H-P, Eastman Chemical, and Others: The Benefits and Challenges of SCM Systems

1. H-P, Eastman Chemical, and Others: The Benefits and Challenges of SCM Systems Presented by Group 4

2. Hewlett Packard Founded in 1931 by Bill Hewlett & Dave Packard First product made by H-P was a precision audio oscillator Acknowledged by Wired Magazine as the producer of the world’s first PC in 1968 Introduced world’s first handheld calculator in 1972 In 1984, H-P introduced both ink jet and laser printers for the desktop Eastman Chemical Company Founded in 1920 to supply basic photographic chemicals Eastman was once a part of the Eastman Kodak Company Became independent in January 1994 Company History

3. Hewlett-Packard • CEO of H-P is Carly Fiorina • First woman to ever serve as CEO of a company included in the Dow Jones Industrial Average • In 2003, H-P had 142,000 employees • Sales for 2003 were over $7.3 million. • H-P is a leading industrial supporter of Open Source and Linux. • Products include HP-UX operating system, PA-RISC processor architecture, IA64 processor architecture w/ Intel, Utility Data Center, and the Open View family of management software. • Competitors include Sun, Microsoft, and International Business Machines.

4. CEO is J. Brian Ferguson • Has approximately 15,800 employees in more than 30 countries • Sales for 2003 were approximately $5.8 million • Supplies billions of pounds of chemicals, fibers, and plastics to customers around the world • Plastics products are used in packaging for soft drinks, credit and debit cards, vending machines, and many other products. • Competitors include BASF AG, Celanese, and Dow Chemical

5. RWC 4: Page 215: “H-P, Eastman Chemical, and Others: The Benefits and Challenges of SCM Systems” Definition: Supply Chain Management (SCM) SCM helps a company to get the right products to the right place at the right time, in the proper quantity and at an acceptable cost. The efficient management of these processes is the goal of SCM. SCM contains that companies must controlling inventory, restructuring the network of business relationships, and increasing the communications among the business partners. H-P linked together all the companies whose products go into making its computer monitors. H-P handles the purchasing and gets a bulk rate. ► The number of H-P staff required to manage the supply chain for its monitors has been cut in half because the communication an cooperation among the supply chain members has been improved. H-P is no longer losing orders because it could not deliver the right product at the right time. ► Thilo Grabo (Group 4)

6. RWC 4: Page 215: “H-P, Eastman Chemical, and Others: The Benefits and Challenges of SCM Systems” “You do not have to be a goliath like H-P to see the benefits. We believe in the technology to get involved with businesses.” Statement of Bernard Cheng, CEO of Advanced International Multitech Co.; Manufacturer with $ 70 million annual revenue – invested $ 3 million in IT solutions. Manufacturer, which generates revenue of $ 5.3 billion a year and orders huge quantities of raw materials on a daily basis. ► Eastman Chemical Co. invested $ 10 million on its e-procurement system and extranet. ► The company asks its software partners to make presentations to its suppliers pointing up the advantages of going digital. ► The purchase department handles orders and other exchanges of data electronically (supported through web connections). Thilo Grabo (Group 4)

7. RWC 4: Page 215: “H-P, Eastman Chemical, and Others: The Benefits and Challenges of SCM Systems” W. W. Grainger Inc. says that a fast growing piece of its business likely could not exist without online connections. The company deals with 14,000 suppliers hawking more than five million products (mainly oddball items). ► For example: Notice: SCM is often executed by very huge companies which generate billions of revenues. However, smaller companies, which make up 95 % of the 6.6 million businesses in the US are afraid of SCM implementions. ► They are concerned about the cost of the new systems. Why? They think about classic supply chain issues in simple terms and can not handle the often impenetrable technical jargon. ► Statement of Bill Burke, The president of First Index,USA (core competence: online Marketplaces) The smaller suppliers feel threatened by the whole thing. Thilo Grabo (Group 4)

8. Why can both large and small businesses cut costs and increase revenues by moving their supply chains online? Stacy Adkins

9. Both large and small companies can cut costs- • Purchasing is done electronically. Lower paper, phone, and fax charges. • Lower labor cost - • Do not have to manage the supply-chain by hand. • Do not have to spend time on the phone or by the fax machine. • Use of just-in-time processes. You can cut the cost of having inventory sitting just in your possession. • If material is dated it would lose value and possibly ruin. Stacy Adkins

10. Both can increase revenues- • Filling orders faster- ordering is real-time. • This will retain the customer who might go elsewhere, where he is able to get the product faster. • Use of just-in-time processes. You can invest monies you do not have tied in inventory into other profit-making areas. Stacy Adkins

11. 2. What is the business value to Eastman Chemical and W.W. Grainger of their initiatives to help their suppliers and customers do business online? Logical Reasoning by Definition: The synergies in monetary terms cannot be realized because, by definition, SCM will not work if the business partners do not take part in it. That means in general: The bigger companies have the necessary resources to their disposal to support their smaller partners to fulfill the requirements. Support in terms of: - Financial Aid - Know-how - Manpower Note: The resulting increase in revenues and decrease in costs should always outweigh the initiative! Christian Gasse

12. Question 2 (cont.) Concrete Example for an Initiative and the Business Value: - Eastman Chemical bought stakes in some software developers. Keeps their SCM system up-to-date (internally) Allows to outsource the promotion of the SCM system: - Specialists have the better know-how - More convincing arguments Generate new revenues through their stakes: - Additional SCM solution from application service providers (ASP) - Software Developers might diversify and enter the ASP market Christian Gasse

13. 3. Why are many small suppliers reluctant to do business online with large customers? - Small supply companies are claiming that the software is confusing, contradictory, and not suited to their systems. - Cost is another deterrent…. - An uncertain economy has them scared to made a commitment to technology - The technical jargon used by the technicians confuse the smaller less aggressive suppliers - Generation gap; most smaller suppliers are not computer literate; they did not grow up with PCs and technology as the current IT professionals have Johnny van Horn

14. Question 3 cont.: What can be done to encourage small suppliers online? - Work with the individual small suppliers to show them the long term cost savings (area workshops); - Give them the software necessary to adapt their companies and provide free training with key leaders in each geographic area and ask them to share their experience (word of mouth can be a powerful tool); - Send every supplier a copy of the book “Who Moved My Cheese” Johnny van Horn