Hewlett-Packards

Deskjet Printer Supply Chain

Cases (A) & (B)
Discussion Guide & Answers
Ranjan Ghosh

HPS DESKJET
Industry characteristics: competitive, fast growing,
exploding in Europe, changing distribution
channel, rapid technological advances.
Product characteristics: quite, medium price, high
print quality, leading technology, commoditylike,
lighter and smaller, reasonable speed.
Supply chain characteristics: centralized manufacturing,
DCs fulfilling pure distribution functions, bulky products
resulting in long ocean transit, lean manufacturing shifts
inventory burden to DCs.

Inventory-Service Crisis
What crisis: inventory imbalance, i.e., some product options
having excess inventory while some others have shortages.

What caused it:

many product options due to geography,
long DC replenishment lead time,
highly uncertain market,
inflexible design : not easy to rework one
option to make it into another,
out of control inventory system,
uncoordinated functional interests (manufacturing,
distribution, marketing, engineering )

Curse of Product Variety

High inventory
Poor customer service
High manufacturing cost
High cost of after-sales support
Forecasting nightmare
High obsolescence at end-of-life

 High overhead support

Short Term :
Rationalize Safety Stock
Inventory control system used:
Periodic review, order-up-to system.
Key drivers of safety stock:
1. Service target
2. Variability: Std deviation of demand
3. Lead time
4. Review period

Safety Stock Example: Europe Option AB

Safety stock = Safety factor *Std. Dev of exposure demand
(Lead time + Review Period)*Std. Dev of Demand
Mean weekly demand

3653

Std Dev of weekly demand

Lead time (weekly)
Review period
Std Dev of exposure demand
Safety factor
Safety stocks
Safety stock in weeks of supply

2702
5
1
6619
1.89
12536
3.4

Longer Term Alternatives

Alternatives

Drivers Affected

Air shipment

Reduce lead-time

European factory

Reduce lead-time

Universal model

Reduce variance

Product line restructuring

Less headache

Improve forecast method

Reduce variance

Shorten review period

Reduce review period

More inventory

Increase service

Factors to Consider
Air transport economics freight and frequency.
Economies of scale for new factory in Europe.
Tax implications for new factory.
Investment opportunities.
What is the key driver to safety stock?
Can forecasting be improved significantly?
Marketing implications for product line restructuring.
Cost of inventory (holding, obsolescence )
Feasibility of universal option
Supply sources of localization materials.
Engineering requirement of localization
Value of risk pooling.

Evaluating the Alternatives

Alternatives
Air shipment

Effectiveness
Very expensive

European factory

Volume not high enough

Universal model

Excessive cost

Product line restructuring

Cannot afford

Improve forecast method

A dream

Shorten review period

Lose transport economics

More inventory

Deeper in the hole

DC Localization Strategy
Current: Factory-Localization
Mfg

DC

customers

DC-Localization
Mfg

DC

customers

Risk Pooling Analysis: Europe

Open

Mean Monthly
Demand

Std. Deviation
Monthly Dem

Coefficient of
Variation

42

32

0.77

AA

420

204

0.49

AB

15830

5625

0.36

AQ

2301

1169

0.51

AU

4208

2205

0.52

AY
Total

307
23109

103
6244

0.34
0.27

Safety Stock Reduction ?

Alternative
Current
DC-Localization

Aggregate
Safety Stock
(units)

Aggregate
Safety Stock
(Weeks of supply)

21,414

4.0

13,129

2.5

More Costs and Benefits

(of DC-Localization)

Stock of localization materials higher at DCs.

Lower value of transit inventory.
Potential freight reduction.
Investment to install localization capability at DCs.
Quality assurance.
Procurement of localization materials.
Value of manufacturing local market presence.
Potentials for other products.
Customs and duties implications.
Green effects.

How to Make it Happen

Needs R&D support for product redesign.
Why are they resisting? Product working,
Why touch it; no incentive.
Needs DC support.
Why are they resisting? Not part of job;
risk of dropping the ball; no incentive.
Shipping generic product efficiently.
How? New packaging design.
Needs investment localization lines,
procurement system support at DCs.

What Happened?
Deskjet redesigned to be DC-localizable.
Implementation in early 1992.
Millions of dollars saved, from inventory and
service improvement, and freight reduction.
Innovative packaging won patents.
All Vancouver products now DC-localized.
Vancouver as showcase for Design for
Localization. Best practice spreads to other
HP divisions.

Summary
Rationalized inventory management as a
short term treatment of supply chain problems.
Attack drivers of safety stock.
Use of models to analyze strategies
Postponement as a supply chain strategy.
Cross-functional integration critical for
successful implementation

 Look for every detail as an opportunity.

Inventory Analysis
_______________________________________________________________________________________________________
Europe Monthly Monthly Coeff of Weekly Weekly Mean Std Dev Safety Safety Safety Stock
Options Mean
Std Dev Variation Mean
SD
LT(wks) Exp Dem Factor Stock Wk of Sup
A
42
32
0.77
10
16
5.0
38 2.18
83
8.5
AA
420
204
0.49
97
98
5.0
240 2.01
483
5.0
AB
15830
5625
0.36
3653 2702
5.0
6619 1.89
12536
3.4
AQ
2301
1168
0.51
531
561
5.0
1375 2.03
2790
5.3
AU
4208
2205
0.52
971 1059
5.0
2594 2.04
5294
5.5
AY
307
103
0.34
71
50
5.0
121 1.87
227
3.2
Total
23109
4376
0.40
5333 2102
5.0
5149 1.94
21414
4.0
Generic
23109
6244
0.27
5333 3000
5.0
7348 1.79
13129
2.5
____________________________________________________________________________________________
Asia-Pac Monthly Monthly Coeff of Weekly Weekly Mean Std Dev Safety Safety Safety Stock
Options Mean
Std Dev Variation Mean
SD
LT(wks) Exp Dem Factor Stock Wk of Sup
A
115
282
2.46
26
135
4.0
303
2.54
770
29.1
AB
332
266
0.80
77
128
4.0
286
2.16
617
8.1
AG
1006
604
0.60
232
290
4.0
649 2.06
1336
5.8
AK
31
23
0.76
7
11
4.0
25 2.14
54
7.6
AU
449
556
1.24
104
267
4.0
597 2.32
1382
13.4
Total
1932
507
0.90
446
243
4.0
544 2.17
4160
9.3
Generic
1932
750
0.39
446
360
4.0
806
1.89
1526
3.4
________________________________________________________________________________________________________________
N.Am
Monthly Monthly Coeff of Weekly Weekly Mean
Std Dev Safety Safety Safety Stock
Options Mean
SD Dev Variation Mean
SD
LT(wks) Exp Dem Factor Stock Wk of Sup
A
26432
7377
0.28
6100
3544
0.2
3882
1.46
5685
0.9
AB
146
130
0.89
34
63
0.2
69
1.94
133
3.9
AG
15
30
2.06
3
15
0.2
16
2.24
36
10.6
AK
16
24
1.45
4
11
0.2
12
2.12
26
7.0
AU
3
5
1.71
1
2
0.2
2
2.18
5
8.5

Total
Generic

26612
26612

7328
7384

0.28
0.28

6142
6142

3520
3547

0.2
0.2

3856
3886

1.47
1.46

5885
5680

1.0
0.9