Executive Briefings

HEWLETT-PACKARD CO.

Gordon Gilstrap Director of Logistics-Hewlett-Packard

Gordon Gilstrap is director of logistics for Hewlett-Packard Co., a leading global provider of computing and imaging solutions and services. Having spun off its measurement and medical components business last year, HP now is the world' third-largest computer company, behind IBM and Compaq. Its products include PCs, the servers that link them in corporate networks, and printers and other peripherals. The company also increasingly is involved in e-services and internet infrastructure. HP has 86,000 employees worldwide and had total revenue from continuing operations of $42.4bn in its 1999 fiscal year. About 55 percent of sales come from outside the US.
Gilstrap has been with HP for 26 years. During that time he has worked in numerous functions: materials, information technology, systems engineering, production control, distribution and logistics. These professional changes, he says, allowed him to learn about the many different attributes of the company and the actual workings and impact of manufacturing and distribution.


Q. In the past few months, both in news reports and in corporate advertisements, we have seen a lot of references to the new Hewlett-Packard. Have supply-chain operations been impacted by the changes at HP and/or have they helped enable the changes?
A. The answer is yes on both counts. First, you have to realize that HP is now just Hewlett-Packard, which is computer systems, imaging and printing. We have spun off Agilent, which was the test and measurement and medical component business. As a result, we are much more focused on two primary areas: our commercial and enterprise customers and our end consumers. And with that, as we look at where we are trying to go, there is an emphasis on faster and leaner supply chains.

There also is an emphasis on more direct delivery, whether to our channel partners or to consumers. Basically, we're trying to take as many nodes out of the supply chain as possible.

And then there is the e-services part of HP. As we move more into providing e-commerce enablers as well as actual services, we need to be able to use those same tools, where possible, within HP.

Q. Among those issues, can you point to one as the challenge you will most focus on in the coming 12 months?
A. No, because if you look at it, it's a battle that must be fought on several fronts simultaneously. There are several key factors in this whole thing and the first is customer focus. Basically, I think that's true for everyone, in that you have to start from the customer and work backwards in the supply chain in order to truly understand what works well for the customer. That's a big part of everything we are trying to do; and it's not just understanding getting it there on time, it's understanding getting it there in a format, in the timing and in the solution space that works. And then, beyond that, it's the ability to deliver machines and software on a pay-per-use basis, which is a huge challenge.

So how do you get past all this to make sure the customer is getting exactly what we have agreed to in the right time and in the right condition? For instance, if they have ordered a machine that comes with a basic capability but also has extensive capability that they can purchase on a pay-per-use basis through the web, what is the customs value? So that's one thing.

Another, which we are really working on, is managing the intellectual property - in several regards. First, if you look at all the e-services that are being developed, how do you define what is a patentable idea and protect it appropriately, because there are a lot of people out in the space and there are a lot of new programs being developed, including new solutions that come about as we work with our supplier base and e-services partners. If you believe that the cost of knowledge is one of the drivers of the new economy, how do you manage it appropriately? And with the integration of all of these systems and the ubiquitous internet, how do you know what should be going out and what should be coming in, who owns it, who gets the royalty off the ideas, are they sellable, and so on. It is a large challenge for everyone.

Q. Those are some things that we normally would not consider falling in the logistics or supply-chain area. Does this mean that today's supply-chain professional needs to have a much broader understanding of business that might have been the case a few years ago?
A. At HP, we address these issues almost daily as we go into some of these newer e-services. For instance, let's say we're looking at a portal provider, one of the many that is out there now. As we begin to develop that relationship, there are going to be new ways of doing business, new schemes, and so on. Who owns the idea? Is it jointly owned? Who came up with it? How do you protect it? How do you sell it? People that aren't looking at these questions will undoubtedly wind up giving away intellectual property.

Q. What activity or business issue that you will be involved in this year will have the most significant impact on the company?
A. I would say the development of new business methodologies in the supply chain. This includes partnering with other companies appropriately, the development of consortia - basically taking advantage of some of the new business ideas that are out there like transportation management portals, leveraged buys, collaborative logistics, all of those things, and building them into a reasonable portfolio. There is no single solution for a company the size of HP. So what we want to have is a well-balanced portfolio that allows us to do collaborative logistics where it makes sense. Picking the right portal partners in the right geographies in the right modes and putting all that together is quite an exercise.

