CASE STUDY REPORT ON

HP DESKJET PRINTER SUPPLY CHAIN

Submitted to
Prof. Anshuman Tripathy
In partial fulfillment of Operations Management Course
By Group 13
Abhilash Mulakala
Shomrita Pal
Snehal Gajbhiye
Sreenath C P
Vidhi Bhardwaj
Y Visweswara Reddy

1311142
1311201
1311202
1311203
1311207
1311208

INTRODUCTION
Founded in 1939 by William Hewlett and David Packard, Hewlett-Packard Company has been
diversifying from its base in electronic test and measurement equipment into computers and
peripheral products which now dominates its sales. Sales of the dot matrix printers started
dwindling post the advent of ink-jet printers, and was expected to contribute only 10% of the
market share in the next few years.
With the growing demand for ink-jet, criteria for selection boiled down to costs, quality,
reliability and availability. HP was the market leader in ink-jet printers. HP changed strategies
over time and is currently employing stock-less production houses. The printers were produced
in Vancouver and were distributed to the Distribution Centres (DCs) located in North America,
Europe and Asia Pacific.
The manufacturing process involved two main processes Printed Circuit Assembly and Test
(PCAT) and Final Assembly and Test (FAT). FAT included localizing the end printers for specific
locations along with assembly of peripherals likes motors, cables etc and the printed circuit
assemblies. The total factory cycle time through PCAT and FAT was about a week. The
transportation time from Vancouver to the US DC located in San Jose, California was about a
day. In the case of international shipments to Europe and Asia, the transport took an additional
4-5 weeks due to ocean transit and time to clear customs and duties at port of entry.
Typical supply chain process involved the following stages as shown below:
1. The raw materials for the printed circuit boards were sourced from suppliers.
2. At the factory PCAT followed by FAT.
3. Finished printers shipped to the DCs across the three regions.

Procure Raw
Materials

PCAT

FAT

Ship

CONTEXT
Currently the inventory levels were determined by the safety stock, which in turn was an
estimate using thumb rule. Poor forecasting of demand led to excessive inventory for some
products while shortage for other products. Relatively long shipment time added to the woes at
the DCs. This demand imbalance was high in Europe, where in the demand for few models
were always not met while inventory of other models kept increasing.

Uncertainties in the process could be attributed to:

1) Poor forecasting of demand
2) Long duration of shipment (4-5 weeks)
3) Demand imbalance across different products
4) Conflict of interests across different functional groups
5) Delay in the manufacturing systems

ALTERNATIVES
Brent Cartier has the following alternatives to tackle the inventory problems
1. Status Quo : Current Assembly (PCAT +FAT) in Vancouver + Sea Freight to Europe
2. Current Assembly (PCAT +FAT) in Vancouver + Air Freight to Europe
3. PCAT in Vancouver + Sea Freight to Europe + FAT in Europe
4. Set up Vancouvers sister plant in Europe
A parallel initiative would be to direct resources towards the development of a more reliable
forecasting system. Demand for printers in Europe is extremely volatile, given the high standard
deviations in monthly demands. The benefits of a well designed forecast would help reduction
in safety stock, overall inventory and inventory holding costs.

EVALUATION OF ALTERNATIVES
Case facts common to all options

Factory Cycle time = 1 week

Transport time
o By Air 1 week @ USD 11 per unit
o By Ship 5 weeks @ USD 1 per unit
Unit cost is USD 528 ( 80% of USD 660 ) for each type of configuration
Inventory costs 50% of unit cost

ANALYSIS
Option Assembly (PCAT + FAT) in Vancouver + Sea Fright to Europe (Current
scenario)
Process Flowchart

LT (Months)
OI (Months)
Z (98%)
Unit Cost
Unit Inventory Holding costs (50%)

= 1.4
= 0.233
= 2.05
= 528
= 264

Supplier

IC Mfg
Sea Freight

Supplier

Print Mech Mfg

Supplier

FAT

PCAT

Europe
DC

Customer

Supplier

Mfg

Options

Average
Monthl
y
demand

Standard
Deviation of
Monthly
demand(SD)

42.3

32.4

Expected
Demand
during
Protection
Interval
69.090

AA

420.2

203.9

AB

15830.1

5624.6

SD*

Safety
stock
(ss)

Target
qty(S)

Average
Inventor
y
(AI)

41.41

85.0

154.13

89.98

686.327

260.59

535.2

1221.51

584.21

25855.830

7188.35

40618.8
9
6825.62

16609.91

12659.5
5
771.72

6277.41

Total
inventory
costs ($)

23,754
1,54,230

AQ

2301.2

1168.5

3758.627

1493.37

14763.
1
3067.0

AU

4208

2204.6

6873.067

2817.52

5786.5

AY

306.8

103.1

501.107

131.76

270.6

43,85,015
3335.47
8,80,564
16,57,237
306.40
80,890

Total

23108.6

6244

27203.38
71,81,691

Cost Summary:
Inventory Holding Cost
Monthly total demand
Cost per unit
Freight Cost
Total Cost

$ 71,81,691.47
$ 23,108.60
$ 1.00
$ 2,77,303.20
$ 74,58,994.67

We observe that in the current scenario, Average Inventory = 27203 & Total Inventory Cost in
the year = $7.1 million. Adding the freight cost for the year, we get yearly cost at $7.5 million.

