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TitleStrategies for Reverse Supply Chains in the Personal Computers Industry
File Size1.3 MB
Total Pages114
Table of Contents
                            Copenhagen Business School - 2012
1. Introduction
	1.1. Theoretical background of the research
	1.2. Practical background of the research
	1.3. Research question
	1.4. Reasons for choosing the topic
	1.5. Structure of the thesis
2. Theoretical background of the strategies for managing dual business models with a focus on reverse supply chain in the PCs industry
	2.1. Definition of “business model”
	2.2. Strategies for managing dual business models
		2.2.1. Outsourcing strategy
		2.2.2. Separation strategy
		2.2.3. Integration strategy
		2.2.4. Contingency perspective
	2.3. Reverse logistics, a new business model for European computer manufacturers
	2.4. Strategies for managing the dual business model of forward supply chain and reverse supply chain
		2.4.1. Outsourcing strategy
		2.4.2. Separation strategy
		2.4.3. Integration strategy
		2.4.4. Contingency perspective
	2.5. Conclusion on the current literature on how to simultaneously manage the dual business model of forward and reverse supply chain
3. Methodology and research design
	3.1. Methodology description and justification
	3.2. Sample
		3.2.1. Reasons for choosing the specific dual case
		3.2.2. Setting
		3.2.3. Time
		3.2.4. People
			a) Maurizio De Beni – Ecology Alderman – Affi (Verona-Italy)
			b) Martina Scoponi - Technical Support Engineer - STENA Technoworld (Angiari-Verona-Italy)
			c) European Recycling Platform Italy and HP Italy – (Cernusco Sul Naviglio-Milan-Italy)
	3.3. Data collection process
	3.4. Data analysis
	3.5. Quality of the Research
		3.5.1. Validity Internal validity External validity Relevance, plausibility and credibility
		3.5.2. Reliability
	3.6. Ethics
4. Discussion
	4.1. The global PCs industry
	4.2. Dell Inc.
		4.2.1. Value proposition
		4.2.2. Forward supply chain General structure Supply chain strategy
				a) Component suppliers and contract manufacturers
				b) Dell assembly plants
				c) TPL warehouses
				d) Final customer
		4.2.3. Reverse supply chain General structure Supply chain strategy Professional EOL returns
				a) Dell Asset Recovery Service teams
				b) Dell regional center facilities
				c) Dell Outlet
				d) National Cristina Foundation (NCF)
				e) WEEE treatment facilities
				a) Dell Mail-Back Recycling Program
				b) National Cristina Foundation (NCF)
				c) Dell Reconnect - Goodwill Industries International
				d) Municipal collection centers
				e) Collective take-back systems
	4.3. Hewlett-Packard (HP)
		4.3.1. Value proposition
		4.3.2. Forward supply chain General structure Supply chain strategy
				a) Component suppliers
				b) HP manufacturing plants/OMs/OEMs
				c) Distributors
				d) Retail stores
				e) Final customers
		4.3.3. Reverse supply chain General structure Reverse supply chain strategy Professional EOL returns
				a) Trade-in partner
				b) TPL for e-waste collection
				c) WEEE treatment facilities
				a) Retail stores
				b) Municipal collection centers
				c) ERP – Collective system for recycling
				d) Market Velocity, Inc.
5. Findings
	5.1. KPIs
		5.1.1. Profit margin
		5.1.2. Asset turnover
		5.1.3. Return on assets (ROA)
	5.2. Strategies adopted by Dell and HP for managing the dual business model
		5.2.1. Dual business model strategy adopted by Dell Outsourcing strategy Integration strategy
		5.2.2. Dual business model strategy adopted by HP Outsourcing strategy
6. Conclusion
	6.1. Review of the findings
	6.2. Implications for practice
	6.3. Contribution to knowledge and limitations of the study
	6.4. Recommendations for further research
	Appendix 1: List of references
	Appendix 2: Proposed model of reverse logistics for EOL PCs
	Appendix 3: The Research Onion Framework
	Appendix 4: The DuPont Formula
	Appendix 5: Dell Inc. Financials
		Reclassified Income Statement
		Consolidated Balance Sheet
		Financial Ratios
	Appendix 6: Hewlett-Packard Financials
		Reclassified Income Statement
		Consolidated Balance Sheet
		Financial Ratios
	Appendix 7: Transcription of the interview with Maurizio De Beni - Ecology Alderman of Affi
	Appendix 8: Transcription of the interview with Martina Scoponi – STENA Technoworld
	Appendix 9: Transcription of the interview with ERP Italy and HP Italy
Document Text Contents
Page 1

