HP DeskJet Case: Background  High volume, high speed manufacturing in Vancouver  Many different models, all completed in Vancouver  Three distribution centers North American North American Asian Asian European European  Manufacturing time one week  Transportation lead times: Europe: 4-5 weeks Europe: 4-5 weeks US US  At distribution centers, simple standardized process

HP DeskJet Case: Analysis  Problems High inventory levels High inventory levels Inventory imbalance in Europe Inventory imbalance in Europe  Causes Uncertainty about correct inventory levels Uncertainty about correct inventory levels Many geographic options (localization) Many geographic options (localization) Long lead times Long lead times Uncertain market Uncertain market Difficulty at getting divisions to work together Difficulty at getting divisions to work together  What are HP’s options?

HP DeskJet Case: Options  Short Term Rationalize safety stock Rationalize safety stock  Long Term Air shipment Air shipment European factory European factory More inventory More inventory Better forecasting Better forecasting DC localization DC localization

Safety Stock Rationalization: Example Europe AB  Recall: Safety Stock = z  STD *  LT

Evaluating Alternatives  Air Shipment -- Expensive  European Factory -- Not sufficient volume  Better Forecasting -- How?  More Inventory -- More problems  DC Localization -- What will savings be?

Evaluating DC Localization  In DC localization, risk pooling can be used to reduce total inventory while maintaining service levels  To evaluate inventory, compare total safety stock held if individual localized units are held in inventory or if generic units are held  Other costs must also be evaluated

Evaluating DC Localization

DC Localization  Safety Stock Reduction Current 19,089 units (3.55 weeks) Current 19,089 units (3.55 weeks) With localization 12,792 units (2.4 weeks) With localization 12,792 units (2.4 weeks)  Other benefits Lower value of transit inventory Lower value of transit inventory Freight reductions Freight reductions Local presence of “manufacturing” Local presence of “manufacturing” Customs implications Customs implications Local procurement of localization materials Local procurement of localization materials  But there are costs Product redesign Product redesign DC modifications DC modifications

Implementation  R&D Support “The product is working, so why bother?” “The product is working, so why bother?”  DC Support “Not our core competency” “Not our core competency”  New packaging  Capital investment

Results  Successful implementation  Millions saved  Service levels increased  Packaging won awards  Best practice spread to other HP divisions