Hewlett-Packard’s

Deskjet Printer Supply Chain

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

__Ranjan Ghosh__
 HP’S 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, commodity–like,
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 2702

Lead time (weekly) 5
Review period 1
Std Dev of exposure demand 6619
Safety factor 1.89
Safety stocks 12536
Safety stock in weeks of supply 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 Effectiveness
Air shipment 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 Std. Deviation Coefficient of
Demand Monthly Dem Variation

A 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 307 103 0.34

Total 23109 6244 0.27
 Safety Stock Reduction ?

Aggregate Aggregate
Alternative Safety Stock Safety Stock
(units) (Weeks of supply)
Current 21,414 4.0

DC-Localization 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 26612 7328 0.28 6142 3520 0.2 3856 1.47 5885 1.0
Generic 26612 7384 0.28 6142 3547 0.2 3886 1.46 5680 0.9