HP DeskJet Case:HP DeskJet Case: Background Background

High volume, high speed manufacturing in VancouverHigh volume, high speed manufacturing in Vancouver Many different models, all completed in VancouverMany different models, all completed in Vancouver Three distribution centersThree distribution centers

North AmericanNorth American AsianAsian EuropeanEuropean

Manufacturing time one weekManufacturing time one week Transportation lead times:Transportation lead times:

Europe: 4-5 weeksEurope: 4-5 weeks US US

At distribution centers, simple standardized processAt distribution centers, simple standardized process

HP DeskJet Case:HP DeskJet Case: Analysis Analysis

ProblemsProblems High inventory levelsHigh inventory levels Inventory imbalance in EuropeInventory imbalance in Europe

CausesCauses Uncertainty about correct inventory levelsUncertainty about correct inventory levels Many geographic options (localization)Many geographic options (localization) Long lead timesLong lead times Uncertain marketUncertain market Difficulty at getting divisions to work togetherDifficulty at getting divisions to work together

What are HP’s options?What are HP’s options?

HP DeskJet Case:HP DeskJet Case: Options Options

Short TermShort Term Rationalize safety stockRationalize safety stock

Long TermLong Term Air shipmentAir shipment European factoryEuropean factory More inventoryMore inventory Better forecastingBetter forecasting DC localizationDC localization

Safety Stock Rationalization:Safety Stock Rationalization:Example Europe ABExample Europe AB

Recall: Safety Stock = z Recall: Safety Stock = z STD * STD * LTLT

Mean Weekly Demand 3656 Monthly / 4.33Std. Dev 2703 Monthly/(4.33).5

Lead Time 5

Std. Dev of DemandPeriod

6044 2703*(5).5

Safety Factor 1.9 98% serviceSafety Stock 11483 1.9*6044

Evaluating AlternativesEvaluating Alternatives

Air Shipment -- ExpensiveAir Shipment -- Expensive European Factory -- Not sufficient volumeEuropean Factory -- Not sufficient volume Better Forecasting -- How?Better Forecasting -- How? More Inventory -- More problemsMore Inventory -- More problems DC Localization -- What will savings be?DC Localization -- What will savings be?

Evaluating DC LocalizationEvaluating DC Localization

In DC localization, risk pooling can be used to In DC localization, risk pooling can be used to reduce total inventory while maintaining service reduce total inventory while maintaining service levelslevels

To evaluate inventory, compare total safety To evaluate inventory, compare total safety stock held if individual localized units are held in stock held if individual localized units are held in inventory or if generic units are heldinventory or if generic units are held

Other costs must also be evaluatedOther costs must also be evaluated

Evaluating DC LocalizationEvaluating DC Localization

AVG STD SafetyStock

Weeksof SS

A 42 32 66 6.75

AA 420 204 416 4.25

AB 15830 5625 11,484 3.11

AQ 2301 1169 2395 4.48

AU 4208 2205 4517 4.62

AY 307 103 211 2.96

Total 23109 19089 3.55

Generic 23109 6244 12792 2.38

DC LocalizationDC Localization

Safety Stock ReductionSafety Stock Reduction Current 19,089 units (3.55 weeks)Current 19,089 units (3.55 weeks) With localization 12,792 units (2.4 weeks)With localization 12,792 units (2.4 weeks)

Other benefitsOther benefits Lower value of transit inventoryLower value of transit inventory Freight reductionsFreight reductions Local presence of “manufacturing”Local presence of “manufacturing” Customs implicationsCustoms implications Local procurement of localization materialsLocal procurement of localization materials

But there are costsBut there are costs Product redesignProduct redesign DC modificationsDC modifications

ImplementationImplementation

R&D SupportR&D Support ““The product is working, so why bother?”The product is working, so why bother?”

DC SupportDC Support ““Not our core competency”Not our core competency”

New packagingNew packaging Capital investmentCapital investment

ResultsResults

Successful implementationSuccessful implementation Millions savedMillions saved Service levels increasedService levels increased Packaging won awardsPackaging won awards Best practice spread to other HP divisionsBest practice spread to other HP divisions