LEAN STARTUP MANAGEMENT

DIGITAL ASSIGNMENT 3 & REVIEW 2, MGT1022

FACULTY – SEEMA A.
SLOT- TE1
Group Members:
1. Lucky Singh Kachhawah (17BME0359)
2. Ayush Gurtu (17BEC0185)
3. Satin Jain (17BIT0113)
4. Simron Mohapatra (16BEC0661)
5. Kanav Bhatnagar (17BEI0056)
6. Sankalp Jain (17BIT0136)
 CASE STUDY ON SUPPLY CHAIN MANAGEMENT AT HP

Introduction:
In order to influence on existing supply chain investments, HP and many other industries, are
facing with the challenges of being able to align their supply chain strategies with the
effective use of technology. To this end, manufacturing firms are changing their focus from a
simple product-focus, to a more customer focused approach by achieving through the
development of more practical, longer term relationships with their customers. Many firms in
this industry sector have realised that the Internet is the most effective tool that can be used to
build up these relationships. This is achieved by adding values to the service a firm offers to
its customers. The result of this approach is to shift the supply chain management practices,
and a business to consumer link is added in the supply chain, typically at the distribution end
the business to consumer link facilitated via the integration of Internet technologies into the
supply chain. SCM is not a static concept or solution. Instead, new advancement and
techniques for supply chain management continues to mushroom. This incredible growth in
new ideas and processes is starting to influence and change the business processes and
models of companies.
Objective of the case study:
This case study explores and investigates how HP uses SCM to gain competitive advantage
and increase in business success. This study provides a theoretical framework to understand a
firm’s performance and argues that SCM will help HP to be competitive and successful. The
objective of this study is to explores and investigate how firm scope, design, and implement
supply chain management. It also tries to find the advancement and new ideas in SCM. Since
the majority of companies cannot strive on the basis of price alone, some sort of
differentiation is necessary. The Internet coupled with other computer technologies, allows
many companies new avenues to distinguish themselves from their competition. One of these
avenues is supply chain management, supply chain management allows HP to reduce its
costs, create opportunities to increase value for its customers and increase its competitive
ability in the market. Most importantly, this study endeavours to determine how HP
implemented supply chain management ERP Software that can provide competitive
advantage.
In fulfilling this objective, this study addresses the following research issues:
1. To see the effect of implementation of supply chain management technique on the
productivity of the company, across the period of time. [1]
2. To analyse the profit margin of the company before and after implementation of supply
chain management ERP package. [1]
3. To study the inventory of the company before and after implementation of supply chain
management. [1]
4. To make a study of the working capital management of the company before and after
implementation of supply chain management. [1]
5. To compare the reduction in the cost of production after implementation of Supply chain
management. [1]
6. To provide suggestions for the improvement of efficiency and functions of the company. [1]

Scope of the study:

The present study covers a period from 1999-2000 to 2008-2009 with adequate information
and data for this case study were only available for this period. The data is based on a single
company operating in different countries. This case study focuses on how HP implemented
SCM system, strategy and technology.

Hypothesis
In order to reach the objective of the study the following major hypothesis were formulated.
1) Implementing SAP has made a reduction on the working capital of the company. [1]
2) There has been a decrease in the volume and value of inventory of the company. [1]
3) There has been a decrease in cost of production of the company and increase in labour
productivity. [1]
4) There has been improvement in the customer order management and customer
satisfaction. [1]
5) Supply chains of this company contribute to competitive advantage and long-term profit
and health of the company. [1]

