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MM5004 HP: Supplying The DeskJet Printer in Europe

Syndicate 2 MBA Executive 46
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Outline
List of Fact(s)&Issu(es)

Focus Problem(s)

Theory(s)

Possible Solution(s)

Recommendation(s)

Facts
• • • •

• •
• •

DeskJet printer was introduced in 1988 One of Hewlett-Packard`s (HP`s) most successful products ± 600,000 units in 1990 HP 3 distribution centers (DC): 1. North America 2. Europe 3. Asia Pasific HP in Vancouver does manufacturing DC`s role as warehouses need to focus and do their best on distribution Target inventory levels equals to one month average sales in the DC PC, monitors and other products require “integration” process while Deskjet printer fits well into the standard process for the distribution.

Issues
• Pallets of DeskJet printer at HP`s distribution centers • Inventory levels in Europe need to be raised • Inventory models for European DC supply chain: • 5 weeks for transportation time through sea shipment • Weekly shipment to European DC • Management costs decisions: • to use 25% for warehouse expenses (range from 12 to 60%) for carrying cost • 250$ each to produce and ship to Europe • 98% safety stock probability • Safety stock system to reduce forecasts errors and replenishment lead times • Integration proccess to be applied to DeskJet printer at

Focus Problem
HP DeskJet Supply Chain (exhibit 17.14)
Supplier IC Mfg US DC
Custom er

Supplier

PCAT

FAT

Europea n DC

Custom er

Supplier

Print Mech Mfg Supplier

Far East DC

Custom er

6 Models for Europe: (A,AB,AU,AA,AQ,AY) Product Shortages from some countries

Inventory forecasting errors

Shipment System: 1. Transportation Type (Air vs Sea) 2. Cost effectiveness 3. Time efficiency

Theories
• “Postponement is delaying any modifications or customization to the product as long as possible in the production process” (Heyzer and Render, 2008) • HP is able to hold centralized inventories of the generic printer for shipment as demand changed • HP is successfully adopt the postponement supply chain method • “Localization” process for selling DeskJet: customizing the printer to meet the language and power supply requirements of the local countries (Jacobs, Chase, Aquilano, 2009)

HP DeskJet Supply Chain (exhibit 17.14)
Supplier IC Mfg US DC Custom er

Supplier

PCAT

FAT

Europea n DC

Custom er

Supplier

Print Mech Mfg Supplier

Far East DC

Custom er

“Postponement” at Vancouver (manufacturing place)

“Localization” base to specific countries destination

HP DeskJet Demand Data for EU (exhibit 17.16)
EU Opt
A AB AU AA AQ AY Tot.

NOV

DEC

JAN

FEB

MAR

APR

MAY

JUN

JUL

AUG

SEP

OCT

80 20,572 4,564 400 4,008 248 29,872

20,895 3,207 255 2,196 450 27,003

60 19,252 7,485 408 4,761 378 32,344

90 11,052 4,908 645 1,953 306 18,954

21 19,864 5,295 210 1,008 219 26,617

48 20,316 90 87 2,358 204 23,103

13,336 432 1,676 248 15,692

9 10,578 5,004 816 540 484 17,431

20 6,095 4,385 430 2,310 164 13,405

54 14,496 5,103 630 2,046 363 22,692

84 23,712 4,302 456 1,797 384 30,735

42 9,792 6,153 273 2,961 234 19,455

Item to be considered: 1.EU Opt “AB” which has the best demand comparing to other Opt. 2.JAN & SEP reach the two highest total demand

Focus Problem
Supplier IC Mfg US DC Custom er Europea n DC Custom er

Supplier

PCAT

FAT

1W
Print Mech Mfg Supplier

5W

Supplier

Far East DC

Custom er

Options: 1. Final Product per area in PCAT & FAT site  EU DC  Customer 2. Generic Product in PCAT & FAT site  Finali product in EU DC  Customer

