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- Episode 77: Supply chain pain and HP’s sustainable business journey
Episode 77: Supply chain pain and HP’s sustainable business journey
Supply chain pain is persistent and is likely to linger well into 2022 and tech companies no doubt are feeling a lot of that pain. Is there a way for tech companies to solve for supply chain issues while having a positive environmental impact and also generating revenues?
In this episode, Keesa Schreane is joined by Christoph Schell, Chief Commercial Officer at HP, who shares HP’s journey through supply chain concerns and building a sustainable business. Christoph has been with HP for more than 22 years and has held senior management roles across the globe, most recently as the President of 3D Printing & Digital Manufacturing.
Host: Keesa Schreane
Keesa: [00:00:08] Welcome to the Refinitiv Sustainability Perspectives podcast. This is Keesa Schreane. Supply chain pain is persistent and is likely to linger well into 2022 and tech companies no doubt are feeling a lot of that pain. Is there a way for tech companies to solve for supply chain issues while also having a positive environmental impact, while also generating revenues? That's a lot to ask, right? Well, I'm delighted to be joined online by Christoph Schell, Chief Commercial Officer at HP, who will share HP's journey through supply chain concerns and building a sustainable business. Thanks so much for joining us, Christoph.
Christoph: [00:00:54] Thank you Keesa for having me.
Keesa: [00:00:56] So let's talk revenues first. That's on the minds of everyone. HP closed over a billion [dollars] in revenue from client deals that you won, largely around a focus on environmental and social issues. Tell us more about your offerings and customers responses to those offerings.
Christoph: [00:01:11] I think we do business across all customer segments. We have a very large consumer business, but we also have a fairly large commercial business. And I think what I've seen developing over the last years on the commercial side of the house was that more and more customers had in their inquiries with us in their requests for quotations, sections around sustainability. And it was important to them that we could explain to them how we manufacture products, how we design products, how we plan from a logistics point of view and how we could actually work together, customer and IT vendor to help them with their sustainability goals. We started to track that in our CRM software. This year, we're going to be north of $1 billion of deals that will be closed with what we call named customers. So, these are commercial accounts where we have account managers on that have that sustainability chapter if you want in their RFQ. So that is a number that is steadily growing, and we actually started to have a dedicated team in HP that can respond to these requests.
Keesa: [00:02:20] So, Christoph, I'm wondering how long you've seen this? Did it really just start this year that you've seen an uptick in customers requesting that? Was there a crescendo that was pretty deep earlier this year? Or has it been going on for a few years?
Christoph: [00:02:32] I play the drums, so I like this crescendo thing. So, yes, there has been a crescendo. Look, I've been operating with HP all over the world and I just moved seven years ago to the U.S., and I can tell you that this has been coming a long time and it really depends a little bit by market. For example, I was in Australia, New Zealand and this was a topic back in 2008/2009, in Northern Europe that was a topic, too, but it was spotty. Now, in particular, the last two years during Covid actually, this has become more of a worldwide interest, and I see it happening across all of my 10 markets globally. I see partners that we engage with, we do 88 percent of our revenue through partners, they are coming into the fold. They are wanting to understand how they can respond, how they can participate with us. So, it has really gotten a boost and more consistency globally in the last two years.
Keesa: [00:03:25] So specifically, how are your partners and suppliers, how are they engaging with you here?
Christoph: [00:03:30] Yeah. So, we actually decided that, you know, for us, in order to deliver an end-to-end holistic approach to this, we need to on the one hand side, start with pooling our suppliers into the fold, bring them in and then talk all things sustainability, from product design to manufacturing, to logistics, but on the other hand side, also start speaking with our channel partners, how do they operate? What services do they offer? Can they refurbish products, for example? How are they warehousing their products? How are they managing used equipment? And so, we started on the second part on the channel part, we have a framework that helps us to manage our partner engagement. It's a program called HP Amplify. And in the past, we were looking in our channel programs, we looked at the revenue a partner that's with us or a certification they have with us, and we started to add to that in Amplify. So, the first thing we added was HP Amplify Impact and HP Amplify Impact is a voluntary program for our partners to engage with us on all things sustainability, but also diversity. Those two things actually go hand in hand. And we launched it a year ago. To be honest with you, it was a bit of a pilot. I didn't know what the uptake would be, and I'm super impressed. I mean, it really has hit a nerve. It has hit a nerve globally. We have more to date, pretty much a year into it, we have 1,400 HP Amplify partners that have signed up a pledge to focus with us. That is two times the number we actually expected. And don't forget, it's voluntary. We have surpassed our own goal. We wanted to have 80 percent of our partners allow for an assessment that we could do. We have reached 84 percent year to date, so I am very happy with that number. We have over 1,500 partners that have completed HP Sustainability Training. We have 1,000 HP LIFE courses. That's what we call it when we engage with our partners. And that's really a one-on-one engagement going on where HP is assessing partners, but also the other way around, what partners are sharing with us what they are seeing in the industry where HP might not be leading and we are learning from our partners too. So, I'm super impressed this year with how far this program has come, has given us a lot of momentum. I think we're the first IT industry that has added diversity and sustainability to their channel partner program and this will keep going.
