QuestionQuestion

Answer the following questions related to the case GS3A - Hewlett-Packard Company DeskJet Printer Supply Chain (A)

1. What are the main causes of the inventory/service crisis described in the case?

2. Build and describe an Excel model to recommend quantitative target inventory levels under HP’s current supply chain design for the 6 European options assuming a weekly (periodic review) replenishment and a 98% service level (k=2.054) for the following two scenarios:
(i) 5-week sea shipment lead-time;
(ii) 3-day air shipment lead-time. Evaluate the total supply-chain inventory levels (safety stock, cycle stock, pipeline stock) that will result from the weekly inventory replenishment targets that you recommend for these options.

3. Assuming a 20% gross margin and average selling price of $660 for each printer, inventory holding costs of 50% per year, sea transportation costs of $1 per printer (lead-time 5 weeks) and air transportation costs of $11 per printer (lead-time is 3 days), compute the total supply chain cost (inventory and transportation) for the two scenarios you analyzed in the previous question.

4. Modify the model you built for the previous question in order to quantify the financial impact of localizing HP’s Deskjet Printers in Europe instead of Vancouver.

5. What changes would you recommend for HP’s supply chain operation and design?

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Answer 1:
The main problem of the company has been the mismatch in the demand and supply of the printers across the geographically segregated segments of the company. While there is shortage in one region, there is surplus supply in another region. Therefore, the company is losing from lost market sales in one region and inventory pileup in another region leading to higher inventory costs. The reasons behind the inventory crisis have been listed below:
• Different models of printer needed in different regions due to different power requirements and charger needs. This requires customization to needs of different regions.
• The lead time for replenishment of the printers from the distribution centers is also high which decreases the responsiveness of distribution centers to needs of retail centers.
• Market is changing rapidly and the printers need to be modified to these changes...
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