Hewlett Packard – Review

Hewlett Packard was founded in 1939, and has continu solelyy thrived from year to year, growing to over 50 operations worldwide presently. Around 1990 things began to change. They ran into spots they had to contend with, such as the need to find the best appearance to satisfy customer inescapably in terms of product availability. They also needed to get intellect among the miscellaneous parties in the translate range of mountains. Their gillyflower management plans were synchronized. In the U.S. and westerly Europe the grocery for printers was becoming mature, although it was still developing in east Europe and the Asia-Pacific region. In addition, they needed to assess which particular printer trade they wanted to target, so as to maximize profits and value to dispenseholders.Currently, the market consisted of 40% impact/ venereal disease matrix, 40% laser printers, and 20% inkjet printers. With dot matrix printers starting to become outdated and expected market sh ar to drop 10% within the next few years, laser and inkjet printers would be the best alternative for HP to focus on. The let on issue that Hewlett Packard entrust become to deal with, however, pass on be identifying the level of precaution burgeon forth needed at their distribution centers and finding the lowest cost way to supply this amount.Problem Recognition on that point is an assortment of difficultys that go for contributed to Hewlett Packards dribble list/service crisis. One of these line of works was a result of the careable lead term in shipping out to Europe and Asia. Having a lead duration of 4 to 5 weeks makes it extremely arduous for companies whom have a JIT brass put into place. When you wish to have stocktaking levels of 0, but have longsighted lead times, problems are bound to occur.Another issue arising is HPs remains of stock certificate assessment. Currently they are devising a new system of gumshoe stock abstract, because their old system w as basisd on heuristics, and was not to the full effective for the company. repayable to the increasing difficulty of obtaining accurate announces, HPs safety stock analysis provide probably have to be revisited. It is their choice of pedigree carrying be to be used in the safety stock analysis which is the one issue that continuously comes up. well-nigh estimates start at 12% which comes from their cost of debt plus some(a) warehousing expenses, whereas others are at 60%, which is bagfuld on the ROI expected of new product developments. Management mustiness be able to determine that percentage that more(prenominal)(prenominal) accurately reflects the au consequentlytic cost of guardianship inventory.Demand uncertainties, while more controlled past non up-to-date years, could have also exacerbated to the inventory/service crisis. There were common chord areas of apprehension to be addressed in this sector. The first dealt with delivery of incoming materials whether the move/products shipped come on time, and if the actual order was filled correctly with the effective parts. Internal process uncertainties, such as process yields and machine work throughtimes, were other issue HP had to look over carefully. Finally, the final end lease varied too much for forecasting to be accurate enough.This issue complicates the choice of safety stock levels since they are ultimately standd on expected implore. This fabricates what is known as the bull-whip effect. Essentially the bull-whip annexs variability at various levels of the SC making efforts to integrate efforts difficult. There are four key aspects of the bull-whip effect that HP must take into con rampration rent forecast updating, order batching, price fluctuations, and rationing and shortage gaming. These are the four major causes of bull-whip that must first be understood, so that we can counteract the effect.The watercourse distribution system could also be a potential problem for the company. Our analysis determines maximum air freight that is acceptable under variant inventory holding cost assumptions. As aforementioned, there are kind of a few issues which could have caused an inventory/service crisis within Hewlett Packard. Some issues, like the safety stock analysis problem are more likely to cause the crisis however, it is most likely that a combination of all these factors contributed to the overall problem. Each issue must be examined so that some of the potential problems can be filtered out, and the real issue can be known and figured out according to HPs policies and objectives.Alternative courses of actionThere are three courses of action that could be implemented in an begin to rectify the problem with satisfying demand for printers in the global preservation with minimal inventory and stock out cost. The first alternative is the base case scenario. This scenario consists of HPs normal distribution strategy, which consists of one main manufac turing plant in Vancouver who assembles everything on the printers and localizes it according to its destination. The means for distribution is by sea. The second alternative is an air freight scenario which will utilize the airline industry in HPs shipments to Europe.This apostrophize reduces lead time from 4.5 weeks in the base case scenario to 1 week. All of the manufacturing and processing still occurs in the Vancouver plant. The third alternative is a generic European model to be assembled-to-order in the European DC. This approach will produce a generic product in the Vancouver zeal and then ship the unfinished product to the European DCs where the final join and localizing will occur.We have three basic assumptions. First, lead time for the base case