Introduction: In the year, 1990, Brent Cartier, a manager in the Materials Dept of HP Companys Vancouer Division, is faced with

a paradoxical problem of stock out and high lev el of inventory occurring frequently in the product line of HP DeskJets. The cas e highlights the various challenges faced by the Distribution Dept of the compan y and calls for a solution that can maintain a high level of product availabilit y but simultaneously keeping lowest levels of inventory. Case Facts: Calculated Product Price = 666.67 Long Shipment Time for the European and Asia- Pacific Markets (4-5 weeks). So it was difficult to cope up with the demand fluctuations. DCs are designed for make-to-stock mode of operation to provide high level of pro uct availability to the dealers Problem Statement: The inventory carrying cost of the product line HP Deskjet Printer is very high and at the same time the there are cases of stock-outs at the European and AsiaPacific Distribution Centres (DCs). Solution Objective: To provide 98% product availability (methods to be used LIFR/DFR for performance measurement) at the DCs, however by keeping the inventory level at the minimum possible. Root Cause Analysis (Issues): Fluctuating Demand High lead time and long shipment time (4-5 weeks) Commoditization of printers and hence diminishing brand loyalty Very high Inventory carrying cost (12-620%) Stock outs Sources of Uncertainty 1. Delivery of incoming materials (Production Side) 2. Internal Processes (Production Side) 3. Demand Fluctuation (DC Side), leading to inventory build up/stock-outs.

From Exhibit 4, the inventory carrying cost can be found out and it comes out to be $ 2886214 for 98% product availability, which is apparently very high. Solution Alternatives: 1. Use air freight in case of stock outs to avoid a denial of product sale to customers. 2. Set up a sister plant in Europe to manufacture the printers there 3. Revisit the inventory stock rules at the European DCs and use a sound sa fety stock method 4. Postpone the localization of printers at the as later a stage as possibl e