Q. Is integration the biggest barrier to making it all work?
A. The technological side of integration is not the barrier. Data quality, typically, is the first barrier. We can make it possible to move bad data very quickly. Secondly, it's knowing what data to move. It's possible, if you really wanted to pay the money, to go out and track every step of every shipment. Why would you do that? So it's finding the right balance of data that is actually critical to the operation, that is somewhat predictive and not diagnostic, and really looking at how you are going to handle all of that effectively. The actual technology, no. It is fairly quick to set up an interface and usually it will work - and usually people will be disappointed because of different interpretations of the data or just flat-out poor data quality. Or they grow tired of seeing these thousands of messages per day.

Q. What is the solution to that?
A. The first thing is understanding who is going to do what. HP is moving toward the position that we entrust the delivery to our supplier. We expect them to manage that and all of the integration needed for a successful delivery and to inform us only about those situations where it is just absolutely impossible to make it. Now we want access to the data for diagnostic purposes occasionally, but we expect the supplier base to take a very, very strong role because that is part of their operational excellence.

Q. HP has been an early adapter in terms of the consortia and exchanges. How is that working so far and where do you think it will take you in the future?
A. I would say that we are off to a slower start than we would like. But we are making progress and have actually put some shipments through. I do think this is the business model of the future, but you have to keep it directed to the right positioning and not see it as just a leverage play. At this point in time, especially on some of our major lanes, HP doesn't need that much leverage. So we kind of downplay that side of it. Instead, we ask what are the fairly tactical logistics processes and activities among the companies that are involved in this consortium that can be shared, at a lower cost to everyone. That is one of the things that we would like to achieve. So it is really more attacking the process than the negotiation.

For instance, if you look at the actual tendering of freight and all of the activities that are associated with that in terms of generation of electronic messaging, and so on - that's a fairly tactical activity. Do those seven or 12 or 14 companies each need to generate their own methodology for doing that, or could we by agreement pick a single provider that could do that for us? Does every one of us need to develop our own data base for all of our contracts and freight rates, or is it possible for all of us to share in the expense of maintaining one that is very robust and secure? So that is where we are looking for some of the leverage.

Q. Why has this gotten off to a slower start than anticipated?
A. I think everyone who has gone into this has found out that working across companies is really hard. So this is very different. It is very new and people are still rationalizing and asking what they are giving away, what they are getting and how much control they are giving up. So it is not a technological problem and not necessarily a process problem. It goes back to control of process and control of intellectual capital.

Q. Does this mean then that all of the talk we continue to hear about collaboration is overly optimistic?
A. I think it will happen. But it may happen at a bit slower pace than people would like. I think it will happen more readily in verticals, which is to say I think the consumer goods folks, for example, will probably be able to more quickly assimilate some type of collaborative situation because their transportation needs are somewhat similar. Quite often their routes are even similar. And there is a big push to go about getting savings any way you can. There are companies, say General Mills or Procter & Gamble that probably, in a lot of places, have negotiated about as much savings as they are going to do. They have probably optimized within their own company about as much as they are going to. So the question then becomes what is the next step. And the next step is optimization outside of your company with other industry players. There will be a continual push to do that because we have kind of hit the wall from some of the other areas.

Q. Are you saying that you think we have come to an end of what new technologies will be able to provide?
A. I'm not saying that. I'm saying that in some cases we have hit the wall in terms of negotiation and internal optimization. As far as new technology, we've only scratched the surface. We have just seen a glimpse of things to come. It spans across everything because it involves infrastructure improvements to make data even more available, so that we can more rapidly turn data into predictive information, which will allow us to capture a lot of knowledge that people have and be able to actually systemize it. It is those types of things that are probably the most exciting for the future.

Q. Can you address the challenges HP faces in terms of operating a global supply chain?
A. We do operate a global supply chain and we do it fairly successfully. We operate in every country on earth where it is legal to sell HP products. We have manufacturing in almost every region of the world or contract manufacturers that produce for us.

Where we are going with this is to take a more regional focus, because the region is where the customer resides. The customer in Europe is much different than the customer in the U.S. and than the customer in Asia/Pacific. And you have to put a lot of intellectual capital into those regions to truly define how the customer is best serviced and then build a supply chain back from that. So what we are looking at is a very strong regional management focus to absolutely understand the customer and the market, and the global infrastructure so that people in individual geographies don't have to worry so much about building an order-management system or building a logistics tracking system. That way they can be more focused on the customer. So it is a mix of both: Do the global stuff where it makes sense, but then put everything else into the region where it can be customized and personalized for the customer.