Keesa: [00:05:51] So as we talk about issues that are really challenging to corporations, you talk about climate, environment, diversity, and inclusion. But no conversation is complete today without a chat around supply chain issues, right? So, a lot of supply chain issues we're seeing that have to do with shipping goods and components where there are just lots of backlogs. And in some cases, they are even a lack of employees to support the shipping. So, with that being said, specifically, we talked about shipping files to print locally and how that can support reducing supply chain issues, tell us a little bit more about that.
Christoph: [00:06:28] Yeah. So, this is actually one of my most preferred topics. So, I had the pleasure of leading a couple of years ago, HP's 3D printing and digital manufacturing business. And when you think about a 3D printer, a 3D printer allows you to manufacture a part where and when you require it, so you can basically put that printer anywhere in the world and a printer, think about it as a micro factory. So now when you need a part today, what happens very often for most industries, a lot of the manufacturing industry is offshore. Very often Asia. You manufacture a part based on a forecast. You put it on the ocean, you ship it to a country, a destination country, you then track it or by train, put it into a DC warehouse, and it's sitting there on a shelf waiting for demand to come in. And when the demand comes in, consumer or industrial, very often the part is not in the right location, so you need to ship it again. So, it's a highly ineffective process. But it is what mankind is operating with and a lot of capex is tied in, opex is tied in this process as well. So, I think about this, start with the customer, how about I have a need today, I need a part and I need it in California because I live in California. If we are in a digital manufacturing environment, my demand would go to one of these micro factories and the micro factories could manufacture in a digital industry 4.0 way of operating that part. The cool thing about 3D printing, is all of this is digital. So, when you send files around, you can send them digitally. So instead of sending a physical file like the workflow that I just described, you actually don't send anything physical, you send a digital file, you send a design, and you print it in that micro factory. The 3D printer is at the intersection where a digital file becomes a physical part, and that's a very fascinating environment. I give you one insight into one of our customers. It's a company called Smile Direct; you remember they are in the retainer industry. It's very fascinating because each of these retainers, is an individual part, because all of our teeth are different and when they correct our teeth, each of this is a factor of one. Ok, so each part is digitally unique and without 3-D printing, that whole orthodontic industry would not be able to live through the disruption that they're currently generating. So huge potential, huge disruption for established industries, but a fascinating topic in particular during Covid, where supply chains were disrupted as much as they are today.
Keesa: [00:09:06] Wow. And that's fascinating. I did not know that about our teeth. I am a proud retainer user, but yeah, thanks for that background about each one being unique. And with that said, I'm wondering, too, about just some of the challenges that are inherent that you would have with some of your efforts. We talked about giving customers the ability to scale up their usage of PCs are giving them the usage to scale it down. Now it sounds great for us as users, but it sounds like that wouldn't be the best model for HP for customers to have the ability to do that just because we wouldn't need to buy new equipment as frequently. So how do you quantify the outcome there if customers aren't really needing as much equipment because they're able to scale it up or scale it down. How is that good for you all?
