HPE Operations Chief Mark Bakker On Tariffs And Managing The Supply Chain In A ‘Fast-Moving, Volatile’ Environment
‘I think we are in a situation of continued uncertainty and volatility, which makes it hard for anybody in the supply chain to make any decisions about what to move, where and how quickly,’ says HPE Executive Vice President and General Manager of Operations Mark Bakker.
“It's a very fast-moving, volatile, instable environment where today the situation might be clear and tomorrow it might be different than what it is today,” said Bakker in an interview with CRN on April 11.
“I think we are in a situation of continued uncertainty and volatility, which makes it hard for anybody in the supply chain to make any decisions about what to move, where and how quickly,” he said.
So far, HPE has not implemented price increases, said Bakker, a 30-year supply chain veteran who has headed up both HP and HPE supply chain operations for the last 13 years.
The future depends “very much on what happens between now and those 90 days and how to evolve from there, he said.
President Trump halted the reciprocal tariffs on April 9 for 90 days.
If the reciprocal tariffs go into effect, costs will go up and decisions will have to be made as to what actions need to be taken by each company impacted, said Bakker.
“In many cases, the end result in my view is costs will go up as a result of this,” he said. “Then you can do one or two things or a combination of the two. One is the end customer will have to pay the price and that means increased pricing or the originating company will need to absorb the incremental cost, which will impact their financial results. You add 20 [percent] to 25 percent on something that doesn’t exist today and it is more expensive.”
As a veteran supply chain practitioner, Bakker said tariffs, trade barriers and trade regulations are a fact of life. “I totally understand certain things need to be done for the domestic economy,” he said.
Can you provide some insight into the potential impact of tariffs on the supply chain with a focus on pricing and sourcing?
This is obviously top of mind for everybody. A few years back, there was a semiconductor crisis and everybody was talking about the supply chain issues and my comment to them was, ‘There are no issues with the supply chain. The supply chain is working fine. It is just that there is a shortage of certain parts due to increased demand of certain technologies, etc.’
It is the same situation here. The supply chain is the same as it was a few weeks back and it is working OK. It is just that tariffs are making it slightly different and more challenging in a way.
But let me tell you this first of all from our perspective as HPE, we have been in contact with our main partners and main distributors along the way in terms of what we foresee as issues and challenges and what we’re doing around pricing and how to accommodate these things.
I think we’ve been pretty clear and transparent along the way. The challenge in the situation we’re in, which I think everybody acknowledges, is that it’s a very fast-moving, volatile, instable environment where today the situation might be clear but tomorrow it might be different than what it is today.
In the context of a supply chain, and when you think about sourcing, and therefore you think about cost, that makes it very difficult to make any definitive statements of what the impact is going to be.
Over the years here at HPE and my peers in other companies that run supply chains have proven is that we will adapt and optimize the supply chain along the way based on the circumstances that we have. We will do the same thing with tariffs in mind when there is some level of stability and clarity and a period of time in which we know that the tariffs implemented will sustain and will remain for a prolonged period of time.
We will adjust the sourcing base and the supply base accordingly and will move sources of supply from one country to another to optimize it. We will leverage trade lanes in the best possible way. And in certain cases, the reality is costs might go up, and therefore prices will increase along the way. There’s no question about those things. Something has got to give.
When you think about the desire of setting up more manufacturing activities in the United States, manufacturing in the United States has a different cost profile than manufacturing in Southeast Asia or Mexico, for that matter. And those things need to be considered in either prices or financial profiles, financial results of the companies that work with that.
I think we are in a situation of continued uncertainty and volatility, which makes it hard for anybody in the supply chain to make any decisions about what to move, where and how quickly.
Under the pressure of geopolitical tensions over the past years between the United States, China, Taiwan, like many of our peers in other industries, we’ve already been reducing the dependency on China-based sourcing and manufacturing for the most part.
So the tension from a trade and trade barrier perspective between the U.S. and China in its current form has little to no impact to HPE. We feel pretty confident about that, and the continued exemption for USMCA [United States-Mexico-Canada Agreement] related trade between Mexico and United States also puts us in a good position at least for now. That allows us to be pretty clear with our customers and partners in terms of what the impact is at least in the short term.
But again, like I said, some of it depends very much on what happens between now and those 90 days and how to evolve from there.
Does that USMCA agreement help in terms of providing relief in terms of the way HPE goes to market?
It does for HPE and for many others in the tech sector that operate out of Mexico. There are agreements there that have existed and that are being honored currently. So that’s beneficial. At least for now, that’s the situation. Now we know that over time the intent is for that to be renegotiated. But that’s in the hands of the [Trump] administration to determine what comes next.
Are you happy with the 90-day period?
That is better than what it was before.
