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Hewlett packard supplying the deskjet printer in europe case study solution

Sales have grown steadily, reaching a level of over 600,000 units in 1990. Unfortunately, inventory growth has tracked sales growth closely. Worse yet, the organization in Europe claims that inventory levels there need to be raised even further to maintain satisfactory product availability.

Product details

HP in Vancouver does manufacturing. There are two key stages in the manufacturing process: PCAT involves the assembly and testing of electronic components like integrated circuits, readonly memories, and raw printed circuit boards to make logic boards used in the printer. FAT involves the assembly of other subassemblies like motors, cables, keypads, plastic chassis, gears, and the printed circuit assemblies form PCAT to produce a working printer, as well as the final testing of the printer.

Currently, the final test is done with the actual power supply module included with the printer. For the European Market six different versions are currently produced.

  • There are four process stops;
  • It has become common to have product shortages for model demands from some countries, while inventory of other models keeps piling up;
  • There is considerable frustration within DC management regarding the support of assembly processes.

The transportation time from Vancouver to the European DC is three weeks. The long shipment time to Europe is due to ocean transit and the time to clear customs and duties at port of entry. The plant sends a weekly shipment of printers to the DC in Europe.

  • The transportation time from Vancouver to the European DC is three weeks;
  • To arrive at the decision on when to order and how much to order, company should determine the reordering point and EOQ;
  • Management is very interesting in studying the value of this approach as it could be applied to DeskJet printers;
  • Use the relevant information to answer the following questions pertaining to the Model AB;
  • What would the target inventory level T be?

The printer industry is highly competitive. Resellers want to carry as little inventory as possible. Consequently there has been increasing pressure for HP as a manufacturer to provide high levels of availability at the DC.

In response, management has decided to stock the DCs so that a high level of availability is maintained. The manufacturing group has been very successful in reducing the uncertainties caused by delivery to the European DC. Forecasting demand in Europe, though, is a significant problem. It has become common to have product shortages for model demands from some countries, while inventory of other models keeps piling up.

  • Shrink-wrap the complete order and label it;
  • Pick the various products needed to fill a customer order.

In the past, the target inventory levels at the DCs were based on safety stocks that were a result of some judgmental rule of thumb. Specifically, average inventory levels, equal to three-week average sales, were set for each model carried in the DC.

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Now, however, it seems that the increasing difficulty of getting accurate forecasts means the safety stock rules should be revisited. HP has put together a team of employees to help implement a scientifically based safety stock system that will be responsive to forecast errors and replenishment lead times.

They are to recommend a method for calculating appropriate safety stock levels for various DeskJet models carried in the European DC. The team has a good sample of demand data that can be used for developing the safety stock methodology see Exhibit 14. HP hopes this new methodology will solve the inventory and service problem.

One issue that continually comes up is the choice of inventory carrying cost to be used in safety stock analyses. Management has decided to use the 25 percent for this study.

Another issue is the choice of safety stock probability for the model. The company has decided to use a probability of 95 percent, a number that marketing feels is appropriate. There are four process stops: Receive complete products from various suppliers and stock them.

Pick the various products needed to fill a customer order. Shrink-wrap the complete order and label it. Ship the order via the appropriate carrier. The DeskJet printer fits well into the standard process.

Although this extra processing does not require much extra labor, it is difficult to accommodate in the standard process and disrupts the material flow. There is considerable frustration within DC management regarding the support of assembly processes. Top management, though, feels that integration of the product at the warehouse is extremely valuable because it allows generic products to be sent to the DC with final configuration of the product done just prior to shipment to the customer.

Rather than the factory making products specific to a country, generic products could be produced and shipped to Europe. Management is very interesting in studying the value of this approach as it could be applied to DeskJet printers. Ignore your answer in 1. Use the relevant information to answer the following questions pertaining to the Model AB.

Operations Management Case: HEWLETT-PACKARD (HP) Supplying the Deskjet Printer in Europe

What would the target inventory level T be? What is the average inventory carrying cost? What is the implied service level associated with this cost? Specifically, provide one advantage and one disadvantage associated with Q systems. To arrive at the decision on when to order and how much to order, company should determine the reordering point and EOQ. If D is annual demand, h is h. Browse hundreds of Operations Management tutors.