HP DeskJet Case: Background

High volume, high speed manufacturing in Vancouver Many different models, all completed in Vancouver Three distribution centers

North American Asian European

Manufacturing time one week Transportation lead times:

Europe: 4-5 weeks US

At distribution centers, simple standardized process

HP DeskJet Case: Analysis

Problems

High inventory levels Inventory imbalance in Europe

Uncertainty about correct inventory levels Many geographic options (localization) Long lead times Uncertain market Difficulty at getting divisions to work together

Causes

What are HPs options?

HP DeskJet Case: Options

Short

Term Term

Rationalize safety stock

Air shipment European factory More inventory Better forecasting DC localization

Long

Safety Stock Rationalization: Example Europe AB

Recall: Safety Stock = z STD * LT

Mean Weekly Demand Std. Dev Lead Time Std. Dev of Demand Period Safety Factor Safety Stock

3656 2703 5 6044 1.9 11483

Monthly / 4.33 Monthly/(4.33).5 2703*(5).5 98% service 1.9*6044

Evaluating Alternatives
Air

Shipment -- Expensive European Factory -- Not sufficient volume Better Forecasting -- How? More Inventory -- More problems DC Localization -- What will savings be?

Evaluating DC Localization

In DC localization, risk pooling can be used to reduce total inventory while maintaining service levels To evaluate inventory, compare total safety stock held if individual localized units are held in inventory or if generic units are held Other costs must also be evaluated

Evaluating DC Localization
AVG A AA AB AQ AU AY 42 420 15830 2301 4208 307 STD 32 204 5625 1169 2205 103 6244 Safety Stock 66 416 11,484 2395 4517 211 19089 12792 Weeks of SS 6.75 4.25 3.11 4.48 4.62 2.96 3.55 2.38

Total 23109 Generic 23109

DC Localization

Safety Stock Reduction

Current 19,089 units (3.55 weeks) With localization 12,792 units (2.4 weeks)
Lower value of transit inventory Freight reductions Local presence of manufacturing Customs implications Local procurement of localization materials Product redesign DC modifications

Other benefits

But there are costs

Implementation
R&D

Support

The product is working, so why bother?

DC

Support

Not our core competency

New

packaging Capital investment

Results
Successful

implementation Millions saved Service levels increased Packaging won awards Best practice spread to other HP divisions