What is important for people to know about tariffs and the impact on the supply chain?
From a global supply chain point of view, I think it is really important for many people to understand that tariffs, trade barriers, trade policies are something that have existed for many, many years. It is nothing new. As a matter of fact, when you are running global supply chains they are tools that are applied in different countries in many different ways. There are different examples. India, for example, is known for tariffs and trade regulations that are challenging. Brazil is another country where these things are pretty common and well-known.
Supply chain professionals around the world over the years have proven that they know how to handle those things: to optimize [supply chains] and to find the best, cost-efficient tax- and tariff-optimized supply chain flows. And with changes like this, I am confident that everybody will continue to be able to do that.
You’ve been a supply chain expert for three decades. How does that experience benefit HPE as you grapple with tariffs and supply chain issues?
I happen to like this space and the fact is the current situation with tariffs and the turbulence it creates is, when you think about it from a supply chain practitioner point of view, this is yet another disruption, of which we’ve had many in recent years that we have had to respond to. The reality is in today’s world, disruptions in the supply chain have become more frequent and with bigger impacts. That is not new.
I have been in supply chain for quite some time. I always joke that 10 to 15 years ago the majority of our company would not know how to spell supply chain. They had no idea what it was all about or what happened there because it was just something that worked. It was something that was there and it did its thing and it was all good.
Fast forward a few years and we got into the start of environmental disruptions: volcanoes that erupt, fires that start happening, an earthquake that happens in Japan, flooding that happens in Thailand. The start of that was 10 to 15 years ago.
Today supply chain has become a topic that is discussed in the boardroom. The board of directors is interested in talking about how do you manage the risk [of supply chains] and how do you go about building more resiliency and agility in your supply chain because of these events.
Then we had the pandemic and the semiconductor crisis. Now we are here [with tariffs]. The silver lining of all of this is supply chain practitioners including my peers in other industries is we have all seen a few of these things before—we know how to respond.
The challenge is we know how to respond to the events that have happened before, the ones we have experienced. We don’t know what the next one will be. We know it will happen. We just don’t know where and what it will be exactly. That makes it fascinating and interesting.
In the end I believe the mission for us in supply chain for me and my team in operations at HPE is no different than before, which is we need to provide a superior experience for our partners and customers. We need to make sure that experience is differentiated. That it is competitive. That is frictionless. So our partners can go about their business in the best possible way and that we are a preferred partner for them and for the end customer that buys and works through a partner or comes direct to us.
My job running operations is to provide the best partner and customer experience all the way from the front end of the house where we engage with them around configuration, pricing quoting, order management, invoicing and partner compensation with the global supply chain that sits in the middle to make sure we deliver our products on time predictably. It also extends to our service and support organization with installation, deployment and after-sale technical support with break-fix. You stitch that all together and it is an end-to-end experience that a partner or customer experiences with us.
The mission continues to be to provide the best partner and customer experience that differentiates HPE. We go about looking at that with what we call the ‘moments that matter.’ That occurs every time we engage with a partner, when they place an order with us and when they have questions about the programs. Those are moments that matter. They need to be frictionless, seamless and easy to do for our partner base so they have a good experience with us. A good experience with us makes us a preferred vendor and that helps us sell more. In the end that is what it’s all about.
Do you think price increases are inevitable given the tariff situation?
I think it will have different impacts in different companies and different industries as a result of this situation. Different companies and different industries will therefore choose different ways to resolve those impacts.
The reason I’m saying that is some of it depends a little bit on the supply chain setup of respective companies. So it depends on what countries do you depend on in terms of import and export? Also where do you manufacture?
For now for the next 90 days it is a level and equal playing field for everybody. It’s 10 percent for everybody except China and then Mexico has a little advantage in our space. But if it goes back to the reciprocal [tariffs] with differences, then it really depends on where do you have your core activity.
In many cases the end result in my view is costs will go up as a result of this. Then you can do one or two things or a combination of the two. One is the end customer will have to pay the price and that means increased pricing or the originating company will need to absorb the incremental cost, which will impact their financial results.
You add 20 [percent] to 25 percent on something that doesn’t exist today and it is more expensive. I don’t think there is any other way of explaining it.
Moving manufacturing from one location to another to stimulate more domestic activity ultimately is a noble thought. It is a possibility. The reality continues to be that you have to deal with labor costs at a given location. And labor costs in the United States is higher than it is in Mexico or Southeast Asia. There is no question about that. In China it is the same story.
The thing that needs to be understood in our tech industry is that in order to build our server-based products we can do the manufacturing in the United States but we still depend on importing critical technologies such as semiconductors, memory, storage capacity, SSDs, hard disk drives. You name it, that comes from countries like Korea, Malaysia, etc.