Methodology of the study

This case study employs the qualitative research process using multiple case studies. There
are several reasons for this:
1. Since the focus of this case study is on high technology companies operating in all over
countries. [1]
2. Supply chain management is a vast collection of techniques. Hence, selection of supply
chain factors and strategies can be a complex process. In such a dynamic setting it is best to
use qualitative research methodology (using case studies) to understand the situation. [1]
3. Furthermore face-to-face meetings with respondents can help in provide understanding
and information on several qualitative areas, such as: reasons for implementing specific
supply chain factors (or strategies); customer needs data, and discussions and feedback on
the questionnaire. [1]
The secondary data needed for this study has been collected from various sources such as
journals, annual reports, profit and loss accounts, balance sheets, financial statements of the
company, online published document on internet, previous research report related to HP.
Synopsis of the Case Study
In the given case study during the early 1990s, the famous manufacturer of computers and
peripherals, Hewlett-Packard (HP), faced numerous problems mainly about the inventory
management of its very successful DeskJet printer. The printer was produced in HP’s
production facility in Vancouver [3]. The entirely finished product was fixed there and then
shipped to one of the three distribution centers in North America, Asia and Europe. To assure
high product availability to the dealers, HP had operated its distribution centers (DCs) in a
make-to-stock mode. Therefore, the DCs acted as an inventory stocking points between the
manufacturing site and the dealers who sold the printers to the end-customer. Under growing
competitor’s pressure, the DCs were forced to hold extreme high safety stocks so as to ensure
high service levels. Regardless of the high safety stock not every customer demand could be
satisfied. This led to what HP called the “Inventory/Service Crisis” [4]. One of the basic
causes of the crisis was the extent of forecast errors. Other than this, safety stock levels were
determined by the judgmental rule of thumb which all together with the erroneous forecasts,
resulted in instantaneously high inventory levels and high backorders. The inventory policy
wasn’t based on any scientific rule. Furthermore, neither the choice of the inventory carrying
costs nor the choice of the target line item fill rate as key figures for a functional and rational
inventory policy was defined visibly. Inventory carrying estimates were between 12% and
60% whereas the company target fill rate of 98% was developed by marketing without taking
into consideration that the effects at this rate had on the production and distribution process
. There wasn’t any coordination between different divisions of HP and the inventory policy
[3]

did not contrivance the figures accurately. Due to the extensive lead time of 4 to 5 weeks
caused by the ocean freight, the DCs were not able to react flexibly enough to the unexpected
changes in product mix and consumer’s needs. In the fast-moving computer technology
market products tend to become outmoded within a short time. The obstinate transportation
mode is not able to cope with that, in that way causing high inventory levels but at the very
same time high backorders because the inventory stored does not corresponds to the latest
trends in the market. One more reason for accumulated inventory at the DCs was that the
Profits and Loss statements of HP did not show the impact of inventory holding explicitly.
What stroke immediately was the consequences of lost sales which reduced the revenues. The
cost of accounting and financial reporting wasn’t transparent enough to set processes
effectively. As the different markets, specifically in Europe and Asia, have different
requirements for the printer, the product has been manufactured in many different variants.
Although it is the same product in each and every country, the localization leads to variations
which is another reason for high inventory levels. The need for adding country specific power
supply segments with the right voltage and plugs as well as the appropriate manual in a
specific language to the printer makes determining appropriate demand-tracking production
volumes difficult. It is simpler to forecast the total demands of all three markets for a general
product than to forecast country specific demand.
In order to lessen inventory and expand the service level resulting in the realization of HP’s
mission statement to become a “Recognized World Leader in Low Cost Premium Quality
Printers” [3], countermeasures had to be taken to cover the three main uncertainties affecting
the supply chain:
1. Delivery of materials (wrong parts, late shipments)

2. Internal process (process yields and machine downtimes)

3. Demand.

Issues:
• Significant uncertainty

• Too many localization option

• Long lead times

• Too much inventory in the supply chain

• Some suggest pumping up more inventory

• European and Asian DCs can’t meet because of mismatch.

Drivers of Uncertainty:
The challenge was for HP to bound the amount of inventory, while at the same time provide a
high service level to their end users.
The main drivers of uncertainty in their efforts to do so were the following:
1. Fluctuating Demand [2]
Demand, at that time was difficult to predict, especially in Europe, where sudden
fluctuations were being supervised. As a result, it had become a common phenomenon for
some countries to persist out of stock while others were experiencing amplified inventory
levels. The forecasting system obviously had to be strengthened.

2. High lead time and long shipment time for Europe and Asia (4-5 weeks) [2]
Product deliveries could take anywhere from 4-5 weeks to arrive at the appropriate DC
in Europe or Asia [2]. Furthermore, it is imperative to take note of the additional time
required for the products as they go through tolls processing.

