Most logistics execs who've been involved in the merger of two supply chains would be in no hurry to repeat the experience. But Robert Gifford isn't one of those guys. He's found himself overseeing supply chain mergers after tech-industry acquisitions not once but four times in his 25-year career. The first time was when Compaq acquired the company he was working for, Tandem Computers, in August 1997. Next came Compaq's acquisition of Digital Equipment Corp. in January 1998, followed by Compaq's acquisition of InaCom in December 1999. But all of those were penny-ante deals compared to the big one in 2002: the $25 billion deal in which Hewlett-Packard (HP) acquired Compaq, forming a behemoth with a reported $87 billion in revenues.
As head of worldwide logistics for Hewlett-Packard, Gifford, who's based in Houston, found himself in charge of integrating Compaq's and HP's supply chains. He came to that post after serving as vice president of worldwide supply chain logistics operations for Compaq. Under his stewardship, Compaq consolidated 30 percent of its logistics infrastructure, outsourced its commercial PC operations in North America, consolidated the North American consumer PC manufacturing operations and reduced Compaq's vendor infrastructure to focus on strategic partners. An ambitious agenda, to be sure, but one that paid off in significant inventory reductions, inventory turn increases, and improved cash-to-cash cycles.
Fresh from his keynote address at this year's Distribution/Computer Expo and shortly before his presentation on "Managing a Merger" at the Council of Logistics Management's annual conference, Gifford spoke with DC VELOCITY Editorial Director Mitch Mac Donald about his experiences and his thoughts on how logistics operations can provide a company with a clear competitive advantage.
Q: Tell us a little bit about the operation you manage on a daily basis.
A: I'm responsible for worldwide logistics for HP.We're an $80 billion company focused on really innovative products and services. That poses lots of interesting challenges from a logistics perspective.We operate in all regions of the world, for example, and we spend over $2 billion annually on transportation alone, to say nothing of our other logistics-related costs. It just is a huge supply chain—one with origin and source points scattered around the world, not just in Asia but also in Eastern Europe,Western Europe, the United States, Latin America, Central America and Australia.We service multiple markets: the consumer market, the commercial market and the education and government markets. It's a very comprehensive, worldwide logistics operation.
Q: Sounds like your typical day might be a busy one?
A: Very busy. We've been coming out of the merger between HP and Compaq, which has gone quite well. It's been a very successful merger. The vision of HP is to serve all of our customers' IT needs from a product (and a service) standpoint. It's our job to deliver those products all over the world.
Q: Is it safe to say that logistics and supply chain operations were just about ground zero of the merger?
A: No question about it. One of the things that we really focused on in the HP-Compaq merger was our ability to leverage our size and scale. A merger of that scale has some marketing implications, of course. It also has sales implications. And it has IT implications. But when you stop and look at the multiple products that we have and are taking into the marketplace, the one thing that leaps off the page at you is the synergy in the area of logistics. Not only is logistics important, it's critical if we are to leverage our size and scale into a competitive advantage. From day one, we've been focusing on leveraging logistics across our portfolio to meet multiple customer needs. That's been right at the top of the list of merger-related initiatives..
Q: Have you maintained duplicate systems or have you attempted to move to a single integrated approach?
A: We've focused on building commonality and simplicity. We have a broad and complex product line sold in multiple marketplaces, so a single logistics system would probably not work for us. However, we have addressed the commonality and simplicity in the logistics arena in many, many ways. I think the best example is in the visibility space. A lot of companies are focused on maintaining visibility of their goods as they move through their supply chain, keeping the velocity of the inventory as high as possible. Of course, we're doing that too, but we had to overcome a significant hurdle in doing that: We need to use multiple carriers and multiple modes—everything from air to ocean freight—to meet marketplace needs and demands. When you're trying to put together a visibility application that benefits your internal and external customers, that scale and variability presents a huge challenge.
