Hewlett-Packard DeskJet Printer Supply Chain Essay Example

Hewlett-Packard: DeskJet Printer Supply Chain Paper In a highly competitive market, Hewlett Packard needs to improve efficiency through reduction in inventory as well as backorders. It needs to make the design of inkjet printers modular, so that localization can be shifted to the Distribution Centres, thereby providing a Real option in the hands of the distributors. Careful analysis of the data also shows that if production of all models except model-A (which accounts for 99.32% of N.America demand), then delivery lead time can be reduced from 45 days to less than 5 days, and a reduction of 45% in inventory levels can be acheived. Industry characteristics: Worldwide sales of small personal printers totalled 17 million units, amounting to US$ 10 bn. The printers were sold exclusively through resellers. Current Commoditization of computers had moved the products to stores like K Mart and Target, especially in the US. This also makes the customer brand insensitive, and the company which can deliver in time would be the eventual winner e.g. a customer looking to buy an HP printer, not finding it in the market would go and buy an Epson printer. The market was segmented between dot matrix (40%), inkjet (20%) and laser (40%). Current trends showed a clear movement from dot matrix to laser and inkjet printers. The key players in the industry were HP (leader in US), Canon (leader in Japan), Epson, Manisman Tally, Siemens and Olivetti. We will write a custom essay sample on Hewlett-Packard: DeskJet Printer Supply Chain specifically for you for only $16.38 $13.9/page Order now We will write a custom essay sample on Hewlett-Packard: DeskJet Printer Supply Chain specifically for you FOR ONLY $16.38 $13.9/page Hire Writer We will write a custom essay sample on Hewlett-Packard: DeskJet Printer Supply Chain specifically for you FOR ONLY $16.38 $13.9/page Hire Writer Product characteristics: Although commoditized, the product is still a high technology, high involvement product. Any delays in availability or service would be considered as service incompetence by the customer. Commoditization implied that the customer, choosing between two printers of equal speed and print quality increasingly used general business criteria like cost, reliability, quality and availability to decide. The product, although uniform across the globe needs to be localized to suit individual markets. Certain differences e.g. in the power supply, the language for the manuals and the socket heads render printers produced for one market incapable of satisfying demand in other markets. Supply chain characteristics: The printers are manufactured in Vancouver, USA, close to Washington D.C. with a cycle time of a week and are shipped by ocean to Europe and Asia. The shipping delay for both places is 4 5 weeks whereas the delay for the US is a few days. The manufacturing involved two key stages: (1) printed circuit assembly and test and (2) final assembly and test. The components required to go into the PCAT and the FAT stages were sourced from other HP locations as well as external partners. After the FAT, the printer is localized by adding the relevant power cords, the relevant power supply units and the manuals. The three major sources of uncertainty that could affect the supply chain were : (1) delivery of incoming materials (late shipments, wrong parts etc.); (2) internal process (process yields and machine downtimes); (3) demand. The first two resulted in manufacturing delays and the last one resulted in inventory pileups. Causes of Inventory/service crisis: HPs current business cycle leads to the products being shipped from Vancouver to Europe. Although the shipments are as per demand predictions, a surge in demand from one region would mean a stockout for that specific printer model, with a high level of inventory remaining for other regions. This is a direct consequence of the localization of the printer in Vancouver, and the addition, of manuals, power leads and power supplies to the printers at the factory. Drivers of safety stock: Shipping by ocean, and the high lead time implied that the DCs ability to respond to sudden changes in demand was limited as the product shipped to them was already localized. Due to this, the European and Asian DCs had to maintain high levels of safety stocks. Recommendations: In order to quickly meet customers orders and maintain a highly regarded brand name and customer service, but at the same time reduce inventory, HP has to operate at maximum efficiency. This can only be achieved via a comprehensive approach and a restructuring of the supply chain processes. The product design, the production process, the delivery and the configuration of the supply chain have to be remodelled, synchronized and integrated to allow for optimal results. Modular Production: HP should adopt a more modular production of the DeskJet series, standardizing as many parts as possible. This will allow them to manufacture different modules simultaneously and reduce total production time. Also, quality improvements become easier, as potential problems can be isolated. However, in order to take full advantage of modular production, the processes may have to be re-sequenced. Postponement of customisation: Postponing the customisation process to the latest possible point in the supply chain results in greater flexibility and lower costs. The DeskJet series printers should be localized (customized to local language and power standards) as late as possible. Customizing the printers in Vancouver, committing a particular printer to be sold in a particular country, leads to large safety stocks of many different products. Conversely, localising the printers at the local distribution centres (DCs) reduces safety stocks and overall inventory levels (less product variety before customisation) and thus lowers the inventory costs significantly. This should make up for the slightly higher manufacturing costs and cost of materials. The Distribution Centres will perform the final steps of customisation (e.g. adds the locally different power supply plugs to the package, etc.) of the printers on receipt of a customers order. Added benefits may include better brand recognition because of local production sites, faster respond times to customers orders and compliance with local-content rules. Additionally, the localization at the DCs would present a real option and reduce the lag time for fulfilling demand. As shown in Exhibit-2b, adopting a modular design and shifting the localization activities to the Distribution Centres can lead to reductions in inventory of about 15%. Shifting Production to Europe (Except model-A). From the demand Data in Exhibit-2a, it can be seen that in North America, 99,32% of the demand is for Model-A. On the other hand, model-A constitutes only 0,68% of the demand in Europe. Therefore, if the production of all models except model-A is shifted from Vancouver to Europe, almost 99% of the demand in both Europe and North America can be satisfied from local production. This would reduce the lead time from 35 days to less than 5 days, thereby reducing the inventory requirements by 45%, as shown in Exhibit 2b.