3. Commoditization of printers and hence diminishing brand loyalty [2]

The printer market was expanding extremely. The low-quality printers like dot matrix
were getting outmoded in favour of inkjet & laser printer. With increase in demand for
computers, devices like printers were becoming fast commodity products. In the 1990’s,
the US market had reached to its maturity; however, in Eastern Europe and Asia the
markets were still in development. As more and more companies began presenting inkjet
printers, it became more difficult to strive. The consumers (both the individuals as well as
retailers) were mainly concerned with printers that were fast, and had a very good print
quality. Furthermore, their buying decisions were also based on cost, reliability and
accessibility. Resellers (either small or large retailers) looked for the same things, while
their main objective was to maintain a low inventory at their amenities, while having
enough product available to the consumers who were wishing to purchase them.
Computer dealers was no longer an important marketing channel. Therefore, it can be
concluded that brand loyalty was consistently fading. This raised an important point,
because HP could no longer concentrate on targeting their long-standing customers. HP
should have adopted a way to deliver good quality, low cost printers, which would be
available whenever the customers required it. Due to the reducing brand loyalty among
consumers, maintaining high availability rates was crucial to HP’s success.
 4. Inventory Carrying Cost [2]
It is important to take note of the problem of holding costs and product downgrading. As
noted, the inventory carrying costs ranged between 12% - 60%. Considering that the
company wished to maintain a 98% service level to their consumers [2], it was necessary
to come up with an annual holding cost per unit figure as well as provides estimates for
their ordering costs. This information would enable the company to calculate the
appropriate Economic Order Quantity (EOQ). In addition, inventory depreciation is
another problem that should be accounted for. Accessing inventory may lead to
unnecessary products taking up valuable inventory space.

Other issues:
1. Lack of Cohesiveness and Communication between divisions [2]
The stock imbalance in Europe could be a reason of a bad internal communication network.
There is no sign that business data and targets were being exchanged and it nearly appears
as though Vancouver was assembling what sold best in the US. At the same time, a lack of
common supply chain metrics and organizational barriers can be identified. Even though
the general execution of the whole store network relied upon the joint execution of all the
channel individuals, the goal of every part had little to do with the whole production
network's execution and there was no execution measure for the total inventory network.

2. Rise of Models and Options [2]

HP at the time offered a noteworthy number of models of the Desk Jet printer. Some of
them were represented in a very small percentage of sales in their respective markets. This
raises the question of whether or not they should be sold at the first place in every region.
Indeed, to meet a good service level, each product should be carried in enough quantity,
including some safety stocks. Those safety stocks added on with the product options and
may not have been worth it if the annual sales were 508 units in Europe, while another
[2]
product accounted for 189,961 units . These items may be announced as old and give
more space to the ones that were really requested by the clients. Such a move would
likewise calm the DCs of pointless holding costs. As we will see later, key contemplations
settle on this choice increasingly confused.
3. Uncoordinated functional interests [2]
It very well may be accepted that HP’s marketing department was making concurrent
efforts to increase consumer awareness and publicize the new Desk Jet printer. As a result
of these efforts, sales were expected to rise. It is unclear whether or not Vancouver had
taken those sales into consideration. An objectively optimal solution might not be applied,
as it would not please all the parties involved in or influencing the decision-making process.
Different departments or different areas might have different objectives and may even have
been incentivized by contradictory KPIs in their remuneration. Diverse offices or
distinctive territories may have distinctive goals and may even have been boosted by
opposing KPIs in their compensation. Furthermore, that is the place where lies the genuine
unpredictability of the work Brent needed to convey. A few gatherings simply care about
missed deals and in this manner never consider stock to be an expense. Then again, for
instance, the Vancouver fabricating plant worked on a "stockless" stock guideline. They
had been able to successfully adopt the JIT principle, which served well for their US DC.
The target stock equals the forecasted demand in addition to some safety stock (for all three
DC’s). However, Vancouver’s “stockless” inventory principle was not well recognized at
the European and Asian DC’s, because it was their concern to have enough product
availability. The problem was further escalated because it seems that management was not
able to come to a consensus about the most appropriate inventory approach, which caused
confusion and frustration.

