HP Transforms Product Portfolio Management with Operations Research

 HP Transforms Product Portfolio Management with Operations Research Julie Ward, Bin Zhang, Shailendra Jain, Chris Fry, Thomas Olavson, Holger Mishal, Jason Amaral, Dirk Beyer, Ann Brecht, Brian Cargille, Russ Chadinha, Kathy Chou, Gavin DeNyse, Qi Feng, Cookie Padovani, Sesh Raj, Kurt Sunderbruch, Robert Tarjan, Krishna Venkatraman, Joseph Woods, Jing Zhou HP Laboratories HPL-2010-66 cost analysis; stochastic inventory analysis; flow algorithms; product portfolio management; inventory management; regression; statistic; binary programming; Lagrangian relaxation; parametric maximum flow HP offers many innovative products to meet diverse customer needs. The breadth of its product offerings has helped the company achieve unparalleled market reach; however, it has come with significant costs and challenges. By offering multiple similar products, a manufacturer increases its overall demand volatility, reduces forecast accuracy, and can adversely affect revenue and costs across the entire product life cycle. At HP, these impacts included increases in inventory driven costs and order cycle time, liabilities to channel partners, and costs of operations, research and development, marketing, and administration. Furthermore, complexity in HP's product lines confused customers, sales representatives, and channel partners, sometimes driving business to competitors. HP developed two powerful OR-based solutions for managing product variety. The first, a framework for screening new products, uses custom-built return-on-investment (ROI) calculators to evaluate each proposed new product before introduction; those that do not meet a threshold ROI level are targeted for exclusion from the proposed lineup. The second, HP's Revenue Coverage Optimization (RCO) tool, which is based on a fast, new maximum-flow algorithm, is used to manage product variety after introduction. By identifying a core portfolio of products that are important to order coverage, RCO enables HP businesses to increase operational focus on their most critical products. These tools have enabled HP to increase its profits across business units by more than $500M since 2005. Moreover, HP has streamlined its product offerings, improved execution, achieved faster delivery, lowered overhead, and increased customer satisfaction and market share. External Posting Date: June 6, 2010 [Fulltext] Approved for External Publication Internal Posting Date: June 6, 2010 [Fulltext] Reprinted by permission, Ward J., et al. 2010. HP Transforms Product Portfolio Management with Operations Research. Interfaces 40(1) 17-32. Copyright 2010, the Institute for Operations Research and the Management Sciences, 7240 Parkway Drive, Suite 300, Hanover, MD 21076 USA 1 HP Transforms Product Portfolio Management with Operations Research Julie Ward, Bin Zhang, Shailendra Jain Hewlett-Packard Labs, Palo Alto, California 94304 {[email protected], [email protected], [email protected]} Chris Fry Strategic Management Solutions, Redwood Shores, California 94063 [email protected] Thomas Olavson Hewlett-Packard SPaM, Palo Alto, California 94304 [email protected] Holger Mishal Hewlett-Packard Personal Systems Group, Cupertino, California 95014 [email protected] Jason Amaral Emeraldwise LLC, Woodside, California 94062 [email protected] Dirk Beyer M-Factor, Inc., San Mateo, California 94404 [email protected] Ann Brecht Hewlett-Packard Technology Solutions Group, Fort Collins, Colorado, 80528 [email protected] Brian Cargille Hewlett-Packard SPaM, Palo Alto, California 94304 [email protected] Russ Chadinha Hewlett-Packard Personal Systems Group, Houston, Texas, California 77070 [email protected] Kathy Chou Hewlett-Packard Personal Systems Group, Cupertino, California 95014 [email protected] Gavin DeNyse Hewlett-Packard SPaM, Portland, Oregon 97221 [email protected] Qi Feng McCombs School of Business, University of Texas at Austin, Austin, Texas 78712 [email protected] Cookie Padovani Hewlett-Packard Technology Solutions Group, Roseville, California 95747 [email protected] Sesh Raj DSApps, Inc., Sunnyvale, California 94087 [email protected] Kurt Sunderbruch Hewlett-Packard Technology Solutions Group, Roseville, California 95747 [email protected] Robert Tarjan Hewlett-Packard Labs, Palo Alto, California 94304 [email protected] Krishna Venkatraman Intuit, Mountain View, California 94043 [email protected] Joseph Woods Hewlett-Packard Technology Solutions Group, Roseville, California 95747 [email protected] Jing Zhou