HP's Supply Chain Lesson

If CIOs want to stop being held liable for hundreds of millions of dollars in losses for relatively small IT problems, they have to convince business leaders of the vastly increased risks that major enterprise software projects pose to businesses with high-volume supply chains.

The Limits of Project Management

When contingency planning prevents a disaster, it's nearly impossible to tell whether everything that was done was necessary. Remember Y2K? Many business leaders continue to suspect that the billions spent on Y2K was a waste of money because nothing happened. CIOs who try to warn their CEOs that programming glitches could cost millions will almost invariably be met with this response: Then make sure the glitches don't happen!

That's why IT project management has become high art while business contingency planning remains in the Dark Ages. But the problems that can affect an enterprise software project increase all the time as the projects encompass more code and more business processes. And there are nearly infinite combinations of small problems that together can have devastating effects. In the end, it is riskier for companies to try to protect themselves from glitches in enterprise software projects through ever better IT project management techniques than it is to plan for manual workarounds to get products to customers in case of failure.

Other companies besides HP have faced similar business disasters from relatively small IT errors. Nike, for example, had a problem with a demand-planning application when it switched to a centralized SAP system in 2001. The problem was tamed within a few weeks. But because the company did not have an adequate business contingency plan, the small glitch in IT cost Nike $US100 million in revenue (see "Nike Rebounds", CIO July 2004))

In both Nike's and HP's cases, the IT problems were due to a combination of factors that would have been difficult to eliminate in the project-planning process. At HP, Hanger says her team tested the connections between the legacy front-end ordering system and the SAP system. And the connections worked fine for orders that did not involve any custom configuration, as well as for some custom orders.

But Hanger's team was unable to adequately test orders that could be configured by customers because the product marketing team had not fully scoped the breadth of configurations that customers would want. When the system went live, some of these custom configurations went through and others did not. Those that didn't got spat out into a dead zone, sitting idle until they could be entered manually. "We had customers wanting a little more flexibility in how they purchased and configured their servers," she says. "And we did not always have the data modelled correctly [for that to happen]." Could Hanger have tested more configurations prior to going live? Yes. Could the team have envisioned all of them? Probably not.

But that wasn't the only problem. Hanger's team trained the customer service representatives who would be using the new system two weeks prior to going live. All representatives were required to pass a test showing that they could enter orders without making errors. But when the system went live, the representatives had trouble remembering all the training and were flustered, compounding the number of dropped orders. Hanger's team offered refresher training two weeks into the rollout, but by then, too many orders had fallen out to catch up. "We might have improved things if we had started giving them refresher training a week into the rollout instead of two weeks," she says.

Things only got worse when customer demand for configure-to-order systems spiked by 35 percent in June, beyond what HP's demand forecast models predicted. Instead, Hanger's business contingency plan called for normal demand through the summer months. "We had planned for three weeks of extra inventory at a 50/50 split between standard servers and configure-to-order servers," she says. The factory in Omaha that had set aside some of its lines to handle the three weeks of orders quickly became overwhelmed. HP rushed to get a second factory in Europe online to help take up the slack two-to-three weeks later, but by then, it was too late.

Once the orders backed up, the only way HP could respond was by speeding up deliveries. Depending on the size of the product and distance shipped, the extra cost ranged between 35 percent and 40 percent, according to HP, and gained the company a few days on orders that had already been delayed by weeks.

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