HP Deskjet Printer Supply Chain Case Group Homework

In order to save cost while meeting the market demand, the amount of inventory in hand becomes a
critical aspect for companies such as HP, that consistently try to bring down cost while improving the
product availability and improved customer service with shorter lead times. In order to solve the
inventory problem of its world popular DeskJet printer, the management at HP considered several
options.
A. Postponement Strategy: involves delayed product differentiation and a slight change on product
design, which enables a two-step manufacturing process starting with a generic (“unlocalized”)
product made at the Vancouver factory and finishing with a localization step at the European DC.
This option requires a one-time investment for changing the US site operations and European DC to
allow for localization. The total cost involved is $55,562,926.52. and it has a lower inventory than
current operations
B. Switch to air shipments of Printers from Vancouver to European DC: The final product would be
made as usual in the Vancouver factory and based on demand would be air transported. Air
shipments and fast and result in lower inventory levels than current operations as well as the
postponement strategy option. However, the transportation cost in this model is the highest of all the
models and total cost increased to $60,655,174.56. Despite the increased cost, this is still a viable
option in case of urgency to meet demands.
C. Build a European Factory: In order to bring the demand and supply as close as possible, this
option significantly reduces the ordering cost to zero as well as the inventory storage cost since
inventory maintained is just the safety stock level. The close proximity of the factory to the DC
would enable HP to meet demand quicker since lead time is minimal. However, we have an initial
investment of $100M required to set up the factory leading to a total cost of $151,271,479.55.
D. Continue with the current model: This recommends using the same model as before and the cost
incurred is $58,928,462.76.
Overall, when we extrapolated the cumulative cost for all four options over a 20-year period
keeping annual demand and different associated costs same, we see that although the European
has the highest initial cost due to the requirement of building a $100 million factory, it had the least
annual recurring cost. Also, from year 14, cumulative cost becomes second cheapest options after
the postponement strategy option. Though the postponement strategy option over the 20-year
period had the least total cost, we believe that the European option presents additional
advantages. For instance, if demand in Europe were to rapidly increase, the European factory would
be quickest to manufacture and deliver at lowest cost (zero transport cost and minimal inventory
levels) while maintaining required customer service levels. Hence, we recommend that HP builds a
factory in Europe.