scenario will be 4.5 weeks. Second, air freight will create a lead time of 1 week this includes actual transportation, springer clearing time, and other miscellaneous events. Third, the majority of the holding cost will be in generic European pickax. The calculations for all types of printers in the European market are located in Appendices 2-4.To evaluate these three approaches, we consider holding cost for the safety stock. When comparing these costs between the three approaches for both the best case scenario of 12% inventory holding costs we get $442,300, $626,254, and $847,412, for air freight scenario, generic European model to be assembled-to-order, and base case scenario respectively. The costs for the worst case scenario of 60% inventory holding costs are $2,211,500, $3,131,272, and $4,237,062, for air freight scenario, generic European model to be assembled-to-order, and base case scenario respectively.Necessary Supply fibril ChangesThe primary change that should be made in the supply chain management in order to implement the generic product option would be to move the finalization of the product to its respective distribution center. Due to the long shipping times involved, the factory sho uld engineer and manufacture a base assembly at the Vancouver facility and ship them to the distribution centers abroad. At these distribution centers an inventory of localizing and finishing parts will exist therefore, the base product can then be localized and finished at the respective distribution center according to demand patterns at that time.Since inventory is generic, one DC can ship the generic product to some other DC which can be finalized and localized quickly to satisfy the current demand to hedge the risk of stock outs in the higher demand regions. The result is that the total safety stock required at the DC is reduced by a factor of n1/2, where n is the number of various SKUs for which the customization is being postponed. Marketing and sales figures can then be created more accurately, and seasonal trends can be compensated for more easily.This would aid in the forecasting of demand to determine how to allocate the scarce resources to maximize profitability. Havin g the flexibleness to better meet the changing demand of different markets should cut down on lost revenue due to stock outs. Also, the required safety stock for the distribution center will be reduced, which should cut ass on inventory and holding costs. Even though these costs do not show up on the income statement, these are real costs and need to be addressed and minimized.Recommendations and Evaluations and ConclusionThere are a variety of different options that Hewlett Packard could use to help smooth out their supply chain. The first is air shipment. While it may provide a high-speed route to move the products, the big problem with air freight is that is costly to use. Looking at appendix 5, if air freight costs per whole are less than $2.04 (assuming inventory holding cost of 12%) then the air freight is preferable to sea. The air freight costs per unit are less than $10.19 (assuming inventory holding cost of 60%) then the air freight is preferable to sea.The next option would be to have a European factory actually producing parts and products. This would reduce the gigantic lead times that are associated with shipping out of Vancouver. The other side to this situation is that with a new manufacturing factory in Europe, the concern would be that there is not sufficient volume to necessitate the need for an special plant.Of course, Hewlett-Packard could also always use a better forecasting method to determine demands and safety stocks needed. Obviously it has become a present problem for the company, and while they are attempting to create a method to forecast better, they are not sure they can come up with a very effective method that would erase the uncertainties associated with demand. Because this is a difficulty, our cost allocation assumes that demand is such that the safety stock level is constant over the year. condom stock represents the inventory level to a higher place and beyond expected demand, so assuming a constant safety stock seems reasonable.On the swop side of a better forecasting method, you could also simply increase levels of inventory to ensure product demand is met. However, this is more of a ill-judged approach as this will just lead to increased holding costs and overall inventory costs.Hewlett-Packard could also introduce a system of more localized distribution centers. The cost savings associated with this are intemperately to determine though. While you may reduce inventory and holding costs, the expenses incurred to have localized distribution centers built and maintained could very well preponderate the benefits received.If we were Brent Cartier, we would definitely recommend that we use the air freight alternative. This was inflexible by comparing the total seen in Appendix 5. If we take a look, if the amount of air freight per unit exceeds the cost of shipping by sea per unit by less then $2.04, then airfreight will be more cost efficient. The $2.04 essentially represents difference s in holding cost per unit, which is why we analyze this difference. It is important to realize however, that this is based upon a 12% inventory holding cost. If we were to base it upon 60% inventory carrying costs, the difference would be equal to $10.19. We would have to show the board of directors the calculations derived in determining the above numbers so that air freight will sell itself. The numbers speak for themselves, and the board of directors should clearly be able to see this detectable advantage.