Do you think you can hold the line on pricing at HPE for the next 90 days?
We’ll stick at least for now. You can’t apply a broad-brush stroke on it because to my point earlier it depends a little bit on what product and where it is built and manufactured. We have a mix of locations depending on the products. Some of it is in Mexico. Some of it is in the United States. Some of it is global in nature. There is no one answer.
So there is no pricing action yet?
Correct.
What would you tell the president and his economic advisers on this tariff situation?
If I take it purely as a supply chain practitioner and from a global supply chain perspective for us, tariffs, trade barriers, trade regulations are something that exists in our world. There is nothing wrong with it. I get it. We understand. We can argue about the politics of it and the this and that of it, which is not important or relevant from my perspective in this discussion.
So I totally understand certain things need to be done for the domestic economy, etc.
Is this not as bad as the supply chain crises that came with COVID?
No, it is not. The supply chain crises as a result of the COVID pandemic led to massive shortages of critical goods around the globe in different places. For whatever reason, we ran out of toilet paper. We couldn’t produce cars at the same rate or we didn’t have critical parts for certain things. We had to redirect parts in certain cases to build respiratory equipment, etc. which took those parts aways from other products.
So the pandemic led to serious shortages. The follow-on semiconductor crises led to significant shortages where people couldn’t buy a refrigerator, microwave or a car. That was real disruption of supply where there was demand and critical demand in some cases.
In this situation there is nothing wrong with supply. The only risk we have is that we will have oversupply because demand will disappear because people will say, ‘Everything is going to be more expensive. I don’t have money. Prices have increased. I can’t afford it.’ This is more an economic issue than it being a supply chain crisis similar to what we had in COVID.
What kind of progress have you made in the supply chain concerning pricing, delivery, etc. for partners?
In recent years we have made tremendous progress in stitching together the three critical areas I highlighted: the front end of the house, the middle with the global supply chain, and then the back end of it with installation deployment and support. That is important for partners in the GreenLake context where the clock starts ticking and dollars start flowing the moment we have the deployment done so we can start billing once there is customer acceptance. Stitching that all together has been critical.
First and foremost, we had work to do in terms of making sure that the connectivity between us and our partners from an IT architecture and infrastructure point of view. That needed to be modernized, which we have done.
It was very important that the ability to transact in an automated fashion was stable and performed well. We have made tremendous progress. And as a matter of fact, with a number of partners we have continued that journey by implementing additional API connections, whether it was increased transaction flows around order management and invoicing that automated the process so it was touchless, which is much appreciated [by partners]. That is one of those ‘moments that matter’ that I talked about earlier. One example is the ability of a partner to submit a quote and get a price back instantaneously is important. We have made significant improvements there.
The second thing is once a partner or a customer has a quote and they place an order, how fast can a product get delivered. In recent years there we have made significant progress in what we call our speed and predictability metrics, which is how long does it take for a product to show up at the customer or partner site. We reduced that by 50 percent over the last year from mid-20 days to 16 to 17 days from an order to delivery.
In some cases what matters is speed, and in some cases what matters more is predictability. If you think about a distributor, the distributor will say, ‘I need this as fast as possible. I need it in my inventory.’ That is where speed really matters.
In other cases when you think about a value-added reseller doing a specific deployment for a customer, predictability matters because he needs to match the delivery with an engineer that comes on site to install it and deploy it to the customer. If the product shows up one day and the engineer shows up a week later, that is a problem.
We increased that predictability over the last year by 40 percent. We are now 85 percent of the time hitting the date. The rest of the time we show up early.
What is your goal in terms of the current 16- to 17-day delivery?
With the speed and predictability [of delivery] I believe 15 to16 days is competitive and we’re in the ballpark with the complexity of product and solutions we’re talking about. On the predictability side, I think we can do better.
What do you attribute the dramatic improvements in these metrics to?
I attribute the improvements we made to better integration from an end-to-end perspective and a clear focus on an end-to-end experience with moments that matter, increased automation and digitalization and leveraging AI solutions in the process
This end-to-end environment is a world of data and information. You have [price] quotes. You have orders. You have shipments. You have invoices. You have all that data. And not everybody speaks the same language. It’s different systems. Some of it is our systems, our partner systems, our manufacturing partners, our suppliers.
So we’ve been on a journey the last three years to connect a lot more of these systems together to have data feeds that feed into a unified data lake that allows us to apply more AI-type applications, some traditional around data, data management, some of it around generative AI, which we’re starting to apply in different places. That helps our employees and our partners to have better visibility, better insight, which leads to better decision- making and improved execution.
