of time in Singapore when we were still moving goods mostly by air, but it didn’t take long for most manufacturers to transition to ocean vessels based on the supply chain characteristics of the goods.”
The next decade ushered in another transformational era as HP chose to concentrate its domestic distribution from multiple factory shipping points to a single DC in San Jose, Calif., in 1989. The following year, HP ramped up its four-day delivery program to HP partners nationwide using a combination of air and ground service. Menlo Worldwide Logistics, which had been chosen earlier to help with HP’s depot operations, was chosen as a DC partner for the company’s expanded multi-product San Jose warehouse. Within the next 12 months, HP was shipping its printers, supplies, and computer product lines from the Menlo-operated DCs.
“While everyone in our industry was talking about working with a 3PL or 4PL, I was really just looking for a strategic supply chain partner,” recalls Healy. “We were beginning to see the benefits of outsourcing the logistics so that we could concentrate on R&D while adding value to our existing product line. Looking at other consumer groups, we wanted to replicate the models they had in place and get our goods out the door without any complications.”
The hardest part, admits Healy, was “letting go” of the logistics function at the time. Even though he was impressed with the way the relationship had gone so far, there was a certain amount of separation anxiety in the initial stages. But one consequence of the partnership turned out to be pivotal: the retention of a skilled workforce. Healy was now able to mitigate another type of loss: that of well-trained and experienced employees.
“When you hand over a warehouse or DC operation, the partner takes charge of the existing workforce,” he says. “While the people are still on our payroll, we don’t have to manage them in a new system. It’s really a mutually beneficial situation.”
By 1996, HP had enlarged Menlo’s role to provide multi-modal service to all national destinations with expansion of nearly a half dozen DCs across the U.S. and Canada. Three years later, HP handed off its postponement/light manufacturing in Memphis, Tenn., thereby giving Menlo oversight of 24 productions lines and management of more than 2,000 employees.
“We were still being regarded as a leader in supply chain management,” says Healy, “but we were no longer burdened by the details of distribution. What it really came down to was trading inventory for information. People often forget that this also gives the manufacturer a 'leverage point’ for working with other vendors. I no longer had to negotiate every piece of the puzzle.”
According to Lonny Warner, Menlo’s vice president of high-tech group logistics, the 3PL offers this leveraged distribution center assets and centralized transportation management with flexible “transaction-based” solutions. “The value Menlo delivers to our customers does not fluctuate in response to economic conditions,” he adds, noting that in a down economy, shipper’s expectations of the time from design to implementation for a solution or process improvement “is condensed and more urgent.”
Be that as it may, by the turn of the new century, HP was giving Menlo end-to-end strategic and tactical management responsibilities for its North American supply chain operation, providing HP with reseller end customer support and performance reporting. At roughly the same time, HP was beginning to source goods through the Port of LA/Long Beach and from East Coast ocean gateways for inbound shipments from Asia to the U.S. and Mexico.
Easing cultural shifts
With its acquisition of Compaq in 2003, HP called upon its third party providers to help with the integration of the electronics giant. At the same time, it was calling upon its 3PL to assist with a new regulatory compliance program for U.S. Customs.
“This was a complicated time for us,” says Healy. “We were responding to a lot of different pressures, and also facing new competition from computer manufacturers selling systems directly to the consumer. It was a move on their part to take market share from us on the printer side.”
As a consequence, HP came to rely even more on its 3PL partner for assistance. Ongoing changes in HP’s supply chain lead to the implementation of a pool distribution program to meet its changing customer demand requirements while continuing to improve efficiency. “We really came to trust the proprietary software we were using,” says Healy. “It was customized by the 3PL to meet our needs and we realized significant savings.”
In what seemed like a great leap of faith many years ago, now appears to be part of an evolutionary journey, admits Healy and his HP colleagues. The outsourcing is now part of an established and accepted reality.
During his 27-year career at the company, Healy has also led its supply chain transformation and operation teams at three new business ventures for HP—Roseville Networks Division, Network Print Sharing, and HP’s Imaging and Printing Commercial Direct platform.
“Having a trusted third party logistics provider like Menlo for collaboration is key,” he says. “They have played a major role in our manufacturing-to-channel partner delivery program, and have made my job that much easier.”
Does that mean that he’s ready to rest on his laurels? Hardly, just this past June, Healy moved into his current role as the worldwide supply chain strategy manager for ProCurve Networking, a global business unit of HP and leading provider of network hardware and solutions.
“In this position, I’m responsible for design, development and strategic supply chains,” he says. “I’m also charged with designing a global supply chain network to optimize current and future route-to-markets to compete in the networking business environment. In a globalized environment, there isn’t a single part of the world we are not trying to dominate.”
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