Copenhagen Business School - 2012

Master of Science in Strategic Market Creation

Master’s Thesis

Strategies for Reverse Supply Chains in the

Personal Computers Industry

How Dell and HP manage a dual business model comprising

the forward supply chain of brand new PCs and

the reverse supply chain of end-of-life PCs

Author: Francesco Cottini

Supervisor: Günter Prockl

Hand-in date: 7th January 2013

Number of characters: 181,969

Number of pages: 78

Page 2


The study explores how organizations competing in the personal computers (PCs) industry can

manage a dual business model comprised of the forward supply chain of brand new products and the

reverse supply chain of end-of-life (EOL) equipment, in order to maximize their profitability and

supply chain efficiency. As a consequence of the WEEE directive, which became law in 2003 in Europe,

producers of electrical and electronic equipment are responsible for recovering the used products in a

responsible way from final consumers. The law, which has been approved also in other non-European

countries like US, China and South Korea, has brought several challenges to firms in the PCs industry

when dealing with the new business model. Moreover, in the logistics literature the topic has not been

sufficiently deepened, resulting in confusion for both companies and researchers on how to

simultaneously manage the two businesses in the most efficient way.

Through a dual case study involving two of the leaders in the PCs industry, Dell and Hewlett-Packard

(HP), the research explores the strategies implemented by the two companies for managing the dual

business model and compares them based on their performance on selected indicators affecting the

ROA. The study provides evidence that it is possible to succeed in the PCs industry not only by

adopting a pure outsourcing strategy, as HP did, but also by following the example of Dell and

internalizing some reverse supply chain activities. The research can therefore be viewed as an attempt

for demonstrating companies in the electronic industry and researchers in the logistics and strategic

literature that there are possibilities for handling reverse supply chain activities within the

organizational structure. Moreover, it can represent a starting point for deepening the topic with the

goal to identify a best-practice approach for companies in the electronic industry when managing the

dual business model of forward and reverse supply chain.

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 Coordination

Hewlett-Packard has adopted the postponement strategy with its distributors for effectively achieving

the mass-customization of its products.

o Postponement

Hewlett-Packard relies on the concept of postponement for its laptop build-to-order program to

minimize forecasting mistakes and to manage inventory and production. Through this program, HP

can provide last-minute customization in accordance with actual demand.

An example of assembly postponement regards HP printers. In fact, printers designed for different

global markets are inherently the same product except for country specific power supply modules,

power cord plugs, and instruction manuals. HP makes two types of printers in Vancouver: a US version

and a generic version that is customized once it reaches a distribution center in Europe, Asia, or the

Pacific based on country specific orders (Lee, Billington, & Carter, 1993).

This way, the customer value can be addressed in increased quality and reliability, faster delivery

cycles, greater flexibility, and stepwise investment possibility (Karandikar & Nidamarthi, 2007).

d) Retail stores

 Configuration

HP sells PCs in about 110,000 stores (Jain, 2008), which has resulted in a high penetration in

electronic retailers, being 90 out of the world’s top 100 retailers customers (Holloway, 2011).

 Coordination

HP has developed two main strategies with its resellers for treating them more like corporate

customers rather than retailers. These are the built-to-custom-order (BTCO) and the configure-to-

order (CTO) strategies.

o Built-to-custom-order (BTCO)

The built-to-custom-order (BTCO) concept allows consumers to order custom laptops directly from

the factory while letting HP reduce the channel inventory for its products by providing only a few

actual systems to retail outlets as demos. Customers use the demos at the retail stores to get a hands-

on idea of the laptops, and then order custom versions for themselves using online kiosks set up by the

retail outlets and linked to HP's retail website.

All BTCO orders are built and shipped directly from contract manufacturers factory in Taiwan, with

domestic rush orders available through express carriers. HP has committed with FedEx for shipping

the BTCO laptops within a week of the order being placed, with shipment from Taiwan to the client

site completed with two to three days for a total of 10 days lead time (Best Practices Llc, 2002).

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The BTCO program has brought several benefits to HP: besides encouraging consumers to explore and

purchase the range of laptop options and configurations offered by the company, it also greatly

reduces the number of actual laptop units needed to be shipped to retail stores. Moreover, BTCO

allows HP to upgrade its portfolio of consumer laptop features more rapidly, with less concern for

outdated configurations that could be still sitting on retail store shelves. In addition to the advantages

for HP, retail outlets have benefited of the BTCO program as well, through lower inventory.