4. Inefficient Shipping Method [2]

At the time, HP delivered the DeskJet printers by means of sea. This technique for shipment
had turned out to be inadmissible for the organization, since the related lead-time did not
permit the interest in Europe and Asia to be met in an auspicious way.

5. Product Localization [2]

This incorporated the customization of the printer with the goal that it would meet the
parlance and power supply needed of the specific nation. This process required much time
and money, as the additional models were being manufactured. For the time being, the
design of the manufacturing process, though was very efficient and geared up for high
production, did not allow for any product modification once the printers were being tested
and ready to go. Therefore, there was not any provision for rapid response to ever changing
market scenarios.
Analysis of the Case Study:
In the early 1990s, the DeskJet supply chain consisted of a network of suppliers, manufacturing
sites, distribution centers (DCs), dealers, and customers. The manufacturing process,
comprising two key stages, was executed by HP in Vancouver. In the first step - printed circuit
assembly (PCAT) - the electronic components were assembled and tested. The second step,
final assembly and test (FAT), then involved the assembly of other subassemblies as well as
the final testing. The localization of the printers was performed in the FAT-phase at the factory,
meaning the appropriate power supply module and power plug as well as the manual written
in the appropriate language were added to the printer. After having localized the products, they
were sorted into three groups and shipped to the DC they were destined for: North America,
Europe, or Asia-Pacific. As goods were shipped to Europe and Asia by ocean, long lead times
of 4 to 5 weeks had to be taken into account. No significant inventory, neither raw materials
nor finished products, were hold at the factory. The DCs rather worked in make-to-stock mode
so as to ensure high administration levels to the merchants.
In order to implement DC localization, some changes in the supply chain as well as at the DC
are necessary.

Regarding the distribution center, the standardized process traditionally used has to be
expanded. Traditionally, four main process steps had to be performed:

• Receive complete printers and then stock them

• Pick up different items expected to dispatch a request

• Shrink wrap the total request and then name it

• Shipment of the the order

As additional tasks have to be performed at the DC after implementing postponement, the

process had to be adjusted, then comprising three additional steps compared to the “old”
standardized process:
 • Testing of printer

• Packing of the printer

• Shrink wrap up of the order and then label it

• Shipment of the order

The DC now needs to manage the issues of choosing and overseeing providers and the
administration of the bill of materials. Furthermore, it must take over some manufacturing tasks
which were executed at the factory before. FAT subsequently is done at the DC rather than the
production line inside the new procedure. To cope with the new competences and
responsibilities, investments in new machinery, capacity and training of the workers would be
necessary.

The changes important at the DC would instigate further changes in the entire inventory
network. First of all, of course R&D would have to redesign the printer in order to make its
localization at the latest step in the supply chain possible Every after procedure must be
changed in accordance with the new item also. At the same time, some other tasks could be
performed at different stages in the supply chain. For example, the DC now could source the
parts needed directly from suppliers instead of receiving complete products from Vancouver.
The parts could be given straightforwardly to the DCs for this situation. As the DC, would be
able to select the suppliers itself, it would be an option to source the appropriate power supply
modules etc. from the country where the respective DC is located, thereby minimizing lead
times and inventory at the DCs. Lead time between Vancouver and the DC should be
minimized by choosing different modes of transportation, achieving a more frequent
replenishment and, simultaneously, better responsiveness to changing customer demands.

Another choice while actualizing DC confinement is set up a sister plant in Europe – this would
mean setting up a different DeskJet inventory network in Europe. Whether a redesign of the
supplier network and the whole supply chain respectively is worth or not, could be figured by
presenting movement-based costing or some other fitting costing approach that gives data to
help basic leadership.
References:
1. https://www.scribd.com/doc/28491204/
2. https://www.scribd.com/document/61023269/HP-Report
3. https://www.scribd.com/document/190843959/Hewlett-Packard-Case-Study
4. https://www.scribd.com/document/289733321/Group11-HP-Deskjet-Supply-Chain