Hewlett-Packard: Deskjet Printer Supply Chain

Hewlett-Packard
DeskJet Printer Supply Chain

Submitted by: Group 2 Pulkit Khanna Raghav Rohila Rashmi Vijeta
15/37 15/39 15/42 15/61
Introduction
In 1990s, Hewlett-Packard faced several problems with inventory levels for the DeskJet Printer product line Produced in Vancouvers facility and then shipped to a distribution
center
3 distribution centers (DC)

North America Asia Pacific and Europe
Experience in building only low-volume, highly customized products using batch process
Reduction in Inventory 3.5 months to 0.9 months

Drastic reduction in cycle time
DeskJet Printer
Introduced in 1988 , the manufacturing process consists of 2 key stages:

PCAT : Printed circuit board assembly and test FAT : Final assembly and test
Followed localization for language and power supply requirements of local countries Finished products consisted of printers for all different countries Sorting : 3 groups destined for distribution centers in North America, Europe and Asia Pacific
Deskjet Supply Chain
Cycle time for production and distribution

Factory Cycle Time
1 Week
US DC
4-5 Weeks Europe Asia
Distribution Process
High Volume Product Primary performance measures
LIFR (line item fill rate )= customer order line items filled on time/customer order line items attempted OFR (order fill rate) based on orders completed
Secondary performance measures
Inventory levels Distribution cost per gross shipment dollar
Four process steps in DC

Receive (complete) products from suppliers and stock them Pick the various products needed to fill customer order Shrink Wrap the complete order and label it
Ship the order by the appropriate courier
Issues
Satisfy customer requirements by holding minimum inventory Bring a consensus amongst various division about inventory levels Marketing wants 98% product availability Distribution wants minimum inventory Sources of uncertainties Delivery of incoming material Internal Processes Demand
The Postponement Strategy

Make generic items at Vancouver and postpone the remaining customization at the DC This will reduce the standard deviation of the system
Average inventory=(EOQ/2+z*Std Dev*sqrt(L))
EOQ is same as the current situation
Only difference is in safety stock which reduces the carrying cost
Optio n Nov Dec
Jan
Feb
Mar
Apr May June July Aug
Sep
Oct
Std. Avg. Dev.
80
60
90
21
48
20
54
84
42
42.3
32
AA
400
255
408
645
210
87
432
816
430
630
456
273 420.2
204
AB
20572 20895 19252 11052 19864 20316 13336 10578 6096 14496 23712 9792 15830 5625
AQ
4008 2196 4761 1953 1008 2358 1676
540 2310 2046 1797 2961 2301 1168
AU
4564 3207 7485 4908 5295
90
0 5004 4385 5103 4302 6153 4208 2205
AY
248
450
378
306
219
204
248
484
164
384
384
234 308.6
104
Postpone ment 29872 27003 32344 18954 26617 23103 15692 17431 13405 22713 30735 19455 23110 6244
Service Level Z L Avg. Inv. Level

Where std. dev.
= 98% = 2.05 = 1 month = (EOQ/2 + z*std. dev. * sqrt(L))

= 6244
Therefore, Safety Stock = 6224*2.05*sqrt(1) = 12799.863 Investment = SS * Inv. Carrying cost * Product cost = 12799.863* 0.25*250 = 799991.45
EOQ/2 is same in both the cases, hence ignored
Optio n Nov Dec
Jan
Feb
Mar
Apr May June July Aug
Sep
Oct
Std. Avg. Dev.
80
60
90
21
48
20
54
84
42
42.3
32
AA
400
255
408
645
210
87
432
816
430
630
456
273 420.2
204
AB
20572 20895 19252 11052 19864 20316 13336 10578 6096 14496 23712 9792 15830 5625
AQ
4008 2196 4761 1953 1008 2358 1676
540 2310 2046 1797 2961 2301 1168
AU
4564 3207 7485 4908 5295
90
0 5004 4385 5103 4302 6153 4208 2205
AY
248
450
378
306
219
204
248
484
164
384
384
234 308.6
104
Postpone ment 29872 27003 32344 18954 26617 23103 15692 17431 13405 22713 30735 19455 23110 6244
Current Scenario
Postponement strategy has an advantage of approx. $400,000 over the current strategy
Safety stock is increased at the expense of increasing inventory carrying cost

