Successful supply-chain partnerships rarely happen on the first try. Often they're the result of trial and error - even if the solution looks obvious in retrospect.

Hewlett-Packard Canada Ltd. spent several years whipping its parts and service operation into shape. In the mid-90s, Hewlett-Packard Services set out to squeeze more efficiency out of the Canadian field stocking network.

At the time, HP had 19 locations, each with its own parts stock, and no "global" view of inventory. Typically, a location in British Columbia might order a critical part from the central distribution center in Mississauga, Ontario, unaware that a much closer field location had that very part available, says Bill Hook, executive vice president of Toronto-based UPS Logistics Group Canada.

Service parts didn't fall within HP's core business, but the company nevertheless wanted to derive some value from it. At the same time, it needed to boost service levels to customers, especially those with systems in critical need of repair. Most are commercial in nature - banks, telecommunications companies, government agencies. For such clients, even a brief disruption in information systems can cause a disaster in customer relations.

HP Canada's parts network consisted of three service components: next-day delivery from its 19 regional parts centers to service locations across Canada, next-day to authorized service providers at some 200 locations, and a one- to two-hour window for delivery within major cities, such as Toronto and Montreal.

According to Barry McDonald, vice president and general manager of HP Services, the company considered two models for change: total outsourcing, where the provider uses its own facilities and systems to manage the parts network, and insourcing, where the provider's own people work within HP's facilities, utilizing the customer's technology and warehousing.

HP tried the second option first. "Nobody was mature enough to do [outsourcing]," says McDonald. "It would have been a huge risk." So the company brought in an expedited courier service to handle matters in-house. And while that vendor boosted service consistency and inventory visibility, it wasn't good enough for HP.

Among the respondents to HP's original request for proposals was Livingston International, the venerable Canadian logistics provider, customs broker and freight forwarder. Livingston, says McDonald, had been managing service parts for other companies on a localized basis. HP was still talking to Livingston about the prospects for a national rollout when the vendor was acquired by United Parcel Service.

As it turned out, UPS, which had also purchased the expedited courier SonicAir, was in discussions with Hewlett Packard about providing a similar service in the U.S. Further along that road than its U.S. counterpart, HP Canada jumped at the chance to work with the newly developing UPS Logistics Group.

UPS's acquisition strategy had given the provider exactly the kind of nationwide network HP was seeking. Following four to five months of negotiation, HP began turning over its service parts inventory to UPS. Hook says the vendor will close down all 19 of HP's parts locations by the end of October 2002, and integrate the materials into its own multi-customer facilities, including a main DC in Toronto. That will help cut the cost of maintaining the HP service operation, while providing a skilled workforce network-wide.

The move is still in progress. HP parts are now domiciled at UPS's western hub in Calgary, Alberta. By early June, they were scheduled to be in place in Montreal. And by late July or early August, UPS will have taken HP parts into a pair of warehouses in Toronto. In all, UPS will have parts at approximately 18 locations across Canada. The provider is also migrating the network into its own information system, a task that should be completed in the fourth quarter of this year, McDonald says.

Initial results show big improvements over the old system. According to McDonald, UPS has cut from 23 days to seven the time it takes to get back defective parts, repair them and replenish stock. It has removed up to 16 days of inventory from the network. Total cost savings to date are in the 20-percent range.

UPS has implemented on HP's behalf a program under which a "smart courier" replaces an entire defective unit, reducing the need for technicians in the field. It has also created an advance return system, making it easier for customers to send back defective parts, and for HP to keep track of them.

Future possibilities include streamlining HP's reverse logistics and repair processes on the consumer side, and hiring UPS to do some of the repairs. Ultimately, says Hook, the idea is to combine the HP/UPS partnerships in the U.S. and Canada into a single operation, giving the high-tech giant a North American view of its service network.