Supply Chain Management|
Hewlett-Packard: DeskJet Supply Chain Case Study|
SUMMARY OF CASE
This case study specifically looks into the supply of Hewlett Packard’s DeskJet printers to the European market. Production of the DeskJet begins in HP’s Vancouver plant where six different variants (based on different customization requirements of language and power supply) of the DeskJet model are produced. Finished goods are subsequently transported from Vancouver to the European Distribution Centers (DC) via shipment. 2 main issues are highlighted in the case: (a) conflicting goals between various departments on setting and implementing consistent inventory levels and (b) minimizing inventory levels while satisfying customer needs in terms of product availability. We will focus on analyzing the inventory problems in the European DC. In our calculations, we have made several assumptions. Demands for the variants are presumed to be independent of each other. A desired service level of 98%, based on marketing department’s data is used in proposing the new inventory model and in our quantitative analysis of the various alternatives suggested. Other assumptions made include an inventory cost per unit of $400 and inventory holding costs of 20%. A 20% holding cost is estimated based on the cost of debt of 12% and additional costs such as administrative costs and warehouse rental, estimated as 8%. PROPOSED MODEL (ORDER-UP-TO-LEVEL POLICY)
Management at HP has concluded that it was important that they develop a consistent method to calculate safety stock to define a more scientific target inventory level, rather than one that is based on a judgmental rule of thumb. As such, the group proposes the following inventory model in resolving this issue. Given a review period of 1 week at the European DC, with a total lead time of 6 weeks (1 week for production, 5 weeks for transportation), an exposure period of 7 weeks was observed. We may therefore suggest that the DCs follow a fixed time review inventory model. Based on such a model, safety stock is computed as a product of standard deviation of demand during exposure period (7 weeks) and the Z-score derived from a service level of 98% (i.e. z = 2.05). Target inventory position will therefore be equal to demand during the exposure period plus safety stock determined. Using the sample demand data provided, the average inventory holding costs of the Europe DC under such an arrangement may be computed as shown in the table below. Table 1: Fixed time review inventory model|
Models| Mean (wk)| σT+L=7| SS| Cycle Inv.| Ave Inv.| Holding cost| A| 9.77| 41.36| 84.93| 4.88| 89.82| $ 7,185.50| AA| 96.96| 260.19| 534.36| 48.48| 582.84| $ 46,627.51| AB| 3,653.10| 7,176.37| 14,738.46| 1,826.55| 16,565.01| $ 1,325,200.70| AQ| 531.04| 1,490.87| 3,061.88| 265.52| 3,327.40| $ 266,192.06| AU| 971.08| 2,812.82| 5,776.82| 485.54| 6,262.36| $ 500,988.44| AY| 70.8| 131.57| 270.22| 35.40| 305.62| $ 24,449.90| Total| 5,332.8| 11,913.18| 24,466.68| 2,666.38| 27,133.05| $ 2,170,644.12|
The group considers the strategy of postponement or delayed product differentiation, where generic printers are shipped to the European DCs and localization process is conducted only when local demand from retailers is observed. Here, the portion of the supply chain prior to localization is a push-based supply chain. The portion of the supply chain starting from localization is a pull-based supply chain. The point of localization, push-pull boundary, shifts from Vancouver down to the DCs. By supplying generic printers to the DC, HP needs only to consider the variability of the total European demand for printers, regardless of the configuration, which is lesser than the variability of the individual demand for the various...