case-study-HP-printer-inventorhy-reduction

1E-Business2001:LogisticsLawrenceWeinProfessorofManagement,MITSession6June5,2001Hewlett-Packard’sDeskjetPrinterSupplyChainCase(A)&(B)2HP’sDeskjet❖Industrycharacteristics–competitive–fastgrowing–explodinginEurope–changingdistributionchannel–rapidtechnologicaladvances3HP’sDeskjet❖Productcharacteristics–quiet–mediumprice–highprintquality–leadingtechnology–commodity-like–lighterandsmaller–reasonablespeed4HP’sDeskjet❖Supplychaincharacteristics–centralizedmanufacturing–DCsfulfillingpuredistributionfunctions–bulkyproductsresultinginlongoceantransit–leanmanufacturingshiftsinventoryburdentoDCs5Inventory-ServiceCrisis❖Whatcrisis?Inventoryimbalance:–Someproductoptionshavingexcesswhileothershaveshortages.6Inventory-ServiceCrisis
Whatcausedit?–manyproductoptionsduetogeography–longDCreplenishmentleadtime–highlyuncertainmarket–economiesofscale7Inventory-ServiceCrisis❖Whatcausedit?–inflexibledesign:noteasytoreworkoneoptiontomakeitintoanother–outofcontrolinventorysystem–uncoordinatedfunctionalinterests(manufacturing,distribution,marketing,engineering)8CurseofProductVariety–highinventory–poorcustomerservice–highmanufacturingcost–highcostofafter-salessupport9CurseofProductVariety–forecastingnightmare–highobsolescenceatend-of-life–highoverheadsupport10ShortTerm:RationalizeSafetyStock❖Inventorycontrolsystemused:Periodicreview,order-up-tosystem❖Keydriversofsafetystock:1.Servicetarget:LIFR...2.Variability:Standarddeviationofdemand3.Leadtime4.Reviewperiod110.98=−−=srcrFractileCriticalleveltouporderS−−=()0.98Pr=≤SdABOptionEuropeForLeveltoupOrder−−µSd02.00054.2()1,0N02.0PeriodReviewTimeLeadDuringDemandDDLTRPd+==12LeadTime=4.5(distn.)+1(mfg.)=5.5weeksReviewPeriod=1weekLT+RP=6.5weeksOrder-up-toLevelforEuropeOptionAB1314Order-up-toLevelforEuropeOptionAB()38,133.36915.32.05423,929.2S=+=()1Table5624.6=4.3D...1D++šs()()()25624.61D24.34.3D...1D2==++šss()()()6915.35624.64.36.51D26.56.5D...1D2===++=sss()15LongerTermAlternativesALTERNATIVESDRIVERSAFFECTEDAirShipmentReduceleadtimeEuropeanFactoryReduceleadtimeUniversalModelReducevariationProductLineRestructuringLessheadacheImproveForecastMethodReducevariationShortenReviewPeriodReducereviewperiodMoreInventoryIncreaseservice16FactorstoConsider❖Airtransporteconomics…freightandfrequency❖EconomiesofscalefornewfactoryinEurope❖Taximplicationsfornewfactory17FactorstoConsider❖Investmentopportunities❖Whatisthekeydrivertosafetystock?❖Canforecastingbeimprovedsignificantly?18FactorstoConsider❖Marketingimplicationsforproductlinerestructuring❖Costofinventory(holding,obsolescence…)❖Feasibilityofuniversaloption19FactorstoConsider❖Supplysourcesoflocalizationmaterials❖Engineeringrequirementoflocalization❖Valueofriskpooling20EvaluatingAlternativesALTERNATIVESDRIVERSAFFECTEDAirShipmentVeryexpensiveEuropeanFactoryVol.nothighenoughUniversalModelExcessivecostProductLineRestructuringCannotaffordImproveForecastMethodAdreamShortenReviewPeriodLosetransportecon.MoreInventoryDeeperinhole21DC-LocalizationStrategyCurrent:Factory-LocalizationmfgmfgDCDCcustomerscustomersDC-Localization22RiskPoolingAnalysis:EuropeA42320.77AA4202040.49AB1583056250.36AQ230111690.51AU420822050.52AY3071030.34TOTAL2310962440.27OptionMeanMonthlyDemStdDevMonthlyDemCoeffofVariation23SafetyStockReduction?Current21,4144.0DC-Localization13,1292.5AlternativeAggregateSafetyStock(units)AggregateSafetyStock(weeksofsupply)24MoreCostsandBenefits(ofDC-Localization)❖StocksoflocalizationmaterialshigheratDCs❖Lowervalueoftransitinventory❖Potentialfreightreduction25MoreCostsandBenefits(ofDC-Localization)❖InvestmenttoinstalllocalizationcapabilityatDCs❖Qualityassurance❖Procurementoflocalizationmaterials26MoreCostsandBenefits(ofDC-Localization)❖Valueof“mfg”localmarketpresence❖Potentialsforotherproducts❖Customsanddutiesimplications❖Greeneffects27HowtoMakeitHappen❖Whyaretheyresisting?❖Productworking,whytouchit?❖NoincentiveNeedsR&DSupportforProductRedesign28HowtoMakeitHappen❖Whyaretheyresisting?❖Notpartofjob❖Riskofdroppingtheball❖NoincentiveNeedsDCSupport29HowtoMakeitHappen❖How?❖NewpackagingdesignShippingGenericProductEfficiently30HowtoMakeitHappen❖Localizationlines❖ProcurementsystemsupportatDCsNeedsInvestment31WhatHappened❖DeskjetredesignedtobeDC-localizable❖Implementationinearly199232WhatHappened❖Millionsof$$$saved,frominventoryandserviceimprovement,andfreightreduction33WhatHappened❖Innovativepackagingwonpatents❖Implementationinearly199234WhatHappened❖Vancouverasshowcasefor“DesignforLocalization”.❖BestpracticespreadstootherHPdivisions35Summary❖Rationalizedinventorymanagementasashorttermtreatmentofsupplychainproblems❖Attackdriversofsafetystock❖Useofmodelstoanalyzestrategies36Summary❖Postponementasasupplychainstrategy❖Crossfunctionalintegrationcriticalforsuccessfulimplementation❖LookforEVERYdetailasanopportunity