The encyclopedia · Strategy & Leadership · Strategic decision · 2005–2010
Hewlett-Packard cut product complexity with OR, adding $500 million.
HP used ROI screening and a maximum-flow revenue-coverage tool to trim an over-broad product portfolio, adding over $500 million in profit.
Hewlett-Packard
the move
Hewlett-Packard's wide product range gave market reach but also raised inventory-driven cost, order-cycle time and channel liabilities, and confused customers and partners.
HP built two OR-based tools: ROI calculators that screen a new product before launch, and a Revenue Coverage Optimization tool using a maximum-flow algorithm that keeps the core portfolio that covers customer orders.
Together the tools raised profits across business units by more than $500 million since 2005, while streamlining offerings and improving delivery.
why it works
- Too many similar products raised cost and cut forecast accuracy
- ROI screening stops weak new products before launch
- Revenue coverage keeps only the products that matter for orders
- Measured: over $500 million in profit since 2005
what transfers
Product variety is not free; a manufacturer that screens new products by ROI and keeps only those needed for order coverage can add profit while simplifying operations.
what came after
The work earned HP the 2009 INFORMS Edelman Award and the tools became part of HP's product-portfolio process, letting HP simplify its lines and respond faster.
references
- HP Transforms Product Portfolio Management with Operations Research
- HP Transforms Product Portfolio Management with Operations Research
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