Outsourcing has made the term collaboration part of the everyday supply chain lingua franca. While collaboration promised a new era in supply chain, its evolution followed the typical hype-cycle of over-expectations and disenchantment. In fact, the term is so over-used today that vendors liberally apply it in their literature, users reflexively ignore it, and investors consider it "so yesterday." The road to adoption has not been easy. In fact, many projects failed to progress beyond the pilot stages as users ran into obstacles, both technology-related and softer issues like cultural barriers that have tempered the initial hype. But the rules have changed and companies have little choice but to make this work.
In 2000, Dell was being touted as the high-tech leader even though HP was larger and more strategic to the enterprise. The challenge, simply put, was to achieve similar results without imitating Dell. HP also had the reputation of being a "relationship builder" with its trading partners, and felt strongly about using this as an advantage in their collaboration strategy. Much work lay ahead of the team in terms of rethinking technology architectures as well as business processes. Not all relationships were equal for various reasons—and the HP team faced the task of bringing structure and a "science" to a domain that was not well defined.
In the following interview, Sree Hameed from ChainLink Research speaks with Curtis Suyematsu of HP about HP's journey in one of the most successful collaborative supply chain projects in the high-tech industry.
What was the genesis of the Key Chain project?
Sree: What was the genesis of the Key Chain project?
Curtis: Over a decade ago, HP recognized the structural shift towards outsourcing of the supply chain. This, as we all know, is now the de facto operating model for the high-tech industry.
It's probably safe to say that for the first half of this past decade, the journey was much about learning and discovery (along with the rest of the industry), in terms of how to actually manage the outsourced supply chain where people had to rethink the traditional processes. It wasn't until late 1999 or early 2000 that HP initiated the Key Chain project to take control of this shift—things had gotten to a critical point where we had to do something about it—and we began to formalize and improve our collaborative business processes with our supplier base.
Sree: What's the result so far? Are you on the right track?
Curtis: No question about that. While HP can't be specific about the value gained from the Key Chain initiative, it is safe to say that the numbers are in the hundreds of millions of dollars—and that's just five years into this journey. And it is a journey because we aren't done yet.
Sree: Being an early adopter, you have gained some valuable insights, so let's explore those aspects of HP's journey and how your supply chain approach and perspectives have evolved through this.
Curtis: Yes, we were definitely an early adopter, and at that time we had participated in public e-marketplaces like Converge, etc. And one thing that comes to mind is how the supplier relationship has evolved. For example, in the past we looked to public e-marketplaces to negotiate better pricing, but since then have evolved our expectations towards a far more collaborative relationship that is beyond that single dimension—because we now know there are other dimensions that must be managed to reduce variability in the extended supply chain. In essence, the strategy for outsourcing had migrated beyond just squeezing margins, but crafting superior supply chain strategies though significantly improved relationships.
Sree: That's a key point to make. What ChainLink has observed is that while the outsourced supply chain has shifted more responsibility to the procurement function, the procurement function often has difficulty thinking beyond that single dimension
Curtis: To that point, one of the achievements of the Key Chain solution is that we've managed to reflect the different dimensions and degrees of collaboration. I think we are at a stage of maturity in progressing along the learning curve where we've established a set of standard processes that helps us deal with the dynamic nature of the extended supply chain where suppliers and services providers can be quickly plugged into our business ecosystem. But at the same time, it's important to recognize that every supplier partnership has aspects that must be accommodated within the processes unique to that relationship. And being able to support unique policies and rules specific to partners is critical, because if we had to manage this manually, it would reduce the velocity of the supply chain.
Agreedcollaboration means different things to different people
Sree: Agreedcollaboration means different things to different people.
Curtis: Yes. So, our evolution beyond a "one size fits all" collaboration approach is clearly something we can point to as a key achievement—and we see the continued success of this in terms of HP's ability to add other business units and their trading partners to the Key Chain hub. In the context of a transformation journey, we've gone from 2 trading partners and 5 users in 2000, and five years later we have 200 trading partners with 1,000 named users. That is a lot of progress.
Sree: Also, that's significant in terms of maturity, because few initiatives of this type in the industry have successfully expanded beyond a pilot-type implementation, or the project scope is narrow. And what's worth highlighting is that maturity is not just about the collaborative technology architecture— it's also about process maturity where HP has gained a greater understanding in terms of different degrees of collaboration. Can you illustrate these differences along a collaboration spectrum?
Curtis: Sure. Most efforts to date have focused on the inbound supply chain, so I'll use an example from the supply side. We are starting to look at the demand side, but we are a lot further along on the supply side where we wanted better control over inventory costs and assurance of supply.
