Reinaldo Fioravanti, HP, São Paulo, Brazil
PHOTO BY PAULO FRIDMAN
ON ANY GIVEN DAY, HP works with hundreds of suppliers working on projects scattered around the world. That sounds like a supply chain management beast, but it's one the tech giant believes can be tamed through careful attention to detail and shrewd relationship building.
HP's strategy centers on well-defined contracts that specifically lay out project requirements combined with long-term relationships in which the vendor and HP share risk and reward, says Reinaldo Fioravanti, supply chain strategy program manager in the imaging and printing division for HP in São Paulo, Brazil.
Without a good contract, no relationship can work because there are no targets defined and nothing to measure, he says. “But without a strong relationship, the vendor has no incentive to meet the requirements of the contract,” he says. “You have to have both.”
Vendors know if they do a good job and meet the contract requirements, they will continue to do business with HP—and that adds value for both companies, Mr. Fioravanti says.
Teaming up with the same vendors makes ramp-up on new projects faster and easier because the vendor comes in familiar with HP's expectations. “It's a kind of shortcut for us because we don't have to invest a lot of time up-front before a project starts,” Mr. Fioravanti explains.
“If there is a disruption in our supply chain like a ship that has sunk or a tsunami in Asia, we need to know how we are going to keep our products in the market.”
Every HP department manages vendor relationships for its own projects. But project leaders work with a global procurement group that sets guidelines, helps teams identify preferred vendors, and ensures accountability and continuity across the company.
One of the goals when choosing vendors for any project is ensuring a regional diversity among the chosen firms—a sort of insurance policy for business continuity. “If there is a disruption in our supply chain like a ship that has sunk or a tsunami in Asia, we need to know how we are going to keep our products in the market,” Mr. Fioravanti says. “So we always have at least two suppliers for every project and at least one alternate supplier as a backup in case something goes wrong. It's a matter of risk mitigation.”
The strategy is particularly useful in emerging markets, where projects can shift dramatically based on market demands. “The Latin American consumer market is growing, but it can be volatile and difficult to forecast as customer behavior changes,” he says.
To accommodate that unpredictable market behavior, Mr. Fioravanti may secure two large low-cost manufacturers in different parts of Asia that can handle the bulk of production. But he'll also option a local supplier that can produce small batches with very short lead times to accommodate unexpected increases in demand. “The local supplier may cost more but it allows us to respond to that customer demand,” he explains.
Achieving regional balance is how HP reduces risks on projects, but the company also makes sure its vendors take on some risk, too. For example, if HP sets a 10 percent cost-reduction target for the next quarter, every supplier is expected to meet it. If a supplier goes beyond 10 percent, it is rewarded with a cut of the savings.
HP also defines the cost of not meeting goals in contracts. The company may charge a vendor a specific amount per day that a product is not delivered on time, for example. “Our philosophy is to share our gain and to also share our pain,” says Mr. Fioravanti.
Every project concludes with a post mortem in which project leaders document what went right and what went wrong in a database shared across the company. “We share our lessons learned, from our best and our worst projects, so we can use them on the next project,” Mr. Fioravanti says. “It helps everyone understand what went wrong so it doesn't happen again.”—Sarah Fister Gale
Leadership 2009 www.pmi.org