Q. How are skills required for supply-chain professionals different today than when you entered the business?
A. I think there is a greater need for global awareness and basic international trade skills. Even if you are highly regionally focused, there are still decisions that need to be made about the siting of your contract manufacturers or distribution centers and the real impact of that. You don't have to fully understand exactly every customs issue or tax issue, but you need to be aware of the fact that there may be tax and customs issues and export administration issues that need to be researched for these decisions.

Second, there is the need for logisticians to be more aware of the business financials and how their decisions relate to the financials of the business, because if you push a button and that button basically drops profit by one-tenth of one percent, somebody will probably notice. You should be able to defend why you did that.

And then, third, it is again this whole intellectual capital, intellectual property business - it is being able to look across a huge amount of information and data and concepts and ideas and be able to bring those together into a rational portfolio of the information that you are going to use to run logistics.

Q. What are other basic survival traits for people in this profession?
A. The No. 1 survival trait is to not let yourself get too far removed from the customers, which often happens to logisticians. They leave that to sales and marketing but they should do everything possible to get closer to the customer because quite often, especially in larger companies, the actual logistics customer may be different than the buyer. I went to one of our major customers with one of the best salesmen I have ever met at HP; this guy was phenomenal. When we got there, he said, 'OK, let's go talk to the technical folks who decide what equipment they are going to buy.' And I said, 'No, let's go talk to the purchasing folks and the receiving folks to find out what it is like to do business with HP.' He had not talked to them - there was no real reason for him to - and what we found was that the purchasing folks had trouble generating purchase orders to us and when an HP shipment came in they had to take all of the pieces of it and set it aside and it took one full day of a receiving person's time to get through the order.

And there's one thing that I think is not emphasized enough: Despite all the technology, despite all the new ways of doing business, operational excellence is still an absolute key to this game. And so whether it is the supplier or customer or whoever, as we are inventing the 'new', we still have to stay focused on the fact that the train still needs to leave the station on time.

Gordon Gilstrap is director of logistics for Hewlett-Packard Co., a leading global provider of computing and imaging solutions and services. Having spun off its measurement and medical components business last year, HP now is the world' third-largest computer company, behind IBM and Compaq. Its products include PCs, the servers that link them in corporate networks, and printers and other peripherals. The company also increasingly is involved in e-services and internet infrastructure. HP has 86,000 employees worldwide and had total revenue from continuing operations of $42.4bn in its 1999 fiscal year. About 55 percent of sales come from outside the US.
Gilstrap has been with HP for 26 years. During that time he has worked in numerous functions: materials, information technology, systems engineering, production control, distribution and logistics. These professional changes, he says, allowed him to learn about the many different attributes of the company and the actual workings and impact of manufacturing and distribution.


Q. In the past few months, both in news reports and in corporate advertisements, we have seen a lot of references to the new Hewlett-Packard. Have supply-chain operations been impacted by the changes at HP and/or have they helped enable the changes?
A. The answer is yes on both counts. First, you have to realize that HP is now just Hewlett-Packard, which is computer systems, imaging and printing. We have spun off Agilent, which was the test and measurement and medical component business. As a result, we are much more focused on two primary areas: our commercial and enterprise customers and our end consumers. And with that, as we look at where we are trying to go, there is an emphasis on faster and leaner supply chains.

There also is an emphasis on more direct delivery, whether to our channel partners or to consumers. Basically, we're trying to take as many nodes out of the supply chain as possible.

And then there is the e-services part of HP. As we move more into providing e-commerce enablers as well as actual services, we need to be able to use those same tools, where possible, within HP.

Q. Among those issues, can you point to one as the challenge you will most focus on in the coming 12 months?
A. No, because if you look at it, it's a battle that must be fought on several fronts simultaneously. There are several key factors in this whole thing and the first is customer focus. Basically, I think that's true for everyone, in that you have to start from the customer and work backwards in the supply chain in order to truly understand what works well for the customer. That's a big part of everything we are trying to do; and it's not just understanding getting it there on time, it's understanding getting it there in a format, in the timing and in the solution space that works. And then, beyond that, it's the ability to deliver machines and software on a pay-per-use basis, which is a huge challenge.