We're fortunate that as a high-tech company we had the skills and resources to address challenges like that. We've developed a tool where all of our providers, carriers, warehouse operations, customs brokers and so on throughout the chain are consistently pushing the data into our system. So, regardless of whether you're trying to figure out how quickly a handheld unit is making its way over from Asia to the United States or when your shipment in Germany is arriving by truck, you can use the exact same system. Whether it's one of our non-stop computers that runs the London Stock Exchange or a PhotoSmart printer that's destined for a specific consumer in North America, you can access the exact same system the same way to track its progress through our supply chain. That's a considerable competitive advantage. It also makes it easy to train our people. They become very comfortable with the system, and that allows us to interchange staff members among various parts of the organization when necessary. That's just one of the huge ways in which we've built commonality and simplicity into the system.
Q: How did you arrive at this high-level logistics position at HP?
A: I came over in the Compaq merger, after having joined Compaq originally as part of another merger. But I started out in the Silicon Valley, where I found myself in IT subcontracting in its infancy.My first job out of high school was working for a company that was subcontracting for a brand new company in the Silicon Valley that built disc drives. The subcontracting industry in manufacturing, especially in the Silicon Valley in those days, grew rapidly with companies like Octal and Rome, most of which have come and gone. During that period, I became extremely interested in supply chain activity, especially in the hightech industry. I had the opportunity to see many, many different and exciting technologies and see various ways of handling order management, manufacturing, delivery and logistics as each company figured out how to get its products into the marketplace.
Eventually, I decided it might be interesting to help design a company's supply chain, which led me to Tandem Computers. At Tandem I managed what we called a business operations group that had order management, planning, procurement and logistics responsibilities. Once I was at Tandem, I found that logistics and order management and the actual filling of customer requirements is really, for me at least, the fun part of the supply chain. It's an aspect of the operation in which you're really on the front end of customer satisfaction. You're able to do things that give you a competitive advantage, whether it is managing your customers' shelves or going deeper into their supply chains. I just found it a really intriguing piece of the overall value proposition. Although I spent lots of time in manufacturing and lots of time in planning and procurement, I always tended to focus on where we make an impact at the customer level.
Then Compaq came along and said,"Let's add Tandem to the portfolio." So I participated in that merger, as well as the Digital Equipment Corp. merger, prior to HP's buying Compaq and
Q: Do you think companies are realizing that it's really the logistics arm of their supply chain that has the most regular, consistent contact with the customer?
A: Not only are people starting to understand that, but I also think that leading companies—and we would like to include HP among them—are starting to realize that your supply chain really can be a competitive weapon. It can be something that differentiates you from your competition. Your ability to meet complex customer requirements makes the difference between success and failure. An example would be a company like Shell Oil that needs laptops for its sales force out in the middle of nowhere and also needs a very strong back-office IT infrastructure. If you can meet both of those needs for that customer, bringing commonality and simplicity into their IT investment, you're really providing value that is over and above what the others can offer. We look at our supply chain not only as a vehicle to deliver value to the customer, but also as a vehicle to differentiate ourselves from our competition.
Q: Does HP have a clear objective for its supply chain?
A: We want to provide a focused supply chain, whether it's a low-tech supply chain for something that we buy from an OEM or a very high-tech supply chain where we're taking a complex, non-stop computer, loading software and installing it for the customer, as well as providing service and training.What we've realized is that there are four, five or six different supply chains that really drive our business.While they're different based on customer demand and product segment, we've tried to approach them in the same way— that is, by leveraging our size and scale.We leverage our size and scale through IT systems, order management and logistics. The benefit is that we're routing products depending on their characteristics and their targeted marketplace to the correct supply chain, giving the supply chain focus so we are competing with the best in that particular niche.
Q: Sounds simple in one sense and complex in another.
A: It is, but it works well given the wide variety of markets we serve. We can provide a well-leveraged solution where we're taking logistics for the whole company and providing value in one particular supply chain that our competition can't match. Let me give you an example.We ship a lot of industrial standard servers.What we need to do to optimize our supply chain for that segment—from building the equipment to installing the software and making sure it meets the customer's requirements—is far different from the supply chain we use to bring a digital camera to the consumer market. Whatever the product or market is, though, the idea is the same: remain focused and then leverage.
Q: What's the biggest obstacle to achieving those objectives?
