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    HP Case Study Group 6 Report

    Uploaded by

    Ankur Bhartiya
    1. HP currently manufactures its DeskJet printers in a single facility in Vancouver and ships finished goods via sea freight to distribution centers in North America, Europe, and Asia Pacific, which leads to high inventory levels and costs. 2. Four options are evaluated: maintaining status quo, setting up a FAT facility in Europe, setting up a FAT facility and air freight partially finished goods to Europe, or air freighting all finished goods. 3. Setting up a FAT facility in Europe and air freighting partially finished goods (Option C) is recommended as it leads to the lowest average inventory levels and costs of $44.18 million annually.

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    HP Case Study Group 6 Report

    Uploaded by

    Ankur Bhartiya
    101 views7 pages
    1. HP currently manufactures its DeskJet printers in a single facility in Vancouver and ships finished goods via sea freight to distribution centers in North America, Europe, and Asia Pacific, which leads to high inventory levels and costs. 2. Four options are evaluated: maintaining status quo, setting up a FAT facility in Europe, setting up a FAT facility and air freight partially finished goods to Europe, or air freighting all finished goods. 3. Setting up a FAT facility in Europe and air freighting partially finished goods (Option C) is recommended as it leads to the lowest average inventory levels and costs of $44.18 million annually.

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    1. HP currently manufactures its DeskJet printers in a single facility in Vancouver and ships finished goods via sea freight to distribution centers in North America, Europe, and Asia Pacific, which leads to high inventory levels and costs. 2. Four options are evaluated: maintaining status quo, setting up a FAT facility in Europe, setting up a FAT facility and air freight partially finished goods to Europe, or air freighting all finished goods. 3. Setting up a FAT facility in Europe and air freighting partially finished goods (Option C) is recommended as it leads to the lowest average inventory levels and costs of $44.18 million annually.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    101 views7 pages

    HP Case Study Group 6 Report

    Uploaded by

    Ankur Bhartiya
    1. HP currently manufactures its DeskJet printers in a single facility in Vancouver and ships finished goods via sea freight to distribution centers in North America, Europe, and Asia Pacific, which leads to high inventory levels and costs. 2. Four options are evaluated: maintaining status quo, setting up a FAT facility in Europe, setting up a FAT facility and air freight partially finished goods to Europe, or air freighting all finished goods. 3. Setting up a FAT facility in Europe and air freighting partially finished goods (Option C) is recommended as it leads to the lowest average inventory levels and costs of $44.18 million annually.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 7

    HP DeskJet Printer Supply Chain

    A Case Analysis
    Alimpan Barua- 1211086 Himen Doley- 1211099 Manish Kumar- 1211112 Pratik Jaipuriar- 1211125 Rony K Roy- 1211138 Tanveer Mohd Ansari- 1211151

    Situational Analysis
    Market and Product:
    Hewlett Packard Company was founded in 1939 by William Hewlett and David Packard with headquarters in Palo Alto, California. It grew steadily in the next 50 years diversifying into computers and peripherals manufacturing. By 1990 HP had over 50 operations worldwide, with revenues of $13.2 billion and net income of $739 million. Its most successful product, the Deskjet printer was introduced in 1988. North America, Europe and Asia-Pacific formed the three broad markets for this product. The retail printer market was composed of three technology segments: Impact/dot matrix (40%), inkjet (20%) and laser (40%). HP pioneered the inkjet market, which was comparatively newer but much better. Customers, using this technology could enjoy laser printer benefits but at a much affordable price. HP led the market in the US, while its main competitor, Canon led the market in Japan. But with Inkjet printers slowly becoming commodity products, product loyalty continued to decrease. Consumers increasingly used general business criteria such as cost, quality and availability to decide to choose between two inkjet printers of same qualities like speed and quality.

    Distribution:
    Manufacturing was based out of a single unit located in Vancouver (Canada). Production unit maintained adequate safety stocks for raw materials. Stocks produced at the Vancouver unit were shipped to three distribution centers one in each region i.e. North America, Europe and Asia Pacific. The distribution to North America took 1 day while that to Europe and Asia Pacific took about 4-5 weeks. This created a problem because on one hand the Distribution Centers needed to take care of the market demand and thus needed availability of the products while on the other hand, long time of order arrivals made them very slow in response to the market fluctuations. So the production unit did not carry inventory and functioned on made to order scheme to replenish stocks at Distribution centers. Supply variability was minimal due to Kanban (on which the production concept was based) and safety stocks.

    Process:
    The manufacturing stage consisted of 1. PCAT (Printed Circuit Assembly and Test): assembling and testing electronic components to make logic boards

    2. FAT (Final Assembly and Test): assembly of peripherals likes motors, cables etc. and the printed circuit assemblies

    Process flow diagram for DeskJet production is presented below:

    PCAT
    Inputs
    IC Mfg

    FAT
    Finished goods
    Print Mech Mfg

    Final assembly and testing brings in localization and differentiates products sold in different regions.

    Distribution Centers and Dealers:


    Distribution centers and dealers are region specific. Since the printer industry was highly

    competitive, service levels were highly critical. The distribution centers had to keep inventory in the form of finished goods, while keeping a safety stock to cover for demand variation. This resulted in excess supply in many centers while insufficient supply availability was the problem in others.

