Supply chains have the ability to 'cut across the grain' for shippers, says Fiorina

Jeff Berman, Senior Editor -- Logistics Management, 10/26/2007

PHILADELPHIA—The roles logistics and supply chains play in a corporate environment is one which cuts “across the grain” and ultimately has a large role in customer satisfaction, which is the leading indicator of a company’s success, according to Carly Fiorina, former chief executive officer of Hewlett-Packard.

Speaking to a packed room of shippers, carriers, consultants, and analysts at the Council of Supply Chain Management’s (CSCMP) Annual Conference opening keynote address earlier this week, Fiorina detailed how supply chain operations were arranged when she arrived at HP in 1999 and how they evolved between that time and when she left the technology giant in 2005.

In 1999, Fiorina said that HP was comprised of 87 disparate units, each with its own supply chain. With so many supply chains in place, she noted that it seemed difficult to understand how this type of set-up could not work, as human nature interceded, and each unit viewed its presence as protecting their “own turf.”

“As a $40 billion-plus company, one would think we should have had a lot of purchasing power, but there was not much, because each unit was negotiating costs with customers over and over,” said Fiorina. She also noted that with so many separate corporate units that the costs of goods and materials were often pushed to customers whom subsequently complained it was too costly.

Another detriment of too many supply chains, according to Fiorina, was that products were not showing up on loading docks at the same time, which hurt customers because what they purchased was on docks at different times, affecting their ability to transport what they purchased from HP. Fiorina said this was reflective of how HP did not realize the ways in which internal processes negatively affected customers.

Fiorina explained how over time HP reduced its 85 supply chains down to five, which saved the company $1 billion annually on logistics and supply chain costs and improved purchasing power as well.

After HP winnowed its supply chains down the five, Fiorina said that the company saved $3.5 billion in savings over three years time.

“The supply chain [improvements] were important in the ability to support customers, grow the company, and they became a unique differentiator,” said Fiorina. “Supply chains cut across the grain of how organizations are put together, whether it is a modern corporation or a government agency. And they all have an organization hierarchy and chain of command, which supply chains cut across horizontally.”

To build a world-class supply chain, companies often run into a lot of internal resistance and need to change what is available to them, said Fiorina. She said this change requires a holistic approach that thinks through strategy, culture, process, and methods.