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Hewlett Packard: DeskJet Printer Supply Chain

Extracts from this document...


David Todd

Sri Vuruputoor

EMBA Cohort 8

November 19, 2004

Hewlett Packard: DeskJet Printer Supply Chain

1. What caused the so-called Inventory/Service crisis?

The perceived problem from Vancouver manufacturing center’s view point is the European Distribution Center’s poor forecast accuracy. The perceived problem from European distribution center’s view point is that the manufacturing center requires too long of a lead time. As a result, some localized product lines within the European distribution center are out of stock, while other product lines have excess inventory.

The causes of the stock overage and underage are as follows:

- A 6 week replenishment lead time to get a product from the Vancouver manufacturer to European distributor is relatively long for a high-volume consumer good, particularly relative to the 8 days it takes to get product to the U.S. distribution center.  (For Europe, it takes 1 week for manufacturing and 5 weeks for shipping.)

- The Vancouver manufacturer currently must produce many skus, which vary by low cost modular components that mate with a much more costly, generic component. The distribution centers exist on three continents, each with several more localized configurations.

- The players within the supply chain, the Vancouver manufacturer and the European distribution center, have a narrow view of their respective roles and have inflexible policies.

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Alternative 3: Since both players are within the same company, they could switch from a periodic review to a continuous review via online data exchange to reduce order lead time as well as order cost.

Advantages: Order lead time and costs would be reduced,  and both players would benefit.

Disadvantages: Minimal, aside from process change.

Alternative 4: To further reduce total cost of operation, HP may want to further consolidate all languages within a single manual, standardize the power supply, leaving only the power cord and a voltage regulator switch as the variables for localization. The costs per manual and per power supply may increase, but the more generic units allow assembly costs to be reduced and risks to be pooled, thus reducing inventory costs (i.e., safety stock).

Advantages: Though Bill of Material is not provided in the case, stocking localized manual and power cords is less expensive than stocking entirely localized skus.

Disadvantages: Cost per manual and per power supply may increase.

2b. Consider a periodic-review, order-up-to model to evaluate the various alternatives available (air shipping and ocean shipping) to Brent Cartier to address the inventory and service problem. Use the same methods to evaluate the inventory savings associated with a generic European product that would be assembled-to-order in the European distribution center under each shipping option.


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Answer: Option AB’s incremental average annual cost is $371,225.10 by increasing the safety stock by 3,569 units, which is a 6.43%.

2e. A detailed market study shows that only a small segment of the Europenan market representing 30% of sale, requires 99.5% fill rate. HP can maintain its competitive position in the rest of the European market with its current 98% service level. The Logistics Department has proposed a differentiated service policy whereby inventory is physically separated and allocated to each of the two market segments in order to achieve the 99.5% and 98% fill rates, respectively. (Consider the distribution demand for each region.) What is the cost impact of such a policy, compared with the current practice of providing the higher service level to all customers (such as the previous question)? (Assume that all products are shipped by sea). Should this practice be adopted?

Answer: The required safety stock increases when providing service level at differential fill rates and costs increase by 6.38%. Whenever variability is divided into more parts, variability overall increases because risks are no longer pooled. We would not recommend this policy segmenting fill rates as costs would increase, unless the customer was willing to compensate us for the costs.


Sample Demand Data:


Shipping by Sea:


Shipping by Air:


AB Europe Revised Fill Rate:


AB Europe Multiple Fill Rates:


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