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Copy of HP Case Study
Transcript of Copy of HP Case Study
Supply Europe 220V USA 110V "accurate forecasting"
- marketing manager "benefit late PCL avoiding transshipping"
- product development manager "sort out
inventory imbalance at DCs"
- distribution manager "solve transshipping
- manufacturing "consider cost of stockouts,
inventory holding costs"
- finance manager - Code named 'Rainbow'
- Next generation printer
- High-end printer with special configuration options
- High customization variety
- 3 years short product cycle
- Rapidly changing markets
- High demand uncertainty The Rainbow Project $30 per unit circuits boards Universal
Supply Europe 220V USA 110V $30 per unit core engine base printer "benefit late PCL avoiding transshipping"
- product development manager "sort out
- distribution manager US 110V Europe 220V 14 weeks in advance
Inventory Forecast Europe 220V customization localization Finalizing Distribution Centers (DCs) finished goods Postponement Strategy Demand Uncertainty - Delay the point of differentiation as much as possible by Keeping products as “standard” as possible until absolutely necessary "Should HP introduce Universal Power Supply?" Postponement Strategy For HP Should HP have postponement strategy? point to decide on
specification of engines Produce engines based on aggregate demand delayed differentiation Process Process How to respond to demand uncertainty for
- customization/localization options
- 14 weeks advance engine specification
- long lead-time from Japan
- in the pace of short product life cycle - Enables the use of aggregate demand rather than detailed one European 110V North American 220V 14 weeks in advance? Inventory Imbalance Customer service target 98%! "Excess inventory" AND "Stockouts" Stock imbalance between
Europe / US DCs Forecast Error 80% Inventory holding cost AND Cost of Stockouts Before After Previous Supply Chain Model After Push System : The basic components of the printers are manufactured based on the forecasted aggregate demand. Pull System : When orders from customers are received, HP will then "build to order" and localize and assemble the printers at the distribution centers. Improved Supply Chain Model The Trade-offs The Hewlett-Packard Company 1990 revenues $13.2 B and profit $739 M
Peripherals is the second largest group among six product groups following PC division in 90s.
* Peripherals: Printers, Plotters, Magnetic disc and tape drivers, Terminals and Network products dedicated power supply and fuser required(!) power cords, manuals, disks memory, stapling, firmware, fax, scanners labeling, packaging * All customization options can be installed as accessories at local DCs.
* Beyond warehousing and distrubution,
final customization process takes place in DCs
* On receipt of a local customer's order
* DCs perform a light manufacturing function. When customer order arrives, VS. Major Issues Demand Uncertainty Inventory Imbalance Different interests
among departments Different Perspectives Universal
Supply Other Operational Improvements Our Recommendations Downstream Integration: Build a Strategic Partnership with Japanese Manufacturer Optimizing DCs: Reduce Inefficiency in Customization Process Upstream Integration: Include the key dealers, resellers, and Salesforces to increase market responsiveness Cost Impact Benefits Potential Benefits POSTPONEMENT Conflicting Objectives Marketing: every possible product option R&D: most functionality at lowest cost Manufacturing: Few products and stable volumes To maintain the cooperation between different HP departments could be very challenging Distribution: Efficiency in managing inventories Benefits outweigh costs: UPS should be adopted Customer Responsiveness Cost Position $30 per unit material cost increase more accurate forecasting Inventory carrying cost may decrease
(less finished goods inventories, lower shipping costs) stockout costs may decreases
(faster response if customization is done near customer) Inventory holding costs may decrease
(lower level of inventory due to more accurate forecasting) Standardization (common components, modular construction)
may decrease admin costs (less complexity),
and increase efficiency of factory line Product/process redesign for standardization may increase system costs Additional costs of transshipping may decrease $30 of material cost increase per unit! Cost Impact of Postponement Potential Benefits of Postponement Lower risk of unsold items Faster response to customers Increased order fulfillment Easier upgrades, service at customers location High Modularity + High Demand Uncertainty = Pull System?
High Modularity + Less high Demand Uncertainty = Push System? risk-pooling Customized Printer Printer engine Universal
Supply Europe 220V USA 110V $30 per unit Before