It is Friday as we pen this posting and there has been no shortage of major supply chain related news this week, including the continuing human and physical effects of the monsoon flooding occurring in Thailand.  The final icing however was last night’s announcement from Hewlett Packard that reverses the company’s prior decision, two months ago, to explore options for spinoff its B2C PC division.

The open question for Supply Chain Matters now focuses on how much collateral damage has been caused in terms of both consumer and supplier perceptions, and what needs to come next?

Business media has been adding all sorts of spin to the decision, including lots of blame directed at former ousted CEO Leo Apotheker, or the first bold decision undertaken by new CEO Meg Whitman.  The positive aspect to the reversal announcement was Whitman’s admission that HP “confused the market pretty dramatically.” We would add HP’s extended supply chain to that admission. We also reject that it was Meg Whitman’s boldness that led to this resolution, since she was a member of the HP’s board when the prior decision was publicly announced. It was rather a statement of the obvious.

According to an article published by select writers of the San Jose Mercury News, HP CFO Cathie Lesjak pegged the cost of spinning out the PC division to be $1.5 billion, which included costs to launch as a separate entity and create a new global brand.  Of course, that statement alone begs the question of why this analysis was not conducted earlier, before going public with an announcement.  A syndicated Associated Press article reporting  on the reversal decision noted the following: “The company said that its evaluation of the business unit revealed a deep integration across key operations, such as its supply chain and procurement. Ultimately, the review found that the cost to recreate these operations in a standalone company outweigh any benefits of selling the PC unit.”  Most all of our readers would have already known that the study would have pointed to these realities. In previous commentary, we opined that either a clear supply chain leadership voice was not present at the decision table, or other voices were drowning out the facts of the compelling dependencies that HP’s value-chain has on its hardware product offerings.

Now to the question of what comes next, beyond the repairing of a badly bruised HP reputation.

There are analysts advocating that HP needs to streamline and reduce its PC product offerings and provide clearer, more compelling choices for consumers and small businesses.  HP cannot ignore the compelling wave toward tablet and mobile computing, and has already botched a jewel in having acquired the Palm webOS operating system. Others note that the strategic analysis of options for PSG needs to now move into another direction. Supply Chain Matters concurs with all of these.

The next option may lie in what IBM elected to do so many years ago, namely transfer supply chain operational, branding and service responsibilities for PSG to a major contract manufacturer, one that has the capability to assume such a global role, while also supporting the supply chain strategy and efficiency needs for HP’s servers and other hardware products.  Lenovo is what it is today because of that IBM decision. The question is which manufacturer has the capability, resources and willingness to take on the HP opportunity?

In our view, the next best decision for Meg Whitman is to appoint an HP Chief Supply Chain Officer, reporting directly to Ms. Whitman. He or she should be tasked with the responsibility to evaluate the strategic options and logical next step for HP’s procurement and supply chain strategies and capabilities that can best support strategic product direction.  That person should also have an open mind in that in the end, the task ahead may be to outsource PSG.

Bob Ferrari

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