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HP Case Study - Deskjet Printer Supply Chain.

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Introduction

HEWLETT-PACKARD: DESKJET PRINTER SUPPLY CHAIN Case Analysis Presented to Professor D. Krishna Sunder Indian Institute of Management, Bangalore On November 07th, 2005 In Partial Fulfilment of the Requirements of the course Operations Management By Agila Reddi K (0511072) Arjun Gaur (0511075) Clare Kurian(0512004) Minu Rachel Philip(0511101) Nikhil Menon (0511105) Section B HEWLETT-PACKARD Introduction DeskJet Printer was becoming one of Hewlett-Packard (HP) Company's most successful products. Sales had grown steadily reaching around 600,000 units in 1990. Uneven distribution of inventory was one of the key issues which needed to be addressed since in spite of having distribution centres (DC) filled with printers, organisations in Europe claimed that inventory levels needed to be raised to maintain satisfactory product availability. Also there seemed to be an issue of requiring the buy-in of the various parties on what was the right level of inventory to be maintained. Worldwide sales were about 17 million units which amounted to $10 billion. The US-Western Europe markets were mature while that in Eastern Europe and Asia-Pacific were developing markets. The ink-jet printer (DeskJet was one of the products in this category) had around 20% of the retail printer market. HP was the market leader in US while Cannon was in Japan and Europe had competitors like Epson, Manisman-tally, Siemens and Olivetti. The Vancouver Division of HP (the personal printer activities were consolidated) introduced the Kanban process and converted to stockless production which also reduced cycle time and reduced inventory time from 3.5 months to 0.9 months. ...read more.

Middle

The total sales are 600,000 units which are close to the total of the forecasted demands. Therefore it is assumed that the sales in the different regions are equal to the forecasted demands. This is then used to calculate the weeks of supply. The steps to be taken to compute the inventory is given above. The data collected by the team to improve the forecast is used here. Only the inventory levels in Europe are considered for comparing the various alternatives. Taking 12% carrying costs Option Monthly Mean Monthly Std. Dev. Lead Time Reorder Interval SD (L+R) Safety Stock Average Inventory Inv Cost EUROPE A 42.3 32.4 42 7 41.4 84.9 89.8 51736.9 AA 420.2 203.9 42 7 260.6 534.2 583.2 335939.9 AB 15830.1 5624.6 42 7 7188.3 14736.1 16583.0 9551783.3 AQ 2301.2 1168.5 42 7 1493.4 3061.4 3329.9 1918006.7 AU 4208 2204.6 42 7 2817.5 5775.9 6266.9 3609706.8 AY 306.8 103.1 42 7 131.8 270.1 305.9 176203.6 Total 27158.6 15643377.3 Inventory costs = Average inventory x Cost of a single unit x 12% Total annual cost when shipped by sea = Total inventory holding cost + shipping costs = 15643377.3 + ? monthly mean * shipping cost/unit * 12 = 18139106.1$ Taking 60% carrying costs Option Monthly Mean Monthly Std. Dev. Lead Time Reorder Interval SD (L+R) Safety Stock Average Inventory Inv Cost EUROPE A 42.3 32.4 42 7 41.4 84.9 89.8 258684.6 AA 420.2 203.9 42 7 260.6 534.2 583.2 1679699.6 AB 15830.1 5624.6 42 7 7188.3 14736.1 16583.0 47758916.4 AQ 2301.2 1168.5 ...read more.

Conclusion

This will be a long term investment and depends on the scale of demand in Europe. It should be sustainable and have sufficient volume to justify its inception. 3. Assembly can be done in Europe: The manufacturing process should be modified so that final assembly can be done at the DC in Europe. These processes that can be done in Europe include the power supply and the manuals. This will help reduce the lead time by reducing the factory cycle time. These should also enable the DC to be more flexible. The shipping costs will also come down. The actual savings cannot be calculated from the given data and more information is required. The top management prefers to maintain the DCs in a warehouse mode as it will difficult to manage the work in the DCs. Additional expenditure will be incurred in setting up support processes. Conclusion If 12% is considered to be the carrying cost of inventory then it is more cost effective to just use the new data to forecast the demand and thus maintain 98% line item fill rate. But if it is 60% transportation by means of air should be used. In the long term as the demand in Europe builds up the setting up a facility in Europe can be considered. As an initial step in this process assembling in Europe can be considered. Another alternative that can be considered is inventory pooling by building up finished good inventory in the factory. ?? ?? ?? ?? 5 ...read more.

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