CASE

STUDY
HEWLETT PACKARD – SUPPLYING
THE DESKJET PRINTER IN EUROPE

GROUP 7
LECTURER: PROF. NGUYEN THI XUAN
HOA
GROUP MEMBERS

Nguyễn Phương Linh

1.
20203273
Nguyễn Thị Ánh Tuyết
2.
20203296
Hoàng Đức Trung
3.
20203294
Trần Việt Anh
4.
20207755

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TABLE OF CONTENTS

I. CASE SUMMARY

II. CASE ANSWERS

1. QUESTION 1

2. QUESTION 2

3. QUESTION 3

4. QUESTION 4

III. CONCLUSION

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I. CASE SUMMARY

HP DeskJest Printer

• The DeskJet printer was introduced in 1988.

• Till 1990, sold 600.000 units.
• “Inventory levels there need to be raised even further to maintain satisfactory products
availability” The organization in Europe said.

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I. CASE SUMMARY

 The DeskJet supply chain

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I. CASE SUMMARY

• “Localization” is customizing the printer to meet the language and power supply
requirements of the local countries.
• HP creates a team of employees to help implement a scientifically based safety stock
system that will be responsive to forecast errors and replenishment lead times.

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I. CASE SUMMARY

• A good sample of demand data that can be used for developing the safety stock
methodology:

• One issue comes up: the choice of inventory carrying cost to be used in safety stock
analyses.
• Another issue is the choice of safety stock probability for the model. The company has
decided to use a probability of 98%, an appropriate number.

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I. CASE SUMMARY

• The DeskJet printer fits well into the standard process. Other products require a special
processing called “integration”.
• Top management feels that integration of the product at the warehouse is extremely
valuable.
• The DCs have traditionally envisioned their process as a simple, straight-line,
standardized process. There are 4 process stops:

1) Receive (complete) products from various suppliers and stock them.

2) Pick the various products needed to fill a customer order

3) Shrink-wrap the complete order and label it

4) Ship the order via the appropriate carrier.

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II. CASE ANSWERS

 Question 1: Develop an inventory model for managing the DeskJet printers in Europe if
the Vancouver plant continues to produce the six models sold in Europe. Using the data in
Exhibit 15.15, apply your model and calculate the expected yearly investment in DeskJet
printer inventory in the Europe DC.

 Assumptions:
(a) The protection interval demand (Lead time+ review period demand) follows a
normal distribution. Thus, the z-value at 98% service level is 2.054.
(b) Inventory carrying cost is 25% of the product cost (Opportunity cost)
(c) Currently Pipeline inventory model has been followed by DC.
(d) Max. cargo is equal irrespective of air freight or sea.

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II. CASE ANSWERS

• HP uses Make-to-Stock model. Improper inventory management has been observed from
the case which led to overflow and underflow occurrences. Periodic Review Model of
Inventory can be used to tackle the Inventory issue faced by HP.

• For sea route, we have calculated Mean & Std of 6-week demand (5-week lead time + 1
week review period) and calculated service level of 98% i.e., 2.054*(LT+R).
• For air route, we have calculated Mean & Std of 2-week demand (1 week lead time + 1
week review period) and calculated service level of 98% i.e 2.054* σ(LT+R).

• Order up to Level (OUTL i.e, Maximum Orderable Quantity) = R+LT + Zασ(R+LT).

• Average Total inventory = Max. Orderable quantity/2 + Safety Stock = Q/2 + SS.

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II. CASE ANSWERS

 It has been inferred from analysis that there is capex saving of approx. 1678.7 thousand
dollars if we use air freight instead of Sea, mainly because of low inventory holding cost.
Detailed calculation has been given in the group report.

Parameters By Sea By Air

Inventory holding cost (in thousand dollar) 4984.5 545.6

Freight cost (in thousand dollar) 2487.4 1364.0

Difference (in thousand dollar) 2497.1 -818.4

Cost Benefit by choosing Air (in thousand dollar) 1678.7

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II. CASE ANSWERS

• We suggest considering Air transport in their inventory model with better forecasting of
stock.

By sea By Air

Inventory Inventory
Average holding holding
Europe Safety Max.orderable Safety Max.orderable Average Total
Total Cost(In Cost(In
Options Stock quantity Stock quantity inventory
inventory Thousand Thousand
Dollar) Dollar)

A 78 137 147 15 45 65 78 8
AA 493 1075 1030 103 284 478 524 52
AB 13593 35511 31348 3135 7848 15154 15425 1542
AQ 2824 6010 5829 583 1630 2692 2977 298
AU 5328 11154 10905 1090 3076 5018 5585 559
AY 249 674 586 59 144 285 287 29

Total
22564 54561 49845 4984 13028 23693 24874 2487
Demand

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II. CASE ANSWERS

 Question 2: Compare your results in question 1 to the current policy of carrying one
month’s average inventory at the DC.
 In the current policy, safety stock is a month’s worth of inventory as per the question.
Hence based on this the cyclical inventory will be half of month’s inventory. Now, since
lead time by sea is 5 weeks. So, pipeline time should be weekly data*5.
1. Reordering point (ROP) = 4* (weekly average demand)
2. Carrying cost per unit (Cc) = 0.25*400=100 dollar
3. Carrying cost (CC) = ROP* Cc

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II. CASE ANSWERS

Current process New process in part 1

Europe Options Safety Cyclic Pipeline Total Safety Pipeline Total
Cyclic
Stock Inventory Inventory Stock Stock Inventory Stock
A 42 21.15 49 112 78 5 49 132
AA 420 210.1 485 1115 493 48 485 1026
AB 15830 7915.05 18266 42011 13593 1827 18266 33685
AQ 2301 1150,6 2655 6107 2824 266 2655 5745
AU 4208 2104 4855 11167 5328 486 4855 10669
AY 307 153,4 354 814 249 35 354 639
Total Demand 23109 11554 26664 61327 22564 2666 26664 51895
Total inventory holding cost(In
6133 5189
thousand dollar)

 Based on this our cost saving will be approx. 943 thousand dollar but cost in question 1
model will be higher if we will consider review period as 4 weeks than EOP model
developed in this question.

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II. CASE ANSWERS

 Question 3: Evaluate the idea of supplying generic printers to the Europe DC and integrating
the product by packaging the power supply and the instruction manual at the DC just prior to
delivery to the European resellers. Focus on the impact on DC inventory investment in this
analysis.

• Having generic printers has its benefits for the management at the DC. To make the packaging
process smoother and less disruptive, the generic power cable and manual would be added to the step
in which the extra parts such as keyboard, mouse cables etc., are added to the finished printer.

Þ It would reduce costs and be more efficient by not having to differentiate this step for each
country/language of each computer design.

• Having the manuals and power cords be added at the European DC would be very redundant as the
manuals would have to be shipped there (assuming they are made in Vancouver) almost parallel with
the printers already being sent.

Þ It would be best to add them in Vancouver with the more countries or order specifics added at the
European DC.

=> Vertical integration process also can help the Company to increase quality of the products by
investing more capital on its specialized assets.

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II. CASE ANSWERS

 Question 4: What is your recommendation to HP?

• HP should use the “DC localization” strategy. Its current strategy is “factory strategy”, as
the manufacturing site in Vancouver takes charge of assembling customized products.
• Localization of DCs could not only cut costs of shipping, assembling and testing but also
save time for the manufacturing site.
• Most importantly, DC localization allows HP to focus on the local needs of each DC and
tap local talents to develop its products.
• In addition, HP should choose a faster shipping method than ocean, such as air to reduce
lead time.

=> In that way, HP’s operation efficiency would be highly increased.

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THANK
YOU !

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