    Problem Statement
    To reach a consensus on how to get agreement among production, materials and distributions over the forecasting policy and to find the best way to satisfy customer needs in terms of availability while minimizing inventory.

    Objectives
    1. To lower inventory levels and distribution costs in the European region. 2. To remain competitive by maintaining serviceability levels.

    Criteria for evaluation


    1. Lowest Average inventory levels keeping in mind the availability 2. Distribution costs reduction 3. Consideration of initial investment required to setup facility in Europe

    Generation of options
    Based on the situational analysis, following options have been considered for evaluation.
    1. Option A : As it is : No change in current situation 2. Option B: Setup a facility in Europe to perform FAT only 3. Option C: Setup facility in Europe to perform FAT as well as transport finished goods via air 4. Sending finished goods via air altogether

    We did not consider the option of setting up an entirely new factory in Europe for all operations since we found it to be out of scope of our study.

    Assumptions
    The following assumptions have been made to evaluate the mentioned options: 1. Cost Estimates: a. Product cost: $400/.6= $666.6( Sales is worth $400 million and the volume is 600000 units) b. Sea freight cost: $8 c. Air freight cost: $40 2. The freight costs are same for finished and partially finished goods. 3. Vancouver unit has capacity to meet demand in the long term

    Evaluation of options
    Inventory Calculation using Sea Freight and Air Freight
    Sea Freight A AB AU AA AQ AY Total Production Mean Monthly Demand Std. Dev. Review time(wks) Lead time (wks) Safety factor(SL - 98%) 42.33 32.41 0.50 1.25 2.05 15,830.08 5,624.58 0.50 1.25 2.05 4,208.00 2,204.58 0.50 1.25 2.05 420.17 203.93 0.50 1.25 2.05 2,301.17 1,168.49 0.50 1.25 2.05 306.83 103.12 0.50 1.25 2.05 23,108.58 23,108.58 6,243.96 0.50 1.25 2.05 (L+R) Safety stock Avg. Inventory 42.88 88.06 98.64 7,440.62 15,281.16 19,238.68 2,916.39 5,989.53 7,041.53 269.77 554.04 659.08 1,545.77 3,174.63 3,749.92 136.42 280.17 356.88 31,144.74 8,259.98 16,963.93 22,741.08

    Air Freight A AB AU AA AQ AY Total Production Mean Monthly Demand Std. Dev. Review time(wks) Lead time (wks) Safety factor(SL - 98%) 42.33 32.41 0.25 0.20 2.05 15,830.08 5,624.58 0.25 0.20 2.05 4,208.00 2,204.58 0.25 0.20 2.05 420.17 203.93 0.25 0.20 2.05 2,301.17 1,168.49 0.25 0.20 2.05 306.83 103.12 0.25 0.20 2.05 23,108.58 23,108.58 6,243.96 0.25 0.20 2.05 (L+R) Safety stock Avg. Inventory 21.74 44.66 49.95 3,773.08 7,748.96 9,727.72 1,478.88 3,037.25 3,563.25 136.80 280.95 333.47 783.85 1,609.83 1,897.48 69.18 142.07 180.43 15,752.29 4,188.58 8,602.28 11,490.86

    a.

    Option A: As it Is : no change

    Following are the costs if HP makes no changes Description Average Demand Freight cost per unit Total Freight Cost Average Inventory Min Inventory Cost per unit Max Inventory Cost per unit Min Inventory Holding Cost Max Inventory Holding Cost Minimum Total cost Maximum Total cost Option A 23108.6 8 184868 31145 80 400 2491600 12458000 2676468 12642868

    b. Option B - Setting up a factory in Europe that would perform the Final Assembly and Test (FAT) only

    Description Average Demand Freight cost per unit Total Freight Cost Average Inventory Min Inventory Cost per unit Max Inventory Cost per unit Min Inventory Holding Cost Max Inventory Holding Cost Minimum Total cost Total cost max

    Option B 23108.6 8 184868 22741 80 400 1819280 9096400 2004148 9281268

    c.

    Option C - Air Transporting partially finished goods and setting up a factory to perform FAT operations there

    Description Average Demand Freight cost per unit Total Freight Cost Average Inventory Min Inventory Cost per unit Max Inventory Cost per unit Min Inventory Holding Cost Max Inventory Holding Cost Minimum Total cost Maximum Total cost

    Option C 23108.6 40 924344 11490 80 400 919200 4596000 1843544 5520344

    d. Option D - Air freighting finished products to Europe

    Here we assume freight cost per unit to be $40 Description Average Demand Freight cost per unit Total Freight Cost Average Inventory Min Inventory Cost per unit Max Inventory Cost per unit Min Inventory Holding Cost Max Inventory Holding Cost Minimum Total cost Maximum Total cost Option D 23108.6 40 924344 15752 80 400 1260160 6300800 2184504 7225144

    Summary of Options
    Option A B C D Inventory 31145 22741 11490 15752 Annual Inventory Cost 91.92 mn 67.71 mn 44.18 mn 56.46 mn

    Recommendation
    Since the inventory levels and hence the inventory storage cost is minimum in Option C, it is the most suitable alternative. Hence, HP should transport partially FG to and set up a factory in Europe to perform the FAT operations.

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