HP Moves to Quell Supply Chain Issue

Hewlett-Packard Co. executives have crisscrossed the country in recent weeks to assure customers and investors that the problems that resulted in the company's troubling third-quarter financial results are in the past.

However, some skeptical users and industry analysts are taking a wait-and-see view of the situation—which cost HP's Enterprise Storage and Server Group $400 million in revenue and left untold numbers of customers with erroneous product orders—before deciding whether the problems were simply a blip on the screen or indicators of larger troubles in the company.

"You're only allowed so many excuses, and HP cannot come back next quarter with excuses or execution problems," said Gordon Haff, an analyst with Illuminata Inc., in Nashua, N.H. "They've absolutely gone to the well enough times with serious execution problems. ... They're pretty much at the end of the runway. They have to take off."

HP's main message of late is that the company has fixed its order fulfillment problems, including serious glitches in the migration of multiple supply chain and order management systems onto a broad-based ERP (enterprise resource planning) system from SAP AG.

To read more about migration problems for HP, click here.

Executives insist that HP's channel issues in Europe have been resolved.

"We have completed the migration, and we now are through the order backlog that that situation had created," HP President and CEO Carly Fiorina told a group of financial analysts late last month, adding that new guidelines for European channel partners will be in place by Nov. 1.

HP's botched IT migration came in the middle of a two- to three-year business make-over the company is executing to unite business and IT, HP CIO Giles Bouchard told eWEEK. As part of this initiative, HP created in May Global Operations and IT, a 10,000-person unit that Bouchard leads.

The unit is responsible for implementing a new IT architecture that consolidates the 30 ERP systems running at HP to four and reduces the number of supply chains from 60 to 70 to five.

In the first year of this consolidation, HP saved $1.5 billion on supply chain costs, Bouchard said. But the problems in the ESS division last quarter illustrated the pitfalls that the company faces.

"The proof [of this strategic architecture] will be in the execution," Bouchard said. "This company knows how to execute—shame on us if we don't."

Customers who endured the order delays in July are waiting to see what happens with their next orders.

One enterprise user said his company ordered an rp8420 server in early July, with a three-week delivery time. The server didn't arrive for almost six weeks.

"We generally would not have had an issue with that," said the customer, who did not want himself or his company identified. "But we were buying this server to put an application on it, and the app vendor kept asking us for [delivery] dates. It was embarrassing."

The problem turned out to be that a manual and CD were not ready to ship with the server, so the entire order was held up, the user said.

"Nobody took the initiative to call the customer to ask if they could take a partial shipment. That's ridiculous," he said. "If we go with HP on [another product the company is considering], we need a commitment to deliver it on time, no ifs, ands or buts."

Kees DenHartigh, a systems and network analyst at the University of Alberta, said his next product order from HP is due later this month. If that comes in as planned and on time, he said he's willing to write off the previous problems as a one-time thing.

DenHartigh, in Edmonton, told eWEEK last month that in the spring, he received two of every product he ordered, including hard drives and storage arrays. Although receiving the extra IT gear was startling, DenHartigh said he wasn't too upset—he ended up buying the second set of products at a cut-rate price.

"[HP's problems] seem pretty short-term," DenHartigh said. "As far as I'm concerned, it seems to be going OK. I got it a little late, and I got a bit more than I ordered, but I liked it so much I bought it. I got a hell of a good price on it, which I liked."

Still, the real test will be when HP announces the results of the current financial quarter, said Illuminata's Haff. The company has to execute on its plans or see its credibility and possibly its bottom line damaged, he said.