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Hewlett-Packard Company DeskJet Printer Supply Chain (A)
Group No 3
Roll No
omp003_004
omp003_022
omp003_024
omp003_028
omp003_033
omp003_050
Name
Amit Jain
Nagaradjan K
Nilesh Surve
Preeti Verma
Rupan Chatterjee
Yadvendrah Grigo
Email
omp003_amit@iimnagpur.ac.in
omp003_nagaradjan@iimnagpur.ac.in
omp003_nilesh@iimnagpur.ac.in
omp003_preeti@iimnagpur.ac.in
omp003_rupan@iimnagpur.ac.in
omp003_yadvendrah@iimnagpur.ac.in
1 Introduction
This report aims to provide an in-depth analysis of the challenges faced by the Hewlett-Packard Company (HP) regarding
inventory management in their DeskJet printer supply chain. HP, a global technology leader, is renowned for its diverse
portfolio of products, including the successful DeskJet printer line. However, HP has been grappling with significant
inventory management difficulties that have significantly impacted their supply chain efficiency. These challenges revolve
around effectively balancing product availability with inventory minimization, accurately forecasting demand, and
determining optimal safety stock levels. This report will dissect these issues, evaluate the strategies HP considered to
tackle them, and offer recommendations for potential improvements in their supply chain strategy.
2 Challenges
Hewlett-Packard Company (HP), one of the pioneers in the technology industry, has a hybrid organizational structure that
emphasizes both a product-oriented model and a market-oriented model. This structure, though effective in some areas,
has introduced unique complexities into HP's inventory operations. The product-oriented model promotes product
innovation and specialization, but at the same time, the market-oriented model encourages geographic localization and
customization. These differing priorities have led to challenges in predicting demand accurately, leading to high inventory
levels and an inability to fulfill customer orders promptly.
The DeskJet printer, a key product line in HP's extensive portfolio, has been especially affected by these challenges. As a
versatile and affordable printer solution, the DeskJet has been a significant contributor to HP's revenue and reputation. It
is available in various models to cater to diverse customer needs across different geographical markets. This diversity,
however, adds to the complexity of managing its inventory, as the demand for each model can vary considerably between
regions.
HP's inventory management issues with the DeskJet line primarily revolve around demand forecasting and safety stock
levels. HP has faced difficulties predicting demand for individual models accurately, often leading to some models being
overstocked while others are unavailable. This situation is exacerbated by the long lead times in their supply chain,
requiring substantial safety stocks to prevent stockouts. HP's safety stock levels were determined by 'rule of thumb' rather
than a data-driven approach, leading to inefficiencies and imbalances in inventory. Moreover, the lack of a robust
forecasting system has made it challenging for HP to respond quickly to fluctuations in demand, resulting in both excessive
inventory costs and missed sales opportunities.
3 Considered Strategies and Solutions
From the information available in the case study, it appears that HP is using a fairly reactive system for inventory
management, mainly reacting to demand as it occurs stock levels were determined by 'rule of thumb' rather than a datadriven approach,. A more proactive and data-driven approach to inventory management would be beneficial for HP.
Here are a few improvements that can be suggested:
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1. Improved Demand Forecasting: HP needs to improve their demand forecasting methodologies.
2. Implement scientific inventory control models
Periodic-review (s,S) systems are more suited
1. Order costs are high, as orders are placed less
frequently (only at the review period).
2. Inventory levels do not need to be monitored as
closely (e.g., when carrying costs are relatively
low).
3. Demand is relatively stable, as the system can't
react to changes as quickly as a continuous-review
system
Continuous-review (s,Q) systems are beneficial when
1. Inventory levels need to be closely monitored due
to high carrying costs or high costs of a stockout
(e.g., in industries where products have a high
value or where customer service level expectations
are high).
2. Order costs are relatively low, making frequent
reordering feasible.
3. Demand and/or lead times are variable, as
continuous-review systems can react quickly to
changes.
In the case of HP, DCs are operating on MTS mode and the demand for the various printer options is highly
variable, therefore A continuous-review (s,Q) system could help HP manage inventory more efficiently in several
ways:
i.
Real-time inventory monitoring: This would allow HP to respond in real time to changes in demand and
inventory levels.
ii.
Safety Stock Management: The system includes safety stock in the reorder point calculation to cover
variability in demand and lead time. By properly managing the safety stock, HP could reduce the risk of
stockouts while keeping inventory levels under control. Safety Stock levels considering the given Average
demand & demand variability is worked out in the attached excel sheet.
𝑆𝑎𝑓𝑒𝑡𝑦 𝑆𝑡𝑜𝑐𝑘 =
𝑍 . . √(𝑡𝑜𝑡𝑎𝑙 𝑙𝑒𝑎𝑑 𝑡𝑖𝑚𝑒)
In HP's case, considering different modes of transit other than sea (like air freight) might reduce lead times
significantly for Europe and Asia Pacific. This could lead to a reduction in safety stock levels, thereby
lowering inventory carrying costs. However, it's essential to consider that using air freight might
significantly increase transportation costs.
Therefore, HP would need to perform a comprehensive cost-benefit analysis to understand whether the
increase in transportation cost outweighs the benefits of reduced inventory carrying costs before making
a decision
iii.
Reorder point 's' and Order Quantity 'Q': The system uses specific quantities for both the reorder point
and the order quantity. The reorder point 's' is typically set to cover expected demand during the lead time,
plus a safety stock to absorb demand and lead time variability. ROP considering lead time, average
demand, 98% service level & demand variability is worked out in attached excel sheet.
ROP = (Average Demand x Lead Time) + Safety Stock
The order quantity 'Q' is typically based on balancing various costs, such as ordering, holding, and stockout
costs. Properly setting these quantities based on the actual demand pattern and cost structure would allow
HP to better manage inventory and reduce costs. Order quantity Q is typically a fixed amount that's
determined by an inventory model such as the Economic Order Quantity (EOQ) model. The EOQ model
calculates the optimal order quantity that minimizes total inventory costs, which includes holding costs and
order costs. The formula for EOQ is:
EOQ = sqrt [ (2DS) / H]
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where:
D is the annual demand,
S is the ordering cost per order, and
H is the annual holding cost per unit.
A suitable assumption about ordering cost & annual holding cost is made and EOQ calculated for each option
in the attached excel sheet.
iv.
Quick Response to Demand Changes: The continuous-review system can respond quickly to changes in
demand, adjusting the ordering decisions as soon as inventory falls to the reorder point. This would allow
HP to better match inventory levels with the variable demand for different printer options.
For these reasons, a continuous-review (s,Q) system could help HP to maintain high product availability (reducing
the risk of stockouts) while minimizing inventory levels. However, successful implementation of this system would
require an efficient and accurate system to monitor inventory levels and track demand in real time. The parameters
's' and 'Q' would also need to be carefully set and periodically reviewed to ensure they reflect the current demand
pattern and cost structure.
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