So how do you get past all this to make sure the customer is getting exactly what we have agreed to in the right time and in the right condition? For instance, if they have ordered a machine that comes with a basic capability but also has extensive capability that they can purchase on a pay-per-use basis through the web, what is the customs value? So that's one thing.

Another, which we are really working on, is managing the intellectual property - in several regards. First, if you look at all the e-services that are being developed, how do you define what is a patentable idea and protect it appropriately, because there are a lot of people out in the space and there are a lot of new programs being developed, including new solutions that come about as we work with our supplier base and e-services partners. If you believe that the cost of knowledge is one of the drivers of the new economy, how do you manage it appropriately? And with the integration of all of these systems and the ubiquitous internet, how do you know what should be going out and what should be coming in, who owns it, who gets the royalty off the ideas, are they sellable, and so on. It is a large challenge for everyone.

Q. Those are some things that we normally would not consider falling in the logistics or supply-chain area. Does this mean that today's supply-chain professional needs to have a much broader understanding of business that might have been the case a few years ago?
A. At HP, we address these issues almost daily as we go into some of these newer e-services. For instance, let's say we're looking at a portal provider, one of the many that is out there now. As we begin to develop that relationship, there are going to be new ways of doing business, new schemes, and so on. Who owns the idea? Is it jointly owned? Who came up with it? How do you protect it? How do you sell it? People that aren't looking at these questions will undoubtedly wind up giving away intellectual property.

Q. What activity or business issue that you will be involved in this year will have the most significant impact on the company?
A. I would say the development of new business methodologies in the supply chain. This includes partnering with other companies appropriately, the development of consortia - basically taking advantage of some of the new business ideas that are out there like transportation management portals, leveraged buys, collaborative logistics, all of those things, and building them into a reasonable portfolio. There is no single solution for a company the size of HP. So what we want to have is a well-balanced portfolio that allows us to do collaborative logistics where it makes sense. Picking the right portal partners in the right geographies in the right modes and putting all that together is quite an exercise.

Q. Is integration the biggest barrier to making it all work?
A. The technological side of integration is not the barrier. Data quality, typically, is the first barrier. We can make it possible to move bad data very quickly. Secondly, it's knowing what data to move. It's possible, if you really wanted to pay the money, to go out and track every step of every shipment. Why would you do that? So it's finding the right balance of data that is actually critical to the operation, that is somewhat predictive and not diagnostic, and really looking at how you are going to handle all of that effectively. The actual technology, no. It is fairly quick to set up an interface and usually it will work - and usually people will be disappointed because of different interpretations of the data or just flat-out poor data quality. Or they grow tired of seeing these thousands of messages per day.

Q. What is the solution to that?
A. The first thing is understanding who is going to do what. HP is moving toward the position that we entrust the delivery to our supplier. We expect them to manage that and all of the integration needed for a successful delivery and to inform us only about those situations where it is just absolutely impossible to make it. Now we want access to the data for diagnostic purposes occasionally, but we expect the supplier base to take a very, very strong role because that is part of their operational excellence.

Q. HP has been an early adapter in terms of the consortia and exchanges. How is that working so far and where do you think it will take you in the future?
A. I would say that we are off to a slower start than we would like. But we are making progress and have actually put some shipments through. I do think this is the business model of the future, but you have to keep it directed to the right positioning and not see it as just a leverage play. At this point in time, especially on some of our major lanes, HP doesn't need that much leverage. So we kind of downplay that side of it. Instead, we ask what are the fairly tactical logistics processes and activities among the companies that are involved in this consortium that can be shared, at a lower cost to everyone. That is one of the things that we would like to achieve. So it is really more attacking the process than the negotiation.

For instance, if you look at the actual tendering of freight and all of the activities that are associated with that in terms of generation of electronic messaging, and so on - that's a fairly tactical activity. Do those seven or 12 or 14 companies each need to generate their own methodology for doing that, or could we by agreement pick a single provider that could do that for us? Does every one of us need to develop our own data base for all of our contracts and freight rates, or is it possible for all of us to share in the expense of maintaining one that is very robust and secure? So that is where we are looking for some of the leverage.

