HKUST Thompson Center for BUSINESS SCHOOL Business Case Studies WORLD CLASS IN ASIA UST116 This document is authorized for use by Prof. Suri GURUMURTHI, The SURI GURUMURTHI Hong Kong University of Science and Technology, for ISOM5700 RONALD LAU Operations Management, till 19 December 2022 ONLY. Copying or posting is an infringement of copyright. Permission @HKUST Lenovo: Digital Transformation for Supply Chain Intelligence Digital transformation isn't simply about implementing advanced technologies. It also requires rethinking an organization's business model, processes, and culture to improve customer and employee experiences in a meaningful way. - Paul J. Walsh, Global Chief Digital Officer, Lenovo! It was early fall 2021, and Maggie Duan, one of the supply chain thought leaders on the global supply chain (GSC) team based in China, realized she had a challenging few months and years ahead. The GSC team at Lenovo had been one of the most influential groups within the company and across the electronics industry for the past couple of decades. Since the acquisition and integration of IBM's Personal Computing division in 2005, Lenovo had developed a reputation as a global brand and as a leader in supply chain management capabilities. These supply chain management capabilities played a key role in enabling Lenovo to enter a long-term partnership in 2005 with IBM, then one of the top technology firms. Since then, Lenovo had taken the number-one spot in personal computer space worldwide [ Exhibit 1]. However, this global market leadership came with immense pressure at a time when the world was in the throes of the COVID-19 pandemic. Demand for personal computers had surged 15% during 2021, while the pandemic had created critical bottlenecks for component suppliers, manufacturing centers, and logistics providers worldwide. This level of supply disruption was unprecedented in modern times, let alone when coupled with the demand surge for computers and other electronics. Maggie was tasked with developing the architecture and framework for the supply chain intelligence (SCI) platform. This platform aimed to make Lenovo's global supply chain more effective and efficient by 1 Catherine Zhu (October 2019), "Beyond tech: Lenovo's digital transformation," Deloitte, https://deloitte.wsj.com/articles/beyond-tech-lenovos-digital-transformation-01572224531, accessed 30 January 2022. 2 Tim Bajarin (May 2015), "How a Chinese company became a global PC powerhouse," Time, https://time.com/3845674/lenovo-ibm/, accessed 13 March, 2022. This case was prepared by Professor Suri Gurumurthi and Professor Ronald Lau solely as a basis for class discussion. The authors may have disguised certain data to protect confidentiality. Cases are written in the past tense; this is not meant to imply that all practices, organizations, people, places or facts mentioned in the case no longer occur, exist or apply. The decisions faced by the protagonists in this case were based on the period 2019-2022, whereas some sources and data collected were more recent in origin to the publication of this case. Cases are not intended to serve as endorsements, sources of primary data, or illustration of effective or ineffective handling of a business situation. The authors thank Ms. Maggie Duan, Mr. Chenguang Zhang, and Mr. Wesley Fan, at Lenovo for their valuable inputs and comments during case preparation. For inquiries regarding ordering and permission to reproduce the case and its materials, please write to bmcase@ust.hk or visit cbcs.ust.hk. 2022 by the Hong Kong University of Science and Technology. This publication may not be digitized, photocopied or otherwise reproduced, posted, or transmitted without the permission of the Hong Kong University of Science and Technology. Last edited: 20 August 2022 in PDF45HKUST Business School Thompson Center for Business Case Studies centralizing disparate databases, connecting supply chain transactions end-to-end, and integrating several planning and enabling tools into a single portal. The SCI platform was a self-designed and developed product within Lenovo, and the initiative had begun in 2017. Now, this platform had to be deployed during the most turbulent supply chain conditions in many decades. There were several challenges to deploying the supply chain management system, including (i) disparate data sources among vendors and even within Lenovo supply chain and operations teams, that required enormous manual effort to reconcile and transform into actionable intelligence, (ii) inefficiency among teams tasked with responding to customer requests for order delivery and commitments, (iii) slow response times in dealing with rapidly evolving demand patterns across Lenovo's immense variety of product lines, (iv) lagging performance in customer delivery metrics; for example, the order to delivery performance had fallen 10% versus pre-COVID metrics, and (v) excess product and component inventories leading to obsolescence with a 50% increase year on year, which in turn had a huge cost impact given Lenovo's scale of business. Maggie had to work within the predefined end-to-end supply chain management framework to facilitate the following important tasks: 0 Introduce new products on a continual basis Forecast and manage their demand Accept and quote delivery times for orders Procure and manage inventory of components and nished products Schedule and manufacture those orders within promised windows Manage contracts with key vendors Monitor progress of orders at various stages of completion and through the logistics network Ensure quality of products and related services to customers Maggie had to plan the development and deployment of the SCI initiatives to