HP Case Study Group 6 Report

7/27/2019 HP Case Study Group 6 Report

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HP DeskJet Printer Supply

Chain A Case Analysis

Alimpan Barua- 1211086Himen Doley- 1211099Manish 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:

Inputs Finished goods

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.

PCAT FAT

IC Mfg Print Mech Mfg



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

a. Option A: As it Is : no change

Following are the costs if HP makes no changes

Description Option A

Average Demand 23108.6

Freight cost per unit 8

Total Freight Cost 184868

Average Inventory 31145

Min Inventory Cost per unit 80

Max Inventory Cost per unit 400

Min Inventory Holding Cost 2491600

Max Inventory Holding Cost 12458000

Minimum Total cost 2676468

Maximum Total cost 12642868

Sea Freight

Mean Monthly Demand Std. Dev. Review time(wks) Lead time (wks) Safety factor(SL - 98%) σ (L+R) Safety stock Avg. Inventory

A 42.33 32.41 0.50 1.25 2.05 42.88 88.06 98.64

AB 15,830.08 5,624.58 0.50 1.25 2.05 7,440.62 15,281.16 19,238.68

AU 4,208.00 2,204.58 0.50 1.25 2.05 2,916.39 5,989.53 7,041.53

AA 420.17 203.93 0.50 1.25 2.05 269.77 554.04 659.08

AQ 2,301.17 1,168.49 0.50 1.25 2.05 1,545.77 3,174.63 3,749.92

AY 306.83 103.12 0.50 1.25 2.05 136.42 280.17 356.88

Total 23,108.58 31,144.74

Production 23,108.58 6,243.96 0.50 1.25 2.05 8,259.98 16,963.93 22,741.08

Air Freight

Mean Monthly Demand Std. Dev. Review time(wks) Lead time (wks) Safety factor(SL - 98%) σ (L+R) Safety stock Avg. Inventory

A 42.33 32.41 0.25 0.20 2.05 21.74 44.66 49.95

AB 15,830.08 5,624.58 0.25 0.20 2.05 3,773.08 7,748.96 9,727.72

AU 4,208.00 2,204.58 0.25 0.20 2.05 1,478.88 3,037.25 3,563.25

AA 420.17 203.93 0.25 0.20 2.05 136.80 280.95 333.47

AQ 2,301.17 1,168.49 0.25 0.20 2.05 783.85 1,609.83 1,897.48

AY 306.83 103.12 0.25 0.20 2.05 69.18 142.07 180.43

Total 23,108.58 15,752.29

Production 23,108.58 6,243.96 0.25 0.20 2.05 4,188.58 8,602.28 11,490.86



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

(FAT) only

Description Option B










Total cost max 9281268

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

operations there

Description Option C











d. Option D - Air freighting finished products to Europe



Here we assume freight cost per unit to be $40

Description Option D











Summary of Options

Option Inventory Annual

Inventory Cost

A 31145 91.92 mn

B 22741 67.71 mn

C 11490 44.18 mn

D 15752 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.

HP Case Study Group 6 Report

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