Option Assembly (PCAT + FAT) in Vancouver + Air Fright to Europe

Process Flowchart

LT (Months)
OI (Months)
Z (98%)
Unit Cost
Unit Inventory Holding costs (50%)

Supplier

= 0.333
= 0.233
= 2.05
= 528
= 264

IC Mfg
Air Freight

Supplier

Supplier

FAT

PCAT

Print Mech Mfg

Europe
DC

Customer

Supplier

Mfg

Options

Average
Monthly
demand

Standard
Deviation of
Monthly
demand(SD)

Expected
Demand
during
Protectio
n Interval

SD*

A
AA
AB
AQ
AU
AY
Total

42.3
420.2
15830.1
2301.2
4208
306.8

32.4
203.9
5624.6
1168.5
2204.6
103.1

23.970
238.113
8970.390
1304.013
2384.533
173.853

24.39
153.49
4234.05
879.61
1659.56
77.61

23,109

6,244

Safety
stock
(ss)

50.1
315.2
8695.7
1806.5
3408.3
159.4

Target
qty(S)

Average
Inventor
y
(AI)

Total
inventory
costs ($)

74.06
553.34
17666.06
3110.52
5792.86
333.25

55.03
364.25
10542.51
2074.98
3899.26
195.19

14526.75705
96163.04541
2783222.755
547795.0797
1029404.163
51529.25013

17,131
-0.37

45,22,641
-37.03%

Cost Summary:
Inventory Holding Cost

45,22,641

Monthly total demand

Cost per unit
Freight Cost
Total Cost

23,109
11
30,50,335
75,72,976

As evident from the above mentioned table, the average inventory & inventory costs in air
freight option has reduced by 37% compared to the present arrangement. But, due to the
increase in Freight costs, the total cost has actually increased by a miniscule 1.5 %

Option PCAT in Vancouver + Sea Fright to Europe + FAT in Europe

Process Flowchart

LT (Months)
OI (Months)
Z (98%)
Unit Cost
Unit Inventory Holding costs (50%)

Supplier

IC Mfg

Sea Freight

Supplier

Supplier

= 1.4
= 0.233
= 2.05
= 528
= 264

Partial
FAT

PCAT

Print Mech Mfg

Europe
Plant

Europe DC

Customer

Supplier

Mfg

MEAN
23108.6

STD DEV
6244

Target

Safety Stock
54039.10

Average
Per Unit
Inventory Cost
Inventory
Cost
16372.09
19029.57596
528 $ 5,023,808.05

Cost Summary:
Inventory Cost
Freight Cost
TOTAL COST PER YEAR

$ 5,023,808.05
$ 277,303.20
$ 5,301,111.25

Here, for the PCAT shipping, we have assumed the same freight costs as final product shipping.
As the PCAT is same for all the six options, we have done an aggregate analysis of the overall
demand. This reduces the standard deviation of the average demand and hence reduces safety
stock and target inventory levels. There is a one-time expenditure to set up the distribution
centre for assembly. Since DeskJet assembly fits into a standard process, this is assumed to be
minimal. The total cost per year is USD 5.3 Million and the average inventory is 19029.

Option Setting up a sister plant in Europe

Supplier

IC Mfg
No Freight

Supplier

Supplier

PCAT

Print Mech Mfg

FAT

Europe
DC

Customer

Supplier

Mfg

Average
Monthly
demand
Options
A
AA
AB
AQ
AU
AY
Total

42.30
420.20
15830.1
2301.20
4208.00
306.80
23108.6

Standard
Deviation
of Monthly
demand(S
D)
32.40
203.90
5624.60
1168.50
2204.60
103.10
6244.00

Expected SD*sqrt(L Safety

Target
Average
Total
Demand
+R)
stock (ss) quantity( Inventory
inventory
during
S)
(AI)
costs ($)
Protection
Interval
19.74
22.13
45.46
65.20
50.39
13303.4
196.09
139.29
286.07
482.16
335.09
88463.9
7387.38 3842.33 7891.19 15278.6
9738.03 2570840.7
1073.89
798.24 1639.38 2713.27
1907.85
503673.1
1963.73 1506.03 3093.00 5056.74
3583.94
946159.6
143.17
70.43
144.65
287.82
180.44
47636.3
15795.75
4170077

Process Flowchart

LT (Months)
OI (Months)
Z (98%)
Unit Cost
Unit Inventory Holding costs (50%)

= 0.233
= 0.233
= 2.05
= 528
= 264

Cost Summary
Inventory Holding Cost
Monthly total demand
Freight Cost per unit
Freight Cost
Total Cost

4170076.803
23108.6
0
0
4170076.803

Setting up an equivalent of Vancouver in Europe would help mitigate demand supply problems in
Europe. We observe that average inventory held is at minimum of 15795, and the average
inventory cost is $4.1million. There are no freight costs and we assume that the sister plant is set
up close to the DC. However, we have insufficient data to estimate the setting up cost of the
plant and this is not included in our analysis but this is bound to be very significant. Also this
assumes that HP is able to procure its raw materials at the same cost in Europe as in Vancouver.

RECOMMENDATIONS
A summary of evaluations are as below
Average Inventory
Reduction %
Inventory Costs
Freight Costs
Total Costs
Reduction %

CURRENT (1)
27203
$ 7,181,691
$ 277,303
$ 7,458,994

(2)
17131
37.03%
$ 4,522,641
$ 3,050,335
$ 7,572,976
-1.53%

(3)
19030

30.04%
$ 5,023,808
$ 277,303
$ 5,301,111

28.93%

(4)
15796
41.93%
$ 4,170,077
$0
$ 4,170,077
44.09%

As we do not have much visibility towards the set up costs of the new sister plant and the
procurement of raw materials, we eliminate this option. Air freight option achieves maximum
inventory reduction but is expensive due to high freight costs. Partial assembly option achieves
a balance between inventory and total cost reduction. Hence its recommended to administer
the PCAT phase of the production in Vancouver and carry out final testing and assembly in
Europe.