encompass several of the critical areas. At the same time, her team and, more broadly, the company had to nd solutions to the problems posed by a global pandemic that were impacting supply chain performance in myriad and unforeseen ways. Could enhanced automation of critical supply chain decisions and the deployment of machine learning and articial intelligence frameworks be a way forward, she wondered? If so, what were the precise building blocks for such a digital transformation of supply chain decision-making at Lenovo? What were the hurdles in bringing these state-of-the-art ideas to a supply chain world where most transactional decisions were still driven by middle managers who had limited visibility into global supply chain dynamics? What were some good behaviors that could be modeled among the supply chain teams and workforce so that intelligent and automated systems could support and bolster human decision-making? What were some features that were required of the SCI tools and platform to enable and bolster human decision-making capacity, but not entirely limit or short-circuit human problem solving. In other words, how could these systems be made adaptive to human decision-making, while also bringing the power of digital transformation and intelligent agents to elevate supply chain performance? 2 UST116 Lenovo: Digital Transformation for Supply Chain Intelligence This document is authorized for use by Prof Suri GURUMURTHI. The Hong Kong University ofScience and Technology, for [SOM5700 Operations Management. till 19 December 2022 ONLY. Copying or posting is an Hiiimgzement ofcopyiight. Permission rn'HKl 'ST HKUST Business School Thompson Center for Business Case Studies About the Company A team of engineers from the Chinese Academy of Sciences in China originally founded Lenovo as Legend in 1984 to import and inspect television sets for the domestic market. Eventually migrating to a portfolio of personal computers and then with its growing success in tablets and smartphones, the company had grown to become a well-known brand in consumer electronics and a market leader in personal computers, with a global market share of 24.6% in 2021 [Exhibit 2]. As of the scal year 20222023, Lenovo, which had revenues of more than USD70bn, was a Fortune 500 company serving 180 countries across the world. Lenovo prided itself for its \"bold vision to deliver smarter technology for all\" and for \"developing world-changing technologies that power (through devices and infrastructure) and empower (through solutions, services, and software)\"3 Lenovo's main business had evolved around its 38 Strategy: Smart IoT (Internet of Things), Smart Infrastructure, and Smart Solutions. To support this 38 Strategy, Lenovo has created three business groups: Intelligent Devices Group {IDG), Infrastructure Solutions Group (ISG), and Solutions and Services Group (SSG). Lenovo's vision was \"Smarter Technology for All,\" and the notion of digital transformation was a key component for delivering this vision. It aimed to deliver a customer experience that would take customers through its own intelligent transformation. Aiming for positioning beyond just the hardware of personal computing, Lenovo wanted to lead a service-led transformation founded on solutions and services that it could offer throughout the life cycle of the hardware product. For its business and corporate customers, Lenovo offered device as a service (DaaS), supporting the back-office technology, so its customers could focus on their own core processes. It also offered more integrated and turnkey solutions, such as complex solutions that enabled its institutional customers to outsource their computing solutions needs to Lenovo on a turnkey consulting basis. Lenovo envisioned that digital transformation for its corporate and business customers was key to entail smart [OT (more empowered and connected devices), smart infrastructure (information processing and connectivity engines), and smart verticals {making better decisions with the availability of the devices and realtime information). It foresaw that its customers across the manufacturing, health care, education, retail, and public or government entities could benefit from this overarching and compelling vision. Lenovo aimed to collaborate with maj or global rms such as Intel, Qualcomm, Amazon, AMD, Disney, Microsoft, Google, NetApp, and Synaptics, among many others, as part of this vision. Major Milestones of Business Development This bold vision reected a story of quick growth and a rise from its roots as a company called Legend in the mid-19805, which ran quality checks on imported computers and started manufacturing computers using its own brand in 1990. By 1996, beneting from a successful IPO on the Hong Kong Stock Exchange, Lenovo was already the market leader in China and had begun selling its own brand laptop computers. The company was also early to see and capitalize on the internet revolution by releasing its Tianxi brand computer in 1998, which allowed users to get on the internet at the click of a button. Legend rebranded itself Lenovo in 2003 and began a series of acquisitions including the IBM personal computer business and the popular ThinkPad series of laptops. This acquisition vaulted Lenovo from the 3 Lenovo, company website, hrtp53l/jobs,lenovo,com/en_US/careers/JobDetai1/ Software-ProjectManager/36841 , accessed 15 February 2022. 3 USTI 16 Lenovo: Digital Transformation for Supply Chain Intelligence This document is authorized for use by Prof Suri GURUMURTHI. The Hong Kong University ofScience and Technology, for [SOM5700 Operations Management. till 19 December 2022 ONLY. Copying or posting Is an mirmgtement of'cnp} right. Pcrmiuion 'rPHKl !