To give you a simple example, if the manufacturing partner that builds the product and ships it doesn’t know what the expected delivery date is for the customer or the logistics partner that comes to pick it up doesn’t have that insight, they will just manage it based on an internal process of first in, first out, as fast as possible from Point A to Point B without acknowledging that it is supposed to show up at a particular date and time. If the data and the systems do not reflect those things, it is very difficult for people to execute along that end-to-end experience. We have made tremendous progress in those areas.
I also attribute some of the improvements to our relentless focus on the customer and partner experience and really homing in on the moments that matter along that end-to-end experience.
We had to look at what point in the value chain and the end-to-end process we had breakdowns and why do those matter to either the partner and end customer and then look at what we needed to do to just simply fix it. In some cases it is systems connectivity. In some cases it is data.
In the case of our partners, there are quite a few things we identified as well in terms of policies and procedures where we may have put artificial boundaries in place or too many checkpoints or control points that delay things.
If you think about a partner just wanting to submit a quote and get a price back, if you put five levels of approval in the system it is a problem.
So we have gone into each and every step and identified significant opportunities to simplify the process and look at policies.
We are looking at other things as well, including restocking and inventory transfers with our partners between different locations.
We will continue to work on these things and identify the pain points—the moments that matter—the areas that can really make a difference so we can make both our partners and ourselves more successful.
What are some of the details of HPE using AI to improve the supply chain?
There are three important pillars in my scope of responsibility: the front end with quote to cash, global supply chain, and service and support. What I do with my team is I wrap around this big thing I call digital transformation around that.
In each of these three areas there is investment and activity in continued digital transformation. What does that mean? It is all about digitalization and automation of processes and capabilities where possible, leveraging the different elements of AI. So we are leveraging traditional AI, which is all about data processing and making it simpler for employees to get access to the data. We’re playing around in many places with generative AI.
I don’t think anybody is ready for that yet because you have all the ethical aspects, the data privacy and security aspects, which we are working through. The big deal going forward is the whole discussion around agentic AI, which is basically AI that has the ability to reason and provide partners and customers with answers autonomously. We will continue to explore that space but it is early days for agentic AI.
But think of this the way we have applied already several use cases in our operation is the use of virtual support agents or chatbots that in some cases partners can use today or internally our employees can use.
Our employees have access to generative AI capabilities to look up things in knowledge bases. They have the ability to do search in documents leveraging AI tools so we are making things available along the way all again with this idea in mind that it is about improving our partner and our customer experience.
We are also equally making our employee experience better, making it easier for our employees to do their job and deliver that great partner experience. Nobody likes to get beat up by a partner waiting for a price quote. We all have the same intent in mind. There are several areas where we are using AI both on the front end and in the supply chain environment. We are leveraging AI use cases to do some of our demand planning forecasting and then matching supply with demand, making sure we have the right stuff in the right place.
In the back end with service and support we are doing the same thing. Support is a fantastic use case area for generative AI for virtual support agents and for agentic-type AI stuff. There is a lot of stuff there we are playing around with and we will do more and more to make the experience better and better.
What are you most proud of as you sit here and look at progress you made from a year ago?
I am most proud of how the team across multiple functions including our IT organization really rallied around elevating and intensifying our focus around that partner experience. We need to make sure we think about the experience they have and make them more successful because if they are successful, we are successful.
We really dig deep and roll up our sleeves. I always walk around with my sleeves rolled up. I make a point of that to let our team know, ‘I am with you guys.’ We roll up our sleeves and get to work. Some of this stuff you find is going to be ugly. We need to just knock it out one case after the other with a customer and partner focus. It is really all about getting into structural improvements not just focused on one thing but really looking at system capabilities, performance and stability, looking at processes that need to be improved.
We look at policies and ask does it make sense to do that to our partners— why don’t we simplify some of these things? We are just grinding it out. I am proud of how everybody stood up and said, ‘Enough is enough. We are just going to get this done.’
We are very proud of multiple locations where we have engaged with partners in some of the forums we have where now the feedback has been tremendous. There are two data points there that are important. We run a Partner Operations Council, which are operations leaders of our partners that come together. Those are the ones that work with our teams on a daily basis. They have acknowledged in some of the forums we have had saying, ‘The progress you have made is fantastic. It is visible and in multiple areas.’
We recently had our Partner Advisory Board with a select group of our partners and distributors and their top executives to engage with our executives. A year ago or two years ago I would show up in that forum and I would just get my behind handed to me for multiple reasons. They hear everything inside their companies saying HPE needs to do better. This is a problem. That is a problem, etc.
I was sitting there earlier this week for an entire day and there wasn’t even one mention of operational execution. Tariffs of course came up. But operational execution wasn’t mentioned once. That is a win. That is what I am proud of. If I can walk out of there without any action items and clear complaints about what we need to do better that is a good day.
That is a big difference from a year ago?
Absolutely.
