Battling For Components


Talk about a supply chain war.

All of the major computer vendors, including bitter rivals Cisco Systems and Hewlett-Packard, are battling for electronic component supply and manufacturing capacity.

This with “various key commodity electronic components now in a state of critically short supply, causing prices to rise and delaying deliveries of parts to customers to worrying lengths,” according to market-research firm iSuppli.

Cisco, meanwhile, has been rocked by networking product shortages just as HP is attempting to remedy a long-running printer shortage of its own.

Ernesto Aguilar, HP’s vice president of LaserJet printers, told CRN that some components used in HP printers are also used in other devices. “Right now we’re fighting for low-level components used in Cisco routers,” he said. “It’s a battle.”

And it’s not just Cisco. HP is battling many vendors in the supply chain wars, said Aguilar. “We’re talking about transistor sheets used in different boards and manufacturing capacity,” he said. “The [entire] industry is struggling to get up to speed with demand.”

In an industry driven by silicon, widely used electronic components
have become scarce during the recession. That means companies like HP and Cisco are at risk of losing millions of dollars in sales.

HP and Cisco have both promised supply will improve. But iSuppli believes that the “imbalance” will persist until the end of 2010 with lead times on electronic components continuing to extend and average selling prices continuing to rise.

The supply chain showdown was set up by the economic downturn that began in 2009, said Aguilar, which spurred companies to downshift manufacturing capacity. The problem came when the rebound in demand came faster than anticipated. Electronic
component makers, which had laid off employees and sharply cut back manufacturing capacity, were simply not able to ramp up fast enough to meet the higher demand from vendors.

Aguilar said HP realized that it was in short supply last April and has
been battling to make up ground, primarily on low-end, single-function
printers and high-end, multifunction printers ever since.

“It has taken us more than a year of trying to recover and catch up with demand,” he said.

Aguilar predicts that in the August-September time frame, HP will have
enough supply to meet demand for most HP printer SKUs.

HP made a conscious decision from the outset to aggressively
communicate with solution provider partners regarding the scope and
magnitude of the printer shortage, said Aguilar, who said he is spending 60 to 70 percent of his time optimizing HP’s supply chain.

Partners have applauded HP’s communications. Danny Trehan, a
business development consultant at Sita Business Systems, a Chantilly, Va., HP partner, credits HP with keeping in close touch to manage the shortage situation.

Some HP printers are still on backorder for as much as 45 days, Trehan
said. “We’re telling customers up front that they are on backorder, and when they come in, we’ll deliver it,” he said.

“We have been in front of partners sharing with them our plans and where we are in terms of availability,” Aguilar said. “You don’t hide when you have problems. You go out there and talk about those issues and what you are doing to fix those problems.”