Hewlett-Packard: DeskJet Printer Supply Chain

Coordinated Product and Supply Chain Design

BACKGROUND

HP was founded in 1939William Hawlett and David PackardIn 1990, 50 operations, Revenues of $13.2

billion and Net income of $739 millionSix Products GroupsThe Peripheral Group was the 2nd largest

◦Printers, Plotters, Magnetic Disks, Terminals

PRINTER MARKETIn 1990, 17 million units of workgroup and

personal printers, $10 billion40% impact/dot matrix40% laser20% inkjetBy 1990, customers became aware of inkjet

printers (cheap and high quality)HP and Canon pionereed ink-jet technology

The DeskJet PrinterIntroduced in 1988In 1990, sold 600,000 units, $400 millionMission statment:

To become the recognized world leader in low cost premium quality printers for offices and homes

Main division is located VancouverConsolidating four divisions

Colorado, Idaho, California, Oregon

Manufacturing PrinterIn 1979, Manufacturing Cycle is 8 to 12 weeks3.5 months of inventoryIn 1981, Just-in-Time strategy had been

introducedReduced inventory from 3.5 months to 0.9 months

However, this strategy and production system were not used efficiently.Bob Foucoult: “We were all dressed up but no one to

take us to the dance””

Manufacturing PrinterIn 1988, this innovetive product line was used

effectively, with new model “DeskJet printer”With this new model, nearly-letter-quality

resolution is obtained and standard paper was used.

HP has already had knowledge and implementation for the ink-jet technology and also streamlined manufacturing process

All these capabilities gave the HP chance become the market leader in the ink-jet printer market.

The DeskJet Supply ChainSupplier, manufacturing facility, distribution

centers, dealers, and customersManufacturing is done by HP, in Vancouver

◦ Two stages of manufacturing Printed circuit board assembly and test (PCAT) Final assembly and test (FAT)

Three Distribution Centers◦ US, Europe, Far East (shipping to Europe and Far East by

ocean)Localization

◦ For Europe and Far East, printer has to be customized (language and power supply req.)

The DeskJet Supply ChainFactory Cycle Time

◦ Through PCAT and FAT, about a weekTransportation

◦ From Vancouver to US DC, about a day◦ From Vancouver to Far East DC and Europe DC, 4-5

weeksJust-in-Time strategy

◦ Make-to-Stock◦ Target inventory level=Forecasted Sales+Safe Stock

The DeskJet Supply ChainThree major sources of uncertainty affecting

supply chain◦ Delivery of incoming materials (late shipment, wrong

part)◦ Internal process (Equipment Efficiency, Machine

Downtimes)◦ Demand

Delivery of incoming materials and internal process have an impact on manufacturing lead time

Demand has an impact on inventory

The DeskJet Supply ChainThe Distribution Process

◦ Perfomance Measures: Inventory Level and Distribution Cost per gross shipment dollar Major Costs: Outbound Frieght and Salaries

◦ Distribution Center’s Process Receive final products from supplier and store them Retrieve products which is needed to satisfy the orders of

customer Arrange and pack the order, make it ready to be sent to

customer Ship the order with proper transportation vehicle

◦ The Main issue is if the DC is operated as warehousing or integration

Problems and Issues Determine the right level of inventory (best safety stock

amount) and provide high level of service is a big challenge Find the best way to satisfy customer while minimizing

inventory Reduce the uncertainty caused by delivery of incoming

materials, impoving manufacturing and equipment efficiency, reduce downtimes

Improve the forecast accuracy

Problems and IssuesForecast errors, especially in Europe

◦ Product shortages and piled up inventory◦ Safety Stock Rules fail a lot, not meet the target

inventory◦ Inconsistent inventory level causes unsatisfied customer

and loss of sales◦ Various demands from the three regions (US, Europe and

Far East) and analyze/consolide/interprate demands and customer behaviour

Problems and IssuesTransportation

◦ It takes long time to ship products from US to Europe and Far East

◦ If there is a shortage in Europe and Far East, it is hard to fix it

◦ Reduce transportation lead time in order to diminish long replenishment lead time

Inventory◦ Increase or utilize the current capacity◦ Similar to establishing new inventory, analyze whether a

plant is set up in Europe or not

SolutionsMake the forecast more accurate

◦ Collecting related data month by month for every single product, and also examine aggregate demand To be prapared to manufacture customized power supply and

manual◦ Anaylze HP and competitor’s sales of previous years

Define an average sale of each month, calculate standard deviation, be aware of trends

◦ Similarly, data loss of sales, stock outs, and backorders have to be examined

◦ This research has to be done especially for Europe Market and European customer behavior Customer surveys and analyze expectation/satisfaction

SolutionsMaking the forecast more accurate provides

some benefits◦ More accurate forecast provides more reliably safety

stock level and reduce amount of unnecessary products stocked in inventory

◦ Reduce the replenishment lead time Reduce unsold products, it is crucial because product’s

technologic clock speed is high Reduce inventory holding cost and cost of unsold products

◦ Avoid stockouts, unsatisfied demand, loss of customer

SolutionsIncrease the capacity of inventory

◦ Analyze the cost of lost sales◦ European DC runs out of space to store as DC tells and

complains ◦ If investing on a new inventory diminishes the lost sales

and it is more profitable◦ Revise safety stock rules, so the target inventory levels

that is sum of safety stock and forecast

SolutionsEstablishing a new facility

◦ Since the transportation lead time is long, in order to satisfy customer’s demand, setting up a plant might be a solution, similar to set up a new inventory

◦ Since the forecast is not good in Europe, to decide whether factory is opened or not, European sales and market have to be examined precisely and volume of production should be worth it

◦ It is possible to revise the DC that is operated to complete the integration of printers, not to manufacture a printer from a rough

SolutionsTransportion

◦ It is very long time to transport products from US to Europe and Far East

◦ Vessels are chosen as transportation vehicle◦ Air transportation would shorten the lead time and make

the company ready to satisfy customer