The standard deviation is the sum of the individual standard deviations of each product
Service Level Z L Avg. Inv. Level

Where std. dev.
= 98% = 2.05 = 1 month = (EOQ/2 + z*std. dev. * sqrt(L))

= Sum of individual standard deviations of each product = 9338
Therefore, Safety Stock = 9338*2.05*sqrt(1) = 19143.57 Investment = SS * Inv. Carrying cost * Product cost = 19143.57* 0.25*250 = 1196473
EOQ/2 is same in both the cases, hence ignored

Postponement Current Model
$ 799,991.45
$ 1,196,473
Difference/Saving
$ 396,481.55
DC Localization
PROS CONS Last mile customization involves uncertainty in product quality Economies of scale in the future
Better product availability at the DCs Mass customization & differentiation at the local level Better service to the customers
Reduced inventory holding & carrying cost Tackle the fluctuating demand & maintain optimum safety stock
Recommendations
Use Air Transportation for European DCs

Quicker reaction time to unexpected demand fluctuations Lower delivery lead times
New manufacturing facility in Europe

Responsiveness high & better service High initial investment Reduced product cost in long term
Apply Box-Jenkins method for better demand forecast
Use Auto regressive & moving average methods for better estimate of demand
Minor configuration assembling at DCs
THANK YOU!!

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Hewlett-Packard

DeskJet Printer Supply Chain

15/37 15/39 15/42 15/61

3 distribution centers (DC)

North America Asia Pacific and Europe

Reduction in Inventory 3.5 months to 0.9 months

Introduced in 1988 , the manufacturing process consists of 2 key stages:

Deskjet Supply Chain

Cycle time for production and distribution

High Volume Product Primary performance measures

Secondary performance measures

Inventory levels Distribution cost per gross shipment dollar

Four process steps in DC

Ship the order by the appropriate courier

The Postponement Strategy

Average inventory=(EOQ/2+z*Std Dev*sqrt(L))

EOQ is same as the current situation

Only difference is in safety stock which reduces the carrying cost

Optio n Nov Dec

Apr May June July Aug

Std. Avg. Dev.

4008 2196 4761 1953 1008 2358 1676

540 2310 2046 1797 2961 2301 1168

4564 3207 7485 4908 5295

0 5004 4385 5103 4302 6153 4208 2205

Service Level Z L Avg. Inv. Level

= 98% = 2.05 = 1 month = (EOQ/2 + z*std. dev. * sqrt(L))

EOQ/2 is same in both the cases, hence ignored

Optio n Nov Dec

Apr May June July Aug

Std. Avg. Dev.

4008 2196 4761 1953 1008 2358 1676

540 2310 2046 1797 2961 2301 1168

4564 3207 7485 4908 5295

0 5004 4385 5103 4302 6153 4208 2205

Safety stock is increased at the expense of increasing inventory carrying cost

Service Level Z L Avg. Inv. Level

= 98% = 2.05 = 1 month = (EOQ/2 + z*std. dev. * sqrt(L))

EOQ/2 is same in both the cases, hence ignored

Use Air Transportation for European DCs

New manufacturing facility in Europe

Apply Box-Jenkins method for better demand forecast

Minor configuration assembling at DCs

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Average inventory=(EOQ/2+zStd Devsqrt(L))

= 98% = 2.05 = 1 month = (EOQ/2 + zstd. dev. sqrt(L))

= 98% = 2.05 = 1 month = (EOQ/2 + zstd. dev. sqrt(L))