To illustrate the complexity in the HP model, you need to understand that sometimes HP plays the role of the supplier to the contract manufacturer; sometimes we are the manufacturer; sometime HP is the original equipment manufacturer (OEM) or original design manufacturer (ODM)—and our partners like Solectron take on different corresponding roles too. This also means that we have multiple supply chains to optimize—which adds yet another level of complexity. And the solution we have in place via the Sockeye application gives us the ability to define rules to deal with all these dimensions. And as you can imagine, these rules can be sophisticated based on the nature of the collaborative relationship. For example, supplying dynamic random access memories (DRAM) to personal computers (PC) versus supplying DRAMs to printers have different supply characteristics—and strategies. But overall, these may come from a single supplier like Fujitsu, where there is a need to optimize that relationship with HP at a global level.
Sree: OK. So let's start with the basic level of collaboration
Curtis: The basic level is purchase order collaboration—which has very limited to no visibility and is akin to "throwing transactions over the wall." The traditional business-to-business (B2B) hubs provide this capability, and technically it is collaborative in the sense that it does represent a structured transaction between two parties, but the replenishment trigger is entirely under the buyer's control.
At the next level we have vendor or supplier managed inventory processes. I am transferring some level of responsibility to my supplier where I define certain targets they are obliged to meet and provide inventory visibility so they know when and how much to replenish. We see a lot of this in the industry today in terms of the increasing popularity of vendor managed inventory (VMI) hubs.
The third level is what we consider a co-managed inventory relationship. And this capability is what truly helps change the nature of the supplier relationship, because the system is now capable of representing sophisticated rules that govern the partnership. And we take it even further across multiple partnerships through what we call the trading circle concept, where now we are providing guidelines for sourcing and allocation decisions that reflect the multidimensional nature of demand and supply characteristics across a network of partnerships.
While these three levels help illustrate the differences, in reality these are somewhat arbitrary, because if we think of collaboration along a spectrum, then what these rules and guidelines do is help me transfer greater responsibility to my trading partners as I see fit.
Sree: Data sharing across the ecosystem of partners is different from the traditional information technology (IT) requirements. How did you approach this? Did you see a need to have a separate network-centric architecture for the ecosystem outside in addition to the traditional enterprise-centric architecture?
Curtis: This is another area we've gained a lot of insight into because sharing of information among partners in a controlled and secure environment was a difficult challenge. Our decision to develop a network-oriented hub architecture that enabled suppliers to share information within a secure environment inside a firewall but still outside the HP enterprise resource planning (ERP) system firewalls was the right one. It addressed the security issues of HP and our trading partners, as well as met the requirements of the collaborative business processes.
Architecturally, it makes sense to have two separate but tightly integrated environments, because you are in fact decoupling a process that used to be entirely inside the four walls of the enterprise. Conceptually, if you think of the enterprise domain of control and your supplier's domain of control as two circles, what the Key Chain hub does is help manage the intersection of those two circles using the appropriate rules to achieve the level of synchronization as determined by that specific relationship. Ultimately, managing that intersection is about the governance of that relationship—and that is the essence of supply chain collaboration.
Sree: While technology is a key enabler, this kind of transformation is much bigger than simply implementing a tool how does that perspective relate to your choice of Sockeye as your technology partner?
Curtis: This was a key differentiator for us when it came to selecting a partner. In 2000, we realized we needed to reinvent our approach to managing the outsourced supply chain and in that sense, it mattered less that some of our existing technology partnerships had established track records in optimizing inside the four walls. Instead, we were looking for fresh perspectives and people who could bring new ideas and thoughts. It's been a good partnership since 2000 because we realize that we've contributed jointly in terms of creating thought leadership in collaboration, and of course, making it work. Culturally, it was a good fit with the HP team, because the Sockeye team simply put their heads down and went to work—and they have consistently delivered. Now, five years later we have something that we can all be proud of.
Sree: You should be. Well, I appreciate you sharing these insights for the benefit of our readers. Thanks for your time.
Curtis: You're welcome.
If you would like to learn more about these collaborative strategies, contact Paul Peterson, VP Marketing, Sockeye Solutions, by e-mail or by telephone at (1) (415) 593-8555.
This article is from
Parallax View, ChainLink Research's on-line magazine, read by over 150,000 supply
chain and IT professionals each month. Thought-provoking and actionable articles
from ChainLink's analysts, top industry executives, researchers, and fellow practitioners.
To view the entire magazine, click
Research is a bold new supply chain research organization dedicated
to helping executives improve business performance and competitiveness.