The North West Company Case Analysis

Strengths

Weaknesses

• HP is leader in innovation, spends 10% of revenue on R&D
• 57% market share in laser printer market
• Strong product development process → cross functional teams

• Ability to eliminate problems early in the design cycle
• Financial and time to market costs of changing the product design was low

• Customization of the product was carried out at DC’s (paper inputs, cabinet stands, fax modems, paper output units, stapler upgrade package, memory and print server linkage)

• Order fulfillment
• Heated debates over design decisions
• 4.5 month lead time for products main engine from Japanese partner
• Difficult forecasting due to configurable options
• 1 month transportation lead time from partner’s facility to HP’s DC (by boat)
• Inability to accurately forecast the mix of demands in geographical regions

Opportunities

Threats

• improve order fulfillment
• increase customer satisfaction
• reduce expenses
• increase competitiveness

• Increase competition → increase chance of losing customers
• Shrinking product life cycle (less than 3 years)
• Competition and changing technical innovations drastically change demand for a product

Department

Perspective

Score

Marketing

• “fantastic idea” if it does not add cost to product
• Customers will not pay for features they don’t need
• Increased competition is making a lot of firms compete on price
• Very long lead time from Japan (4.5 months)
• Product life cycle is 18 months

0

Product Development

• Every dollar increase is a decrease of a dollar in our profit
• No way to reliably predict how much value the benefits of universal power supply truly represent
• If we can forecast better this universal power supply would be useless
• Put the $30/unit into improving forecasting process
• Benefits can be seen later in the product life cycle due to the high costs of reconfiguring the power supply and transportations

-1

Finance

• If the $30 cost increase cannot be passed onto the customer or retailer it will come out of our bottom line
• Must consider the costs of stock-out and inventory
• Each loss of sale = reduced profit margin multiple times
• High cost for stock-outs during the initial phase of the product life cycle
• Low cost for stock-outs during end of product life cycle
• 80 to 90% deviation in forecast error in the ramp-up stage
• 40% deviation in forecast error in the mature and end-of-life stage
• Annual holding cost rate is approximately 30% (warehousing, insurance, cost of capital and shrinkage)

0

Manufacturing

• Great idea
• Improve flexibility to respond to orders
• Can delay the regional allocation decision by 2.5 months
• Keeping safety stock at the ramp up and mature stages is no problem, but very costly at the end-of-life stage
• Reconfiguration of the power supply is difficult.

• Costly & must be certified by the Underwriters Laboratory (safety)

• Universal power supply can make transshipment a possibility
• Can create a power play for allocation of product for different regions

+1

Distribution

• Transshipment won’t present a big problem through universal power supply
• Can chew up company profits due to the back and forth movement of product from one DC to another

0