Maximum sales volume
The HP tape drive business was part of the storage market worth some $46 billion in 2003 (Lehtivaara, 2004, p. 64). HP’s key success factors on tape drives were time-to-market and cost of the product (p. 64). This essentially means that HP has to tap offshore sourcing for competitive cost as well as quick response sourcing for better time-to-market deliveries. Tape drives have a lifecycle of just four years which basically meant that these were volatile products that need to be unloaded into the market as quickly as possible for maximum sales volume and profit margins (p.64).
Technology-wise, it is also subject to discontinuous innovations where one type of tape drive product could be obsolete. HP dominated the traditional tape drive business catering to the medium segment at 50-55% while rival Quantum controls the high-end segment at 80% (p. 65). When it came to new technology or radical innovations in tape drives, Quantum, IBM, HP and Seagate share in the business (p. 65). From 1997 to 200, HP outsourced all DDS product models (p. 65). Lehtivaara (2004) noted:
When HP decided to outsource the final assembly and configuration of DDS2, it chose a contract manufacturer in Scotland to keep the risk of outsourcing low: the contract manufacturer was close to HP, the engineering people liked it and the price was competitive, although not the lowest. (p. 65) This is effectively a Quick Response Sourcing strategy. Until the DDS3, HP contracted its tape drives in Scotland (p. 65). By DDS4, it contracted the products to Mitsumi offshore for the following reason as explained by Davey Maclachlan, HP procurement manager:
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We wanted the contract manufacturer to have a new product introduction team (for DDS3). It had one team that needed to manage both DDS2 and DDS3. I think the margins were so small that they had to cut resources. We also noted that they were fire fighting. It felt like their departments were not talking to each other. (p. 65) In another light, HP had to address new tape drive technology in the Ultrium where HP had partnered with IBM and Seagate to compete with Quantum (p. 66).
It had three options: [1. ] “Outsource the final assembly, testing and configuration to Philips, a major part supplier;” [2. ] “Develop a lowest total cost supply chain, invest in further redesign and resourcing to maximize long term efficiency;” and [3. ] “Join forces with a competitor and outsource the final assembly, testing and configuration to it” (p. 64). Ultimately, the HP’s outsourcing decision depended largely on how it negotiated deals with its suppliers Lehtivaara noted (68).
The HP experience in tape drives suggested that all pipeline designs had been amply considered in the supply chain yet ultimately the configuration of the actual pipeline depended heavily on mutual agreements on how the deal progressed. HP’s supply chain advantage appeared to lie in its consideration of all available options considering product characteristics, demand characteristics and replenishment lead-time.
Atkin, T. , Garcia, R. , & Lockshin, L. S. (2006, September). “A Multinational Study of the Diffusion of a Discontinuous Innovation. ” Australasian Marketing Journal. Retrieved August 6, 2009, from http://www. sonoma. edu/users/a/atkint/papers/Aus%20Mktg%20Jnl. doc. Christopher, M. , & Towill, D. R. (2002). Developing Market Specific Supply Chain Strategies. Retrieved August 4, 2009, from http://www. martin-christopher. info/downloads/developing%20market%20specific%20supply%20chain%20strategies. pdf.