PRESENTATION ON

STRATEGIC
SOURCING AT
HP

Submitted By:
NEHA SINGLA
PARUN BANSAL
BINDIA CHANDEL
HIMANSHU SHEKHAR
RAMANDEEP SHARMA
 CONTENTS

Steps in a strategic sourcing process.

Key chain program.
Procurement Risk Management.
The PRM Framework.
HP Risk Contract-Valuation Analysis.
Benefits.
 Steps in a strategic sourcing process

Assessment of a company's current spend

Assessment of the supply market
Total cost analyses
Identification of suitable suppliers
Development of a sourcing strategy
Negotiation with suppliers
Implementation of new supply structure
Track results and restart assessment
Negotiate with the vendor about the payments terms of the
specific organisation.
 THE KEY CHAIN PROGRAM

Order and forecast collaboration

Inventory collaboration
Auctions
 DECENTALIZED DECISIONS
CONTD………

Inventory collaboration
e-SMI.
Internet technologies and web-based solutions

Auctions
Initially the focus of HP’s e-Bazaar program was not in using auctions
for sourcing, but rather for supply chain execution.
Support supply chain execution covered disposing of excess material.
RFP or RFQ process, as a decision mechanism for awarding business.
 RFP(REQUEST FOR
PROPOSAL)/RFQ(REQUEST FOR
QUOTATION)

Quotation Analysis Form

Technical capability
Delivery and packaging
Quality
STRATEGIC SOURCING
 Procurement Risk Management

 Launched at HP in August of 2000.

 Framework to quantify the impact of product demand, component cost,
and availability uncertainty on revenue, costs, and profits.
 To support the risk management process
 Manage procurement uncertainties and risks.
 Training curriculum and consulting infrastructure to help HP
professionals .

Mathematical model.
Business process.
Software application.
 The PRM Framework
• quantify the impact of product demand, component
cost, and availability uncertainty.
• A suite of software tools comprises HPHorizon
demand-scenario software, HPRisk component-cost-
forecasting software, and HPRisk contract-valuation
software.
• A rigorous PRM business process to proactively
manage procurement uncertainties and risks; and
• A training curriculum and consulting infrastructure to
help HP professionals implement PRM.
 HP Horizon Software
• The analytics embedded in the HPHorizon
software perform a regression analysis of
historical forecasts and shipments to quantify
forecast bias and uncertainty.
• then combines this information with current
demand trends to represent the uncertainty in
the demand forecast.
• to assess the uncertainty in demand forecasts
for products and components.
The HP Risk cost-forecast software
• Hi-Tech exhibit significant cost uncertainty.
• hi-tech component prices typically demonstrate a
long-term decline in costs due to technological and
process-related improvements.
• software performs a regression analysis of historical
costs for a particular component to determine the
parameters of price process to model the unique
cost dynamics of each hi-tech component..
• components such as memory chips (flash memory),
LCD panels
Structured Contracts with Suppliers
• the risks are managed by setting up
portfolios of structured contracts that HP
executes directly with suppliers.
• binding commitments, incorporating a
complex combination of quantity and pricing
terms
HP Risk Contract-Valuation Analysis
• these contracts be appropriately analyzed to
increase benefits and decrease the risk
 BENEFITS
• Material-cost savings: $128 million in material-cost
savings in FY’06, and over $325 million in material
cost savings.
• Assurance of supplyP:despite an industrywide memory
shortage approxi- mately one year ago, the PRM contracts
that HP business units had executed ensured that they
obtained 100 percent of their demand from the suppliers.
• Cost predictability: HP now procures over 25 percent
of its memory chips using PRM contracts; this enables HP
to obtain the cost predictability required to pro- tect
margin on contracted sales to large customers.
 Contd…
• Inventory reduction: The requirement for HP to hold inventory is
reduced as suppliers commit to providing defined upside flexibility
through flexible- quantity contracts.
• Supplier benefits: The quantity commitments that HP makes to suppliers,
as opposed to just exchanging nonbinding forecasts, have lowered
suppliers’ risks; suppliers of several strategic commodities have locked
up significant portions of their capacity through PRM contracts with
HP.
• (6) Reduction in the “bullwhip effect”:
• Some suppliers are making commitments to their suppliers (who are HP’s
second-tier suppliers) that are tied to HP’s quantity commitments to
them. This results in quantity commitments that cascade deeper into the
supply chain, resulting in a significant drop in order volatility through the
supply chain
THANK YOU !!