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Hewlett-Packard :DeskJet Printer Supply Chain

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Ivan Zhang

on 2 March 2015

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Transcript of Hewlett-Packard :DeskJet Printer Supply Chain

AGENDA
Background: HP Company
Retail Printer Market
HP Supply Chain system
The DeskJet Supply Chain - Manufacture process
Zero inventory - Improvement during the early 1980s
Company Background
Operation Flow
Inventory crisis
Define uncertainties
Alternatives
Recommendation

In 1939, was founded, famous company of computers and peripherals products
Peripherals products: include printers, plotters, magnetic disc, tape drives, terminals & network products
In 1979, Vancouver Division was established (Vancouver, Washington), Materials department
In 1988, DeskJet printer was introduced
In 1990, had over 50 operations worldwide, revenue: $13.2B, net income $739M

Early 1980s, HP and Canon pioneered inkjet technology
Prior to 1989, Market Segment: impact/dot matrix(40%), inkjet(20%), & laser(40%)
After 1989, customers discovered inkjet print quality=laser print quality => sales increased
Inkjet printers became commodity products
In 1990, worldwide sales printer: 17M units, amounting to $10B

Just-in-time (JIT) - Kanban process
Manufacturing cycle time reduces
8-12 weeks to 1 week
Average inventory reduced
3.5 months to 0.9 month
Case Analysis
March 2, 2015
Presented by:

JK Zhou
Ivan Zhang
Nancy Dong
Vincent Yu
Bo Pang
Tao Zhang

Hewlett-Packard :DeskJet Printer Supply Chain
Supply Chain (1)
Stages in manufacturing process:

1.
Printed Circuit board Assembly and Test
(PCAT)

-ASICs (application-specific integrated circuits)
-ROM (read-only memory )

2.
Final assembly and test
(FAT)
Supply Chain (2)
Three distribution centers (shipped by ocean): North America, Europe, and Asia-Pacific
Factory cycle: PCAT → FAT (one week)

Distribution process
Distribution Process
Inventory/Service “crisis”
Step 1
Receive (complete) products from various suppliers and stock them
Step 2
Pick the various products needed to fill a customer order
Step 3
Shrink-wrap the complete order and label it
Step 4
Ship the order by appropriate carrier
Vancouver
US DC: San Jose, California
Europe and Asia
one day
4 - 5 weeks
Inventory Imbalance
--Some product options have excess inventory while others have shortages
What cause it
--Imbalance demand. ( multiple product options, localization products)
--High demand fluctuations in some countries. ( ie. Europe)
--Difficulty in forecasting
--Uncertainty on define the correct inventory level
long lead time
improper safety stock methodology

Facts & Assumptions
•Assuming that demand per period is normally distributed
•# weeks per month = 365 / 12 / 7 = 4.35 weeks/month
•Lead time = 1 + (4 + 5)/2 = 5.5 weeks
•Service level = 98% à Z-score = 2.05

Uncertainties
Define uncertainties
1. Delivery of incoming materials (late shipments, wrong parts, etc)

2. Internal process (process yields, machine downtimes)

3. Demand

Delay on manufacturing time


Variability: incoming materials, process yields, and downtimes at the plant

Problems: increase the lead time (L), shortage of inventory of DC (I)

Demand Uncertainties

Problems: inventory buildup or back order at DCs (I)

European and Asian DCs: maintain high level of safety stocks --> high availability to customers

Long lead-time (L): four to five weeks → Limited product version → High level of safety stocks → increase the inventory holding cost

Alternatives/ Implementation
Air shipment
Localization
New plant
Improve forecasting system

Definitions & Formulas
Questions?
Source: Hewlett-Packard Company DeskJet Printer Supply Chain (A)
•Safety Stock: Inventory maintained to insulate the process from unexpected supply disruptions or surges in demand
Safety Stock = Z * SQRT(LT) * SD(R)

•Lead Time: The time lag between the arrival of the replenishment and the time the order was placed

•Reorder Point: a reorder is automatically triggered whenever inventory position reaches a specific limit

ROP = L * R
Recommendations
Shipment Method
Localization
(Risk Pooling Analysis)
New plant
Advantages:
less transportation costs
less Lead and shipping times
Increase customer satisfaction
reduce costs of in-transit inventory and holding costs

Disadvantages:
Cost of building new plant
Cost for operating the new plant
More human capital cost

Improve forecasting system
Advantages:
reduce demand uncertainty
create a buffer against circumstances that could delay the arrival of raw materials

Disadvantage:
cost and time of calculating a forecasting system is inestimable
hard to implementing new system
effects of a new forecasting system are uncertain

•No product variations at Vancouver manufacturing site

•Aggregate Demand = sum(periodic demand)
•Aggregate SD = SQRT(sum(periodic SD^2))

Shipment Method
•Benefit?
–Absolutely yes!
–The inventory level improved by using air freight (21523 units to 9177.5 units)

•Cost?
–Not sure.
–Total holding cost decreased
–Total shipping cost unknown but should be higher if using air
–Which of these overrides the other? Ambiguous due to insufficient data
Localization
(Risk Pooling Analysis)
•Benefit?
–The inventory level improved slightly (21523 units to 14193.7 units)


•Cost?
–Holding cost decreased & Shipping cost probably unchanged
–Inefficient performance within Europe DC
•Causing extra process, human capital, and time
Long Term
New Plant
:
Install a new plant somewhere between Europe and Asia
Location: transportation/shipping cost
Building cost --> fixed cost
Improving forecasting system
:
More accurate forecasting system
Respective forecasting system for different DCs
Short Term
Air shipment:
Decrease the safety stocks and saving the holding costs
Only used to meet urgent demand
Limited amount, high costs
Full transcript