Q. Why has this gotten off to a slower start than anticipated?
A. I think everyone who has gone into this has found out that working across companies is really hard. So this is very different. It is very new and people are still rationalizing and asking what they are giving away, what they are getting and how much control they are giving up. So it is not a technological problem and not necessarily a process problem. It goes back to control of process and control of intellectual capital.

Q. Does this mean then that all of the talk we continue to hear about collaboration is overly optimistic?
A. I think it will happen. But it may happen at a bit slower pace than people would like. I think it will happen more readily in verticals, which is to say I think the consumer goods folks, for example, will probably be able to more quickly assimilate some type of collaborative situation because their transportation needs are somewhat similar. Quite often their routes are even similar. And there is a big push to go about getting savings any way you can. There are companies, say General Mills or Procter & Gamble that probably, in a lot of places, have negotiated about as much savings as they are going to do. They have probably optimized within their own company about as much as they are going to. So the question then becomes what is the next step. And the next step is optimization outside of your company with other industry players. There will be a continual push to do that because we have kind of hit the wall from some of the other areas.

Q. Are you saying that you think we have come to an end of what new technologies will be able to provide?
A. I'm not saying that. I'm saying that in some cases we have hit the wall in terms of negotiation and internal optimization. As far as new technology, we've only scratched the surface. We have just seen a glimpse of things to come. It spans across everything because it involves infrastructure improvements to make data even more available, so that we can more rapidly turn data into predictive information, which will allow us to capture a lot of knowledge that people have and be able to actually systemize it. It is those types of things that are probably the most exciting for the future.

Q. Can you address the challenges HP faces in terms of operating a global supply chain?
A. We do operate a global supply chain and we do it fairly successfully. We operate in every country on earth where it is legal to sell HP products. We have manufacturing in almost every region of the world or contract manufacturers that produce for us.

Where we are going with this is to take a more regional focus, because the region is where the customer resides. The customer in Europe is much different than the customer in the U.S. and than the customer in Asia/Pacific. And you have to put a lot of intellectual capital into those regions to truly define how the customer is best serviced and then build a supply chain back from that. So what we are looking at is a very strong regional management focus to absolutely understand the customer and the market, and the global infrastructure so that people in individual geographies don't have to worry so much about building an order-management system or building a logistics tracking system. That way they can be more focused on the customer. So it is a mix of both: Do the global stuff where it makes sense, but then put everything else into the region where it can be customized and personalized for the customer.

Q. How are skills required for supply-chain professionals different today than when you entered the business?
A. I think there is a greater need for global awareness and basic international trade skills. Even if you are highly regionally focused, there are still decisions that need to be made about the siting of your contract manufacturers or distribution centers and the real impact of that. You don't have to fully understand exactly every customs issue or tax issue, but you need to be aware of the fact that there may be tax and customs issues and export administration issues that need to be researched for these decisions.

Second, there is the need for logisticians to be more aware of the business financials and how their decisions relate to the financials of the business, because if you push a button and that button basically drops profit by one-tenth of one percent, somebody will probably notice. You should be able to defend why you did that.

And then, third, it is again this whole intellectual capital, intellectual property business - it is being able to look across a huge amount of information and data and concepts and ideas and be able to bring those together into a rational portfolio of the information that you are going to use to run logistics.

Q. What are other basic survival traits for people in this profession?
A. The No. 1 survival trait is to not let yourself get too far removed from the customers, which often happens to logisticians. They leave that to sales and marketing but they should do everything possible to get closer to the customer because quite often, especially in larger companies, the actual logistics customer may be different than the buyer. I went to one of our major customers with one of the best salesmen I have ever met at HP; this guy was phenomenal. When we got there, he said, 'OK, let's go talk to the technical folks who decide what equipment they are going to buy.' And I said, 'No, let's go talk to the purchasing folks and the receiving folks to find out what it is like to do business with HP.' He had not talked to them - there was no real reason for him to - and what we found was that the purchasing folks had trouble generating purchase orders to us and when an HP shipment came in they had to take all of the pieces of it and set it aside and it took one full day of a receiving person's time to get through the order.

And there's one thing that I think is not emphasized enough: Despite all the technology, despite all the new ways of doing business, operational excellence is still an absolute key to this game. And so whether it is the supplier or customer or whoever, as we are inventing the 'new', we still have to stay focused on the fact that the train still needs to leave the station on time.