Managing the Inventory Imbalance at the European Dc
Managing the inventory imbalance at the European DC
Problem Definition
With the DeskJet market booming in Europe, retailers are demanding high availability of products. The core problem for HP is that it is piling up inventory in its European Distribution Centre (DC) to meet this demand, but there are still complaints of product shortages. This is because: * Wrong/unpopular country-specific product models are stocked up, while the popular “localized” models run out- caused by ineffective demand forecasting, arbitrarily set reorder points, and a disconnect in communication between the different departments. * Supply is not fast enough in responding to demand- caused by demand fluctuations and long lead time
Analysis
The European DC is accumulating inventory of models for some countries, while facing product shortages for other countries. The fundamental reason for this is that there are high fluctuations in demand by the end customer. Furthermore, with the current lack of synchronization between the different HP departments, as this demand reaches upstream the supply chain, to the DCs and then to the Manufacturers, this uncertainty in demand further increases- a phenomenon called the Bullwhip effect. However, fluctuating demand is beyond the control of the company; hence, HP must use an effective demand forecasting system to mitigate the problem, which is currently missing.
Demand forecasting will only be relevant if it is correctly used to respond to demand by shipping the right product quantities at the right time. Since the demand fluctuations in Europe cannot be immediately responded to by the manufacturing department in Vancouver because of the long total lead time (1week cycle time plus 4-5week shipment time), a continuous review (Q) inventory control system should be implemented. This perpetual system is continuously monitored to keep track of inventory being used, and once the remaining inventory drops below a pre-calculated reorder
Problem Definition
With the DeskJet market booming in Europe, retailers are demanding high availability of products. The core problem for HP is that it is piling up inventory in its European Distribution Centre (DC) to meet this demand, but there are still complaints of product shortages. This is because: * Wrong/unpopular country-specific product models are stocked up, while the popular “localized” models run out- caused by ineffective demand forecasting, arbitrarily set reorder points, and a disconnect in communication between the different departments. * Supply is not fast enough in responding to demand- caused by demand fluctuations and long lead time
Analysis
The European DC is accumulating inventory of models for some countries, while facing product shortages for other countries. The fundamental reason for this is that there are high fluctuations in demand by the end customer. Furthermore, with the current lack of synchronization between the different HP departments, as this demand reaches upstream the supply chain, to the DCs and then to the Manufacturers, this uncertainty in demand further increases- a phenomenon called the Bullwhip effect. However, fluctuating demand is beyond the control of the company; hence, HP must use an effective demand forecasting system to mitigate the problem, which is currently missing.
Demand forecasting will only be relevant if it is correctly used to respond to demand by shipping the right product quantities at the right time. Since the demand fluctuations in Europe cannot be immediately responded to by the manufacturing department in Vancouver because of the long total lead time (1week cycle time plus 4-5week shipment time), a continuous review (Q) inventory control system should be implemented. This perpetual system is continuously monitored to keep track of inventory being used, and once the remaining inventory drops below a pre-calculated reorder