Hewlett Packard: Performance Measurement in the Supply Chain (Condensed Version)

In a maturing market, HP’s attention moved from Return on Sales to Return on Net Assets. Mismatches between demand and supply, aggrevated by a long supply chain, were a burden on profit. HP realized that conventional logistics costs (warehousing, inventories, transport) were only the tip of the iceberg. Hidden underneath were large costs due to price protection, material devaluation, returns and obsoletes (Inventory Driven Costs). Uncovering all true demand/supply mismatch costs allowed HP to redress the situation and restore competitiveness.

The case aims to illustrate the strategic impact of supply chain management and the increasing cost of supply/demand mismatches. To enable sound decision making (e.g. in prioritizing supply chain improvement projects), a clear link needs to be established between supply chain performance indicators and bottom-line impact.