As a result, HP experienced a 20 percent increase in order quality, since fewer touches occur in the

supply chain process (Best Practices Llc, 2002).

o Configure-to-order (CTO)

HP has adopted a configure-to-order program (CTO) with its resellers, which makes them much like a

corporate customer. HP has in fact set up extranet sites for its resellers to be able to order HP PCs and

other products the same way that consumers do. This has let HP pass the inventory management

burden on to the resellers, whom HP believes are better equipped to do so since the resellers are

closer to the end users (Kumar, 2005). Moreover, the CTO program allows HP-authorized resellers to

configure the models available to the exact specification required and place the orders through a

chosen distribution partner.

e) Final customers

HP addresses its products offering to a wide range of customers, varying from individual consumers,

small- and medium-sized businesses (‘‘SMBs’’) and large enterprises, including public customers.

However, no single client represents 10% or more of HP’s total net revenue (HP, 2011b). In order to

deliver the final product to its customers, HP utilizes both a direct and an indirect distribution method.

The indirect channel handles the majority of the sales for domestic consumers and SMBs, and as

previously presented, it comprises distributors and retailers. The direct channel instead, differs

depending on whether customers are large enterprises and public or whether they are domestic

consumers and SMBs. In the first case, HP sales representatives, “Enterprise Sales”, deal with the

selling of HP products, while domestic consumers and SMBs can bypass the retailer channel by

purchasing HP PCs on the website. The two channels will be separately presented.

i) Enterprise Sales

 Configuration

HP adopts Enterprise Sales teams for managing most of its enterprise and public sector customer

relationships. Their primary responsibility is to simplify sales process across HP market segments in

order to improve speed and effectiveness of customer delivery (HP, 2011b).

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F: So if I buy a new laptop and I decide that I want to throw it away, I can just bring it to the collection

center and it will be recycled without a screening?

E: Yes, you are the one defining whether a product is a waste. I think that the only entities allowed to

screen the products are some treatment companies.

H: However, treatment companies also have to consider if it makes sense to screen products for

refurbishment since this process adds costs to the products and companies have to find people able to

sell them.

F: Are the HP Technology Renewal Centers directly managed by HP or are they outsourced to other


H: I do not know but it is a marginal business for HP and it is something that has nothing to do with

EOL products. These centers are used only for returned leased products which have been financed by

HP Financial Services. So the Renewal Centers receive the products at the end of the lease period, and

after evaluation they decide if they refurbish them and then resell them again. The waste of

professional customers is not considered in this flow.

F: So the Asset Recovery Service Team does not screen the returns at the client’s site?

H: It can be done. For example it might happen that an account manager tells a professional client

which products can be assessed for trade-in and which should be recycled. However, this does not

mean that the products recommended for trade-in will be accepted by HP. Moreover, usually HP is not

involved with these processes since it does not trade used products. The trade-in option instead

consists in giving back to private customers an amount of money when buying new products and

returning used ones during a commercial offer. This process is promoted and financed by HP but the

organization acquiring the used products is a third-party that has nothing to do with HP. It can be seen

as a service that HP offers to professional customers when changing their equipment, but the process

is not managed by HP.

F: But what about the HP Technology Renewal Centers?

H: These centers are used only for large returns in leasing, not for EOLs.

F: So for the EOL products there is no components reutilization?

H: No, it is far too complicated since HP sells high-quality products and not used products. The only

possibility is to buy refurbished parts of the PCs at very low price, but these parts are derived only

from leasing returns. Professional waste is managed through a process similar to the one for the

domestic returns: an external partner is responsible for collecting the waste from the clients’ sites. So

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the collection is at the site of the client and not at a collection center, for professional returns.

Afterwards, the waste is brought to a treatment facility.

F: So concluding, does HP not consider refurbishment for EOL computers at all?

H: No, HP prefers not to do this since the costs are too high compared to benefits, and in any case it

should happen before it is waste.

E: There is also a problem of responsibility. Refurbishing a used product and reselling it with the HP

name might cause problems in terms of reliability of products and data security.

H: Well you can do that, but it is not convenient to HP, it is too costly to resell a high-quality

refurbished product.

F: Do you have some KPIs for evaluating how effectively the recycling process is handled?

H: We do not have them; ERP has them for sure and they have commitments with HP.

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