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From buyer to integrator: new skill sets for colloborative supply chains February 7, 2008

Posted by Baihaqi in Management, Technology.
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Instead of many years, HP did all the transition from a vertical to a collaborative development model in less than one year

This is an excerpt from an interesting articles published in Production and Operations Management. The paper discusses how Hewlett-Packard carried out a big transformation, from manufacturer to buyer then integrator. I think what Hewlett-Packard did is very interesting insight and I believe it will become a model for other industry.

Hewlett-Packard (HP) has shifted its manufacturing strategy from a vertical to a collaborative product development model, in which, suppliers do the vast majority of detailed product design as well as manufacturing while HP remain responsible for product integration and overall system performance. This is in contrast with common keiretsu model in which the focal firms do the design of core components in house and outsource the design of non-core components only to suppliers with whom they have long relationships. Instead of having many years developing good supplier relationship, HP did all the transition from a vertical to a collaborative development model in less than one year. This successful transition was allowed because HP had successfully developed a set of new skills in their personnel to be able to integrate the ranges of capabilities of their supplier networks. The new skills set are very different from that of those skills before the transition. The transition was motivated by low revenue, low return on assets, and a high cost of sales. Since this transition, the mobile computer division has increased the revenue by 10 times and improved cost of sales and return on assets.

In mobile computer division, for example, design requirement is generated by the division headquarter and detailed design work and manufacturing are performed by suppliers in Taiwan. To integrate all this process, two supply-chain integrators serve as the primary point of contact between HP and the suppliers. The firs integrator – a system manager – must communicate specification to the manufacturers and ensure a smooth design progress. Next, a delivery manager will monitor the production ramp-up and customer fulfillment. The system manager and delivery manager function as HP’s supply-chain integration capability.

This shift requires HP to develop an effective method to join together their supplier development capabilities which was previously unnecessary. HP then radically changed the skill set of the personnel that remained in product development. They no longer perform detailed design such as circuit design; packaging, software engineering and other detailed design as these tasks are now performed by their suppliers. Thus, HP needs a skills set that be able to maintain product coherence from concept to customers across numerous firm boundaries. This skills set can not be fulfilled by just skill from purchasing people as the new task – a supply chain integrator – requires many technical issues involved. In this collaborative model, an integrator has to understand how to assess the financial and technical implication of a supplier’s design in regard to other product subsystems that can be from different suppliers. In addition, the integrator should be able to motivate and negotiate with the supplier to make any necessary changes to its design.

The new skills set that have been developed by HP are categorized as follows:

  1. Project execution – including the hard and soft skills to ensure the product is delivered on time, on acceptable cost and quality.
  2. Project evaluation – including system engineering, business case evaluation, and complexity management – to estimate the cost and performance trade-offs inherent in the design
  3. Related domain knowledge – including operations management and information technology – to execute and evaluate the development project.

Source: Parker and Anderson (2002) From buyer to integrator: the transformation of the supply-chain manager in the vertically disintegrating firm, Production and Operations Management, 11(2) pp 75-91

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