Solutions Inventory Model + Inv. Investment
Vancouver (US) EU

?
5D
PCAT FAT European DC Customer

Generic Products  Reduce time < 1W

Localize Products

Private Plane Private Ship

Public Plane Public Ship (Existing Method)

Inventory Model  EoQ with Safety Stock

Solutions Inventory Model + Inv. Investment
R = Reorder point in units L = Lead time in days z = Number of Standard deviations for a specified service probability. SS = Service Stock, with:

TC = Total Annual Cost D = Demand (annual) C = Cost per unit S = Setup cost or cost of placing an order H = Holding cost Q = Quantity to be ordered where optimal amount is termed the EOQ or Qopt or Q*, with :

Where P = Probability the unit will not be sold Cu = Underestimating Demand Co = Overestimating Demand

Solutions Inventory Model + Inv. Investment
Data provide from case:
Annual Demand (D) = Ex Cost per Unit (C) = $250 Holding cost (H) = 12% - 60 % ; using 25% from Cost per Unit (C) Lead Time (L) = based on delivery scenario Ordering Cost (S) = based on delivery scenario Std deviation for specified Service probaility (z) = 2.10  G(z) = 98% = 0.98 Cu = $250 Average Daily Demand (d) =

Data to be assumed: Co = $ 400 Based on delivery scenario related to Lead Time (L)

Solutions Inventory Model + Inv. Investment
Scenario Delivery Vancouv er to EU
Public Plane Private Plane Public Ship Private Ship

Est. Est. Time Cost/unit Delivery( (S) L)+ 5 D (PCAT FAT)
$80 $100 $30 $70 12 Days

Q*

TC

R

P

842.55 69,378,410
7 Days

54,539.21 39,520.98

0.38 0.33 0.45 0.42

942.00 69,384,625
40 Days

515.96 69,357,997 113,990.38
26 Days

788.14 69,375,009

78,241.75

Considered 1

Considered 2

Solutions

Solutions
For Shipment by sea Δ C/Cc = (3000.675 – (3000.675)0.5/(5336.952*5*1.9) Δ C/Cc = 0.058 For Shipment by air Δ C/Cc = (3000.675 – (3000.675)0.5/(5336.952*2*1.9) Δ C/Cc = 0.145 From the result above; 1. shipment by air gives more flexibility in terms of redesigning of the product and production process: 2. for shipment by sea choice the additional cost of final assembly can not exceed 5 % of the cost of common component; for the shipment by air that cost can be up to 14%.

Solutions
Calculation of safety stock required to achive a given fill rate : Exposure periode = Lead time + Review periode; SD of demand over Exposure Periode = SD of weekly demand*(Exposure period)^0.5; Safety stock = safety factor * SD of demand over Exposure Periode; Safety stock in weeks of supply = safety stock/mean weekly demand; Holding cost : 0.12; Review periode : 1 week;

HP DeskJet Supply Chain (exhibit 17.14)

Supplier

IC Mfg

US DC

Custom er

Supplier

PCAT

FAT

Europea n DC

Custom er

Supplier

Print Mech Mfg Supplier

Far East DC

Custom er

“Postponement” at Vancouver (manufacturing place)

“Localization” base to specific countries destination

Recommendations
1. Shipment by air gives more flexibility in terms of redesigning of the product and production process 1. DC localization is the most economic factor and therefore final assembly product is in DC as it save time and cost for PCAT & FAT section
1. Based on TC (total inventory cost) and Probability the unit will not be sold, scenario shipment by (air/sea?) recommended to HP case.

References
• Jacobs, F Robert, Chase, Richard B, and Aquilano, Nicholas J (2009) Operations and Supply Management, 12th Ed, New York: McGraw-Hill Education • Jay, Heizer and Render Barry (2008) Operation Management, 9th Ed, Pearson Education International • Shim, Jae K, Siegel, Joel G, Shim, Allison L (2011) The Vest Pocket MBA, 4th Ed, New York: Penguin

Thank You