HP Transforms Product Portfolio Management with Operations Research

Abstract

cost analysis; stochastic inventory analysis; flow algorithms; product portfolio management; inventory management; regression; statistic; binary programming; Lagrangian relaxation; parametric maximum flow HP offers many innovative products to meet diverse customer needs. The breadth of its product offerings has helped the company achieve unparalleled market reach; however, it has come with significant costs and challenges. By offering multiple similar products, a manufacturer increases its overall demand volatility, reduces forecast accuracy, and can adversely affect revenue and costs across the entire product life cycle. At HP, these impacts included increases in inventory driven costs and order cycle time, liabilities to channel partners, and costs of operations, research and development, marketing, and administration. Furthermore, complexity in HP's product lines confused customers, sales representatives, and channel partners, sometimes driving business to competitors. HP developed two powerful OR-based solutions for managing product variety. The first, a framework for screening new products, uses custom-built return-on-investment (ROI) calculators to evaluate each proposed new product before introduction; those that do not meet a threshold ROI level are targeted for exclusion from the proposed lineup. The second, HP's Revenue Coverage Optimization (RCO) tool, which is based on a fast, new maximum-flow algorithm, is used to manage product variety after introduction. By identifying a core portfolio of products that are important to order coverage, RCO enables HP businesses to increase operational focus on their most critical products. These tools have enabled HP to increase its profits across business units by more than $500M since 2005. Moreover, HP has streamlined its product offerings, improved execution, achieved faster delivery, lowered overhead, and increased customer satisfaction and market share. _______________________________________________________________________HP serves more than one billion customers (consumers, small to medium businesses, and largeenterprise customers in virtually every industry) in more than 170 countries on six continents. Its four business units offer products spanning enterprise storage and servers, personal systems, imaging and printing, software, services, and corporate investments. With 2008 revenues of $118B, HP is the global market-share leader in PCs, printers, and servers. It ships 48 million PCs annually and over one million printers weekly. One of every three servers shipped worldwide is an HP product. Its product lineup includes significant variety in nearly every offering, boasting more than 2,000 laser printer stock-keeping units (SKUs), more than 15,000 server and storage SKUs, and over eight million possible configure-to-order combinations in its notebook and desktop product lines.Although HP's product offerings drove sales and market share, the variety of its product portfolio caused significant organizational complexity, created major operational and perfor...

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