Hewlett-Packard Company Deskjet Case

Supply Chain Case Study

Case Study Report

Prepared By:

Vineeth Jojo,

Submitted To: Scott Hadley

Submission Date: 13/02/2013

Hewlett-Packard Company DeskJet Printer Supply

The role of the responder: Brent Cartier (Manager for Special Projects in Material Dept.)

Introduction

Hewlett-Packard Company founded by William Hewlett and David Packard in 1939 grew steadily diversifying its base from electronic test and measurement equipment into computers and peripheral products. HP is organized partially by product group and partially by functions. The DeskJet printer introduced in 1988 became HP's most successful product whose sales grew steadily reaching a level of 600,000 units by 1990. The printers HP introduced have been a huge success as it produce high quality prints and have mediocre price which attracts the customers. The manufacturing plant in Vancouver follows JIT (just-in-time) production so as to maintain low inventory level at the manufacturing plant. The distribution center's follow make-to-stock based on the forecasted sales and safety stock.

The increased concerns from the distribution centers regarding the inventory-service crisis are forcing the management to come up with a solution. The report identifies the key issues causing the current concerns among the distribution centers and also contains some short term and long terms recommendations that needs to be implemented for better future.

Key Issues

1. Inventory and Service Crisis

* Due to the lack of a sound safety stock methodology the distribution centers end up with imbalance in their inventories (i.e. there is either shortage or surplus inventory for different variants)

* Metric - Number of backorders or surplus inventory per month. This metric can be used to check the inventory levels.

2. Conflict of interest among the various parties within the organisation

The various parties were not in sync and shared different approach in terms of inventory strategy.

 European concerns - The need to raise the inventory level as there have been a dip in product availability for some versions of product at European DC despite the shipment of loads of DeskJets to European warehouse. Also the warehouse space concerns that European DC was running out of space as it have to store Vancouver products.

 Production concern about proliferation of models and options, which was more of "just a materials issue".

3. No standard procedure or protocol was practised causing confusion at the DC's on whether to act as a warehouse or as an integration centre. Another major concern he had was what and how to present the ideas and get everyone to sign off on the same idea.

Some of the evaluation criteria's that can be used are:-

* The investment required to implement the changes.

* Methods to reduce distribution cost

* Methodology to reduce average inventory levels

Analysis:

Qualitative Analysis:-

History

 During 1979 the cycle time was 8-12 weeks and 3.5 months of inventory - Vancouver Division was doomed to fail with the current practise.

 HP had no high-volume processes and they produced low volume highly customised products using batch process.

 They implemented Kanban at Vancouver plant and reduced the cycle time drastically and as well as the inventory from 3.5 months to 0.9 months.

Supply Chain

 The localisation process was required to meet the language and power supply requirements of the local countries resulting in customisation of parts such as power supply module which reflected the correct voltage requirement and power cord terminator as well as the manual written in appropriate language. The design of the product was such that the power supply module has to be assembled as a part of the final assembly and test process. This action resulted in localisation of printer to be performed in the factory as well which is then sorted into 3 groups destined for the 3 DC's (North America, Europe and Asia- Pacific).Only inventories of raw material were maintained in the Vancouver plant and no buffer inventory was maintained between the PCAT and FAT stages. Total factory cycle time for PCAT and FAT stages is about one week. It took 1 day to ship printers to US and 4-5 weeks to ship to Europe and Asia as they were sent via sea transit.

 Due to the high pressure to maintain market share the DC's adopted make-to-stock approach to ensure high product availability to the dealers. Manufacturing of printer operated in a pull mode i.e. the production plan followed were just-in-time, in order to replenish the DC's to maintain target inventory levels. Safety stock was also maintained for the incoming materials in the factory.

 The supply chain was faced with 3 kinds of uncertainties such as:-

a) Delivery of incoming materials

b) Internal processes and

c) Variability in demand.

The first 2 resulted in delay of manufacturing and the third uncertainty lead to inventory buildup or backorders at the DC's. As a result European and Asian DC's had to maintain high safety stock as they shipment took 4-5 weeks to deliver.

Distribution Process

 The two major costs are outbound freight and salaries. DC's determine the percentage allocation of charge for each product line (no standard procedure involved here).

 DeskJet Printers fit well into the standard procedures at the warehouse but as the DC's also hold and process other HP products which dint fit well into the standard procedure and this resulted in disruption of material flow. This resulted in frustration among the DC managers as they have to support assembly work as well without adequate infrastructure. The DC's did not have