3604 Case

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Yifeng Chen z3283995 Page 1

Hp DeskJet Printer Supply Chain Case Study

Introduction

Hewlett Packard (HP), a famous manufacturer of peripheral and computer. In

the early 1990s, HP faced a “Inventory/Service-Crisis” concerning one of their

high volume products, the DeskJet printer. Despite growing inventory levels at

the distribution centers in Europe and Asia-Pacific, customer service levels

were unsatisfactory. This paper is going to analysis the reasons of this crisis,

followed by some suggestions for the performance improvement, which

include the costs and benefits of the suggestions.

Problems

The inventory carrying cost of the product line HP DeskJet Printer is very high

and at the same time there are cases of stock-outs at the European and Asia-

Pacific Distribution Centers (DCs). The demand and inventory problem is

rolling bigger and bigger.

Cause Analysis (Issues):

Fluctuating Demand

High lead time and long shipment time (4-5 weeks)

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Commoditization of printers and hence diminishing brand loyalty

Very high Inventory carrying cost(12%-60%)

Stock outs

Uncertainty

Delivery of incoming materials

Internal Processes

Demand Fluctuation

Solution Objective:

To provide 98% product availability at the DCs, however by keeping the

inventory level at the minimum possible.

Current Solution Plan

David Arkadia, the Materials Manager at the Vancouver Division, had solicited

the help of a young inventory expert from Corporate HP, Dr.Billy Corrington to

help him put in place a scientifically based safety stock system which would be

responsive to demand uncertainties and replenishment lead times. Billy had

formed a team to rehaul the safety stock management system. They were to

recommend a method for calculating appropriate safety stock levels for the

various models and options at the three DCs.

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Recommendations (about other solutions)

1. Promotion Plan for different inventory levels

As a inventory management support tool, conduct different promotion plan for

different inventory levels. For example, when the stock level of one model

exceed some level, a short term promotion plan is designed and send to

resellers, at the same time, gathering sales record for the future inventory

system support.

Benefits:

Help to maintain inventory level; Improve sales revenue; Gather using useful

data to estimate future demand and inventory level; Promotion of brand;

Increase sales channels;

Cost:

No guarantee return; Cause inventory shortage; Effect on sales of other

models; Further Inventory problem cause by the different future inventory level

of different model; Data not accurate because of promotion.

2. Better Communication System

A communication system which can provide strong support and

communication function for each part of the supply chain. Such functions like

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tracking tools, past record and data diagram generators, real time

communication tools, effective information delivery plan for production/sales

and distribution.

Benefit:

Transportation and inventory costs can be reduced; Help to increase service

level due to better information delivery; Better performance due to better

communication between channel members; Easier application of forecasted

plan (e.g. sales/ inventory).Improve efficiency; Prevent longer lead time

caused by longer communication time.

Costs:

System Setup Cost; Time for testing and deployment; Extra cost for

deployment environment; Risk of system failure; Cost of related system

process and environment. (e.g. barcode scanning, tracking)

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3604 Case