Christoph: [00:09:51] Let me describe this to you, so I'll start with myself as my own little example here. So right now, I'm sitting on an HP laptop and we're having this call via Zoom, and it's all going very well. But to be honest with you, the laptop I have is much more powerful than it is required for the Zoom call. So basically, that's a fairly inefficient way of operating because I have all this memory that is inherent in here. I have a huge hard disk. Do I need that for that Zoom call? Probably not. My CPU is very powerful as well. On the weekend, that same laptop powers my entertainment needs. I'm a really bad but, I enjoy playing FIFA. Ok, it's a game, a soccer game, and now my memory needs are going through the roof. My CPU needs are going through the roof. My cooling system here is very much required because my little laptop is operating at 100 percent of capacity. So now think about this as I am not buying this laptop anymore, going forward, I'm buying the service to use a laptop, OK, and I can scale my needs up and down. That would require for us to have compute power that is on the tap, and it's not inherent to the hardware product, but it's inherent to the service. It could be an edge solution that I have. It could be a cloud solution that I have, and I pay the service provider based on my real needs or my actual consumption. And so that's where our industry is going. So, think about this as the evolution of the PC industry. Ok. And it's for that reason that we are thinking very differently about our product portfolio. We're not thinking at it in terms of hardware or accessory products only. There's really a digital service element that comes to it, and it's really about edge computing. It's about cloud computing as well for some instances, and we recently made an acquisition, we acquired a company called Teradici, that will actually bring that very helpful feature of being able to scale up and down the requirements that individual users have. Also think about this, that your needs might be different than mine. So, the way we will engage with you will be personalised. And I think that's overall, where we are going. We have seen in the last two years during the pandemic a huge success with subscription services very much around our print business. We have a product called HP Instant Ink where we ought to replenish your printing needs by sending your ink cartridges or toner cartridges to your home when you're running low. And that service has resonated a lot with people being in lockdown, with people working from home, with kids being in remote learning, and we believe that the future is going to be hybrid. It's going to be hybrid work, hybrid learning. So, all of these subscriptions that I just described, they are going to resonate a lot with our customers.
Keesa: [00:12:38] So Christoph, you look holistically at what you are doing as a firm ranging from the work that you're doing with your partners and suppliers, how you are responding to customers and their needs around environmental and climate awareness and the products that you produce, even your acquisitions that you just talked about now. Are there, say, maybe three steps that are not just specific to your journey, but three steps that really any business could take if they are really looking at changing the tide and doing business in a different way that brings together an awareness around environmental and climate friendly ways of doing business and supporting their customers and doing that. What are some of the top things that you all did well, that enabled you to create this type of sustainable business?
Christoph: [00:13:24] So I don't like the past tense here, because this is all evolving so quickly, I think we're doing some things well, that's a lot more area for improvement, but I think three points. The first one is, I would say, understand your business, understand it soup to nuts, OK? Across the value chain of the company. And think about how you can impact your footprint, how you can change from a sustainability point of view. I bring this up because, just changing logistics or just changing manufacturing, that is a very short-sighted view of the world. It actually starts with how you design a product, OK? What's the complexity when you design the product? Are you considering reusing of materials? We have a notebook actually, in the notebook, I'm taking this call from with, it's 80 percent based on recycled material. Well, that starts at the product design level. So, you need engineers that are actually able and willing to do that because, believe me, it's additional work. Ok, that's first. Then you mentioned throughout the value chain at my end, when I engage with customers, they have a new deal. Don't just talk to them about the new products that you're going to send them, but talk to them about, Hey, what about your existing equipment? Do you want me to take it back? Do you want me to clean it and put it back to work with you? If we have a contractual engagement, not just a transactional engagement, we could do that. I can scale your computing power based on used equipment, and that's absolutely something we see growing right now. So that's my first point. Second point, look at the ecosystem. We're all operating in ecosystems. In the IT industry, we have become very fond of our ecosystems. This means we have a lot of powerful players unite, find that commonality in strategy find a commonality in approach. And then thirdly, this probably should have been my first point, but focus on the customer. If your customer is focused on diversity, if your customer is focused on sustainability or both, help them OK, and by helping them, you will actually win their business. And so, the engagement with the customers has gone way beyond speeds and feeds of hardware products. It's really, what's your strategy for the next 10 years? And then here's a proposal of how I can help you give me feedback on the way, every day for me to evolve. But it becomes a very sticky relationship. It becomes a very strategic partnership relationship with key customers. And so those are my three learnings and that would be my advice.
Keesa: [00:15:53] Wow. So, understand your business and then know your ecosystem and really look for where things converge and where those relationships are. And then finally, and saving the best for last here, make sure that the relationship with the customer is a partnership. That's what it's all about.
Christoph: [00:16:08] It has to be, yes.
Keesa: [00:16:10] Christoph Schell, thank you so much for joining us from HP.
Christoph: [00:16:14] Thank you.
Keesa: [00:16:15] We invite you to subscribe to the Refinitiv Sustainability Perspectives Podcast on iTunes, Spotify or wherever you stream your content. What did you think about the podcast? Leave us a review on iTunes or follow us on LinkedIn and Twitter for updates on our show. You can even check us out on YouTube now. Thank you for joining and see you next time.
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