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Outline
List of Fact(s)&Issu(es)
Focus Problem(s)
Theory(s)
Possible Solution(s)
Recommendation(s)
Facts
DeskJet printer was introduced in 1988 One of Hewlett-Packard`s (HP`s) most successful products 600,000 units in 1990 HP 3 distribution centers (DC): 1. North America 2. Europe 3. Asia Pasific HP in Vancouver does manufacturing DC`s role as warehouses need to focus and do their best on distribution Target inventory levels equals to one month average sales in the DC PC, monitors and other products require integration process while Deskjet printer fits well into the standard process for the distribution.
Issues
Pallets of DeskJet printer at HP`s distribution centers Inventory levels in Europe need to be raised Inventory models for European DC supply chain: 5 weeks for transportation time through sea shipment Weekly shipment to European DC Management costs decisions: to use 25% for warehouse expenses (range from 12 to 60%) for carrying cost 250$ each to produce and ship to Europe 98% safety stock probability Safety stock system to reduce forecasts errors and replenishment lead times Integration proccess to be applied to DeskJet printer at
Focus Problem
HP DeskJet Supply Chain (exhibit 17.14)
Supplier IC Mfg US DC
Custom er
Supplier
PCAT
FAT
Europea n DC
Custom er
Supplier
Far East DC
Custom er
Shipment System: 1. Transportation Type (Air vs Sea) 2. Cost effectiveness 3. Time efficiency
Theories
Postponement is delaying any modifications or customization to the product as long as possible in the production process (Heyzer and Render, 2008) HP is able to hold centralized inventories of the generic printer for shipment as demand changed HP is successfully adopt the postponement supply chain method Localization process for selling DeskJet: customizing the printer to meet the language and power supply requirements of the local countries (Jacobs, Chase, Aquilano, 2009)
Supplier
PCAT
FAT
Europea n DC
Custom er
Supplier
Far East DC
Custom er
NOV
DEC
JAN
FEB
MAR
APR
MAY
JUN
JUL
AUG
SEP
OCT
Item to be considered: 1.EU Opt AB which has the best demand comparing to other Opt. 2.JAN & SEP reach the two highest total demand
Focus Problem
Supplier IC Mfg US DC Custom er Europea n DC Custom er
Supplier
PCAT
FAT
1W
Print Mech Mfg Supplier
5W
Supplier
Far East DC
Custom er
Options: 1. Final Product per area in PCAT & FAT site EU DC Customer 2. Generic Product in PCAT & FAT site Finali product in EU DC Customer
?
5D
PCAT FAT European DC Customer
Localize Products
TC = Total Annual Cost D = Demand (annual) C = Cost per unit S = Setup cost or cost of placing an order H = Holding cost Q = Quantity to be ordered where optimal amount is termed the EOQ or Qopt or Q*, with :
Where P = Probability the unit will not be sold Cu = Underestimating Demand Co = Overestimating Demand
Data to be assumed: Co = $ 400 Based on delivery scenario related to Lead Time (L)
Q*
TC
842.55 69,378,410
7 Days
54,539.21 39,520.98
942.00 69,384,625
40 Days
788.14 69,375,009
78,241.75
Considered 1
Considered 2
Solutions
Solutions
For Shipment by sea C/Cc = (3000.675 (3000.675)0.5/(5336.952*5*1.9) C/Cc = 0.058 For Shipment by air C/Cc = (3000.675 (3000.675)0.5/(5336.952*2*1.9) C/Cc = 0.145 From the result above; 1. shipment by air gives more flexibility in terms of redesigning of the product and production process: 2. for shipment by sea choice the additional cost of final assembly can not exceed 5 % of the cost of common component; for the shipment by air that cost can be up to 14%.
Solutions
Calculation of safety stock required to achive a given fill rate : Exposure periode = Lead time + Review periode; SD of demand over Exposure Periode = SD of weekly demand*(Exposure period)^0.5; Safety stock = safety factor * SD of demand over Exposure Periode; Safety stock in weeks of supply = safety stock/mean weekly demand; Holding cost : 0.12; Review periode : 1 week;
Supplier
IC Mfg
US DC
Custom er
Supplier
PCAT
FAT
Europea n DC
Custom er
Supplier
Far East DC
Custom er
Recommendations
1. Shipment by air gives more flexibility in terms of redesigning of the product and production process 1. DC localization is the most economic factor and therefore final assembly product is in DC as it save time and cost for PCAT & FAT section
1. Based on TC (total inventory cost) and Probability the unit will not be sold, scenario shipment by (air/sea?) recommended to HP case.
References
Jacobs, F Robert, Chase, Richard B, and Aquilano, Nicholas J (2009) Operations and Supply Management, 12th Ed, New York: McGraw-Hill Education Jay, Heizer and Render Barry (2008) Operation Management, 9th Ed, Pearson Education International Shim, Jae K, Siegel, Joel G, Shim, Allison L (2011) The Vest Pocket MBA, 4th Ed, New York: Penguin
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