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3604 Case

HP faced an inventory and service crisis in the early 1990s regarding their DeskJet printer product line. Inventory levels were high at distribution centers in Europe and Asia, but customer service levels were unsatisfactory. The issues included fluctuating demand, long lead times of 4-5 weeks, diminishing brand loyalty, and high inventory carrying costs of 12-60%. HP's goal was to provide 98% product availability while keeping inventory levels minimum. An inventory expert developed a new safety stock system to better respond to demand uncertainties and replenishment lead times. Recommendations included promotion plans tied to inventory levels and a better communication system to reduce costs and improve information sharing across the supply chain.

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Nino Chen
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137 views

3604 Case

HP faced an inventory and service crisis in the early 1990s regarding their DeskJet printer product line. Inventory levels were high at distribution centers in Europe and Asia, but customer service levels were unsatisfactory. The issues included fluctuating demand, long lead times of 4-5 weeks, diminishing brand loyalty, and high inventory carrying costs of 12-60%. HP's goal was to provide 98% product availability while keeping inventory levels minimum. An inventory expert developed a new safety stock system to better respond to demand uncertainties and replenishment lead times. Recommendations included promotion plans tied to inventory levels and a better communication system to reduce costs and improve information sharing across the supply chain.

Uploaded by

Nino Chen
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Hp DeskJet Printer Supply Chain Case Study

Introduction Hewlett Packard (HP), a famous manufacturer of peripheral and computer. In the early 1990s, HP faced a Inventory/Service-Crisis concerning one of their high volume products, the DeskJet printer. Despite growing inventory levels at the distribution centers in Europe and Asia-Pacific, customer service levels were unsatisfactory. This paper is going to analysis the reasons of this crisis, followed by some suggestions for the performance improvement, which include the costs and benefits of the suggestions.

Problems The inventory carrying cost of the product line HP DeskJet Printer is very high and at the same time there are cases of stock-outs at the European and AsiaPacific Distribution Centers (DCs). The demand and inventory problem is rolling bigger and bigger. Cause Analysis (Issues): Fluctuating Demand High lead time and long shipment time (4-5 weeks)

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Commoditization of printers and hence diminishing brand loyalty Very high Inventory carrying cost(12%-60%) Stock outs Uncertainty Delivery of incoming materials Internal Processes Demand Fluctuation

Solution Objective: To provide 98% product availability at the DCs, however by keeping the inventory level at the minimum possible.

Current Solution Plan David Arkadia, the Materials Manager at the Vancouver Division, had solicited the help of a young inventory expert from Corporate HP, Dr.Billy Corrington to help him put in place a scientifically based safety stock system which would be responsive to demand uncertainties and replenishment lead times. Billy had formed a team to rehaul the safety stock management system. They were to recommend a method for calculating appropriate safety stock levels for the various models and options at the three DCs.

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Recommendations (about other solutions) 1. Promotion Plan for different inventory levels As a inventory management support tool, conduct different promotion plan for different inventory levels. For example, when the stock level of one model exceed some level, a short term promotion plan is designed and send to resellers, at the same time, gathering sales record for the future inventory system support. Benefits: Help to maintain inventory level; Improve sales revenue; Gather using useful data to estimate future demand and inventory level; Promotion of brand; Increase sales channels; Cost: No guarantee return; Cause inventory shortage; Effect on sales of other models; Further Inventory problem cause by the different future inventory level of different model; Data not accurate because of promotion. 2. Better Communication System A communication system which can provide strong support and communication function for each part of the supply chain. Such functions like

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tracking tools, past record and data diagram generators, real time communication tools, effective information delivery plan for production/sales and distribution. Benefit: Transportation and inventory costs can be reduced; Help to increase service level due to better information delivery; Better performance due to better communication between channel members; Easier application of forecasted plan (e.g. sales/ inventory).Improve efficiency; Prevent longer lead time caused by longer communication time. Costs: System Setup Cost; Time for testing and deployment; Extra cost for deployment environment; Risk of system failure; Cost of related system process and environment. (e.g. barcode scanning, tracking)

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