Hewlett-Packard: Performance Measurement In The Supply Chain Harvard Case Solution & Analysis


Hewlett-Packard (HP) is an American multinational information technology company, which was founded in 1939 by Bill Hewlett and Dave Packard. HP has become one of the leading provider of information technology infrastructure, global services, personal computing and access devices, printing equipment to business and home consumers around the globe. The strength of the company lies in its strong culture and the strong reputation for high-quality and high-performance products.

Moreover, the company comprises of more than 150,000 employees and operates in more than 170 countries. Hewlett-Packard provides software and hardwares to Small and Medium Sized Enterprises (SMEs) and large corporations. The objective of HP is to deliver quality products and value-added services to its customers, in order to gain customers’satisfaction and competitive advantage in the long run. In the 1990s, HP’s management team recognized the importance of supply chain management and performance filling orders that will cause to win and lose the competitive battle.


Due to high competition and maturing market in the IT industry and changing customers’needs and perspectives, this led HP to face multiple issues and challenges such as price competition, modern technology, product differentiation, value-added services, reduction in per-unit cost and effective supply chain management. According to the case, the main issue faced by the company is how to translate the high level of strategic and financial goals into concrete improvement actions at the operational level.

Moreover, the mismatch of the demand and supply lead the company to face high costs, decreasing profitability and declining competitive position of the company. Furthermore, insignificant cost factors include material devaluation, price protection, write-offs, scrap, discount have become the critical detriments to profitability. Therefore, it is important for HP to readdress the critical situation and restore competitiveness by utilizing the Inventory-Driven Cost (IDC) effectively and efficiently.


The management of HP realized that the firm’s accounting information systems failed to keep pace with the evolution of its supply chain management. Moreover, HP’s current approach to cost measurement makes it impossible for individual players in the chain to evaluate the overall dollar impact of the company local decisions. Therefore, it is important for the company to initiate a sustainable supply chain and track the progress on improving the company’s bottom line.

Inventory Driven Costs

In order to make Hewlett-Packard more cost competitive, the management team of the company initiated a Strategic Planning and Modeling (SPaM) group, which assigned the task of introducing quantitative methods into HP’s decision-making processes. Later, it became clear that the mismatches between the demand and supply led to excess inventory, which were the main drivers of PC costs(John J. Neale, 2004).

Therefore, the SPaM group consulted with various product divisions and initiated an inventory driven cost metrics to improve supply chain process in the long run. Moreover, SPaM identified three other inventories driven cost items such as material devaluation, price protection, and obsolescence costs.

Material devaluation

Material devaluation costs are one of the biggest parts of HP’s inventory costs. The price of the key component reduced, which reduced the price of the product. Moreover, the penalties for holding excess inventory are enormous. Furthermore, HP has no control over component prices;however, it could control inventory levels. This means that the company should reduce the number of nodes in the supply chain, and take possession of components on a Just-in-time basis, and build the relationship with suppliers to minimize inventory costs(Taylor, 2001).

Price protection

The reduction in market price after units has already been shipped into the channel and reimbursement to the company’s channel partners for the difference for any unit that has not been sold. However, the price protection negatively affected the sales revenue of the company. In order to limit this cost, it is important for HP to make sure that the inventory never exceeded the least number of days required in order to ensure the desired availability.  Moreover, it is the responsibility of the management for manufacturing in short time and replenishing the cycle frequently.Hewlett-Packard Performance Measurement In The Supply Chain Case Solution


The third IDC factor includes inventory adjustments and end-of-life write-offs, material obsolescence, scrap, and obsolete product rebate program. The PC industry life cycle is short that even small miscalculation in anticipated demand can cause obsolescence costs. Therefore, HP should develop strategies in order to avoid such kind of costs in new product development so that the remaining units of the old model are sold out......................................

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