CASE DISCUSSION QUESTIONS
1. In what way is a universal power supply a postponement
It allows HP to postpone (product standardization, postponement) the allocation of laser printers (or specification of printer engine) to specific regions by about two months. Thus, in these two months the decisions can be made based on the aggregate demand forecast (US & Europe) in all regions. Production team believes universal power supply can enable HP to better respond to regional demand (US & Europe) and reduce its inventory costs.
2. What are the costs and benefits of a universal power supply (feel free to make assumptions)?
Costs If HP incorporate the universal power supply and sell 450,000 units of Rainbow, it will cost the company approximately $13.5 million in additional material costs (an extra cost of $30 for each printer). If the $30 extra cost is eventually passed through to customer, the increase in price by may also reduce revenue (sale). Since all the printers assembly will heavily depend on one single power supply accessory which is supplied by only one supplier, any design defect (or even global recall) may need to a sales and reputation disaster. Benefits Avoid cost of stock out due to the switching to another brand of customers. Switching to another brand means that HP might lose its customers for over three or four generation of printer as well as the revenue from selling ink cartridges. Assume that without universal power supply Product life cycle: 18 months; Monthly sales: 25,000 units. Total sales = 450,000 If there are 20% of goods needed to be transshipped and then reconfigured between DCs due to incorrect market forecast. The extra cost will be: 450,000 * 20% * ($75 shipping cost + $250 reconfiguration cost) = $29,250,000 With universal power supply – The forecasting improved so that only 10% of goods needed to be transshipped and then reconfigured between DCs, the extra cost will be $450,000 * $30 + $450,000 * 10% * $75 = $16,875,000 The extra cost of with universal power supply is SMALLER than without it. With universal power supply, ideally HP no longer needs to develop demand forecast for each market. It only needs to generate estimated worldwide product demand four months ahead. Allow HP to better forecast demand as a whole, which is more accurate. Consequently, it reduces inventory buildup issue. Flexible to respond to customer order so that HP can increase service level.
1. Disadvantages / costs of the universal power supply include:
i. Increase material cost (USD 30/unit)
ii. Possible power play among warehouses / Distribution centers (DCs) when transshipment is facilitated by the use of the universal power supply.
2. Advantages of the universal power supply include:
i. Improved forecast accuracy
ii. Less frequent (and cost of) stock-outs due to improved forecasting (especially at the beginning – product ramp-up stage - of the PLC) and risk pooling (for both US & Europe). iii. Lower safety stocks and inventory holding costs for a given service level due to improved forecasting. iv. Lower transshipment costs (approx. conservative estimate $250 (re-configuration) per printer - because expensive rework can be avoided, and safety and conformance regulations (Underwriter’ Laboratory certification process costs) can be eliminated. v. Easier transshipment (less hassle free, as eliminates tedious & complex reconfiguration of the power supply, fuser electronic circuit & fuser bulb at Europe). The only customization is the addition of language manuals and plug adapter at the DC. vi. Easier product planning (less likelihood of just in case management for inventory) vii. Eliminate quality costs associated with re-configuration. Maintaining a controlled process could be challenging if done just once a year usually at the end of PLC) viii. Elimination of costs of discounting unsold products at end of PLC (due to which customers expect HP to drop printer prices over time, and...
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