A: The length of the supply chain.
Q: Do you mean the physical length?
A: Yes. We have China and India coming on line with tremendous growth. Eastern Europe is opening up. Latin America is fast becoming an important consumer market for our types of products. So, not only is the supply chain stretching, but the destination customer demographics are becoming more complex. I think the lengthening supply chain and today's lack of capacity—or in some cases, lack of infrastructure in foreign markets—are going to be our focus as logistics professionals for the next 10 years.
Q: Sounds like what's already terribly complex is going to get that much more complicated.
A: It is a challenge. I think it's incumbent upon us to constantly look at our product sets and our customer demographics in order to ensure we're optimizing our logistics flow. That's why we'll continue to use many modes and many, many strategies to ensure that our product sets are getting to the market the best way. Take computer monitors, for example. In the case of monitors, we'll use ocean freight. For laptops, on the other hand, we'll use air freight because laptop technology changes rapidly and dramatically. We don't want to have laptop inventory, so we use a different mode to speed up the delivery.
Q: Product obsolescence has accelerated to such an extent that it actually determines modal choice. That's amazing when you step back and think about it.
A: It absolutely is. It's funny that you mention that because for a company like HP, a solution for our customer could require multiple products that all have different characteristics dictating modal choice.We have circumstances in which we use three different supply chains to meet one customer's needs. That's why we believe our ability to put that infrastructure in place, which is both complex and yet brings simplicity and commonality to our supply chain, is going to give us a competitive advantage in the marketplace.
Q: If you had to identify the one part of your personal skill set that serves you best each workday, what would it be?
A: I would point to the unique advantage I've had in having grown up, if you will, by moving from smaller companies to progressively larger companies, and of therefore being able to understand the ramifications of the endto- end supply chain. Having order management and manufacturing experience, having done system integrations, has given me a clear view of the criticality of all the things that must work in harmony to allow really superior execution, as opposed to a purely metric-driven logistics operation that may be passing all its logistics benchmarks but results in very low customer satisfaction due to problems upstream or downstream. A lot of people in our business grew up in transportation or in warehousing. Being able to understand the rest of the supply chain has given me an insight that has helped not only me personally, but also the companies for which I've worked.
Q: Although you've always been in some type of IT environment, you're really not an IT guy at all, are you?
A: That's absolutely right. I am a supply chain guy. I always tell people when I move into a new position or take on a challenge, that I'm an operations guy. I take orders and build things and ship things. That's my job. That I happen to be doing it in a cutting-edge high-tech environment just makes it that much more exciting.
Q: You've obviously seen a lot of change in the way companies approach their logistics and supply chain operations. What's been the biggest change?
A: hat's a very interesting question. I don't know if everyone would agree with this, but it seems that 15 or 20 years ago, you would build the product and then, almost as a sideline, find a truck driver to haul it or a courier to deliver it. The focus was on building the technology, making sure that it worked and figuring out how to build it in a cost effective way. We've now gotten to a point in the evolution of the supply chain concept where logistics considerations are part of the process right from the get-go.
Q: In terms on emerging logistics technologies, what are you folks doing, if anything, in the area of RFID?
A: We're probably further along in implementing RFID than almost any other company. We were among the first companies to be in compliance with the Wal-Mart mandate. Today, we have multiple facilities that are ready for Wal-Mart. We were fully prepared to meet the Defense Department's requirements that have now been delayed.We have a distinct advantage in being a high-tech company that operates a large supply chain.
Q: If you could give one piece of advice to someone just starting out in the logistics profession, what would it be?
A: Great question. Just one piece of advice? I think it would be to remain flexible. This profession is always going to be changing. You're going to have to adapt to these new things. I think the companies that will struggle are those that keep rolling out the same recipe. I think the companies that will succeed will be those that look at the new environment, the new challenges and the new opportunities and quickly adapt their infrastructure to take advantage of them. I guess my message would be to keep your eyes open.What you're learning today is going to change tomorrow, and your ability to adapt, understand, communicate and take advantage of those things will directly affect your ability to succeed. Because, guaranteed, if you don't, your competition will be out there doing just that.