HEWLETT-PACKARD: DESKJET PRINTER SUPPLY CHAIN (A) Brent Cartier, Manager for Special Projects in the Materials Department of Hewlett-Packard (HP) Company's Vancouver Division, clicked off another mile. It had been a long week and it looked like it would be a long weekend as well, based on the preparation that needed to be done for Monday's meeting with Group Management on worldwide inventory levels for the DeskJet Printer product line. Even when he was busy, he always took time for the 7 mile bike ride into work - it helped reduce stress in times like thi The DeskJet printer was introduced in 1988 and had become one of HP's most successful products (Figure 1). Sales had grown steadily, reaching a level of over 600,000 units in 1990 ($400 million). Unfortunately, inventory growth had tracked sales growth closely. Already, HP's distribution centers had been filled with pallets of the Deskjet printer. Worse yet, the organization in Europe was claiming that inventory levels there needed to be raised even further to maintain satisfactory product availability. Each quarter, representatives from the production, materials and distribution organizations in Europe, Asia-Pacific and North America met to discuss "the I-word", as they referred to it, but their conflicting goals prevented them from reaching consensus on the issues. Each organization had a different approach to the problem. Production had not wanted to get involved, claiming it was “just a materials issue", but had taken the time to rant about the continued proliferation of models and options. The distribution organization's pet peeve was forecast accuracy. They didn’t feel that the distribution organization should have to track and store warehouses of inventory, just because Vancouver Division couldn't build the right products in the right quantities. The European distribution organization had even gone so far as to suggest that they charge the cost of the extra warehouse space that they were renting back to Vancouver Division directly, instead of allocating it among all the products that they shipped. Finally, Brent's boss, David Arkadia, the Materials Manager at the Vancouver Division, had summarized the perspective of Group Management at the last meeting when he said, "The word is coming down from corporate: We can't run our business with this level of unproductive assets. We're just going to have to meet customer needs with less inventory.” As Brent saw it, there were two main issues. The first issue was to find the best way to satisfy customer needs in terms of product availability while , Sanford junior Univer. “A righis rescrved. This case was writen by Laura Kopezak and Professor Hau Lee ofthe Department of Industral Enginering and Engineering Mangement at Stanford University. Reprited wih erission, a4minimizing inventory. The second and stickier issue involved how to get agreement among the various parties that they had the right level of inventory. They needed to develop a consistent method for setting and implementing inventory goals and get everyone to sign off on it and use it. It was not going to be easy. The situation was especially urgent in Europe. His mind was still filled with the faxed picture that he had received the previous day, showing the dip in product availability levels for some versions of the product at the European Distribution Center (DC), yet he was sure that loads and loads of DeskJets had been shipped to Europe in the past months. His voice mail had been filled with angry messages from the sales offices, and yet the European DC was telling Vancouver that they had run out of space to store Vancouver's products. Brent parked his bike and headed for the company showers. His morning shower was another ritual - this was the time he had to review his plans for the day and play out different scenarios. Perhaps a solution would come to him Background Hewlett-Packard Company (HP) was founded in 1939 by William Hewlett and David Packard, with headquarters in Palo Alto, California. It grew steadily over the next fifty years, diversifying from its base in electronic test and measurement equipment into computers and peripherals products, which now dominated its sales. In 1990 HP had over 50 operations worldwide, with revenues of $13.2 billion and net income of $739 million. HP was organized partially by product group and partially by function. The Peripherals Group was the second largest of HP's six product groups, with 1990 revenues of $4.1 billion. The group's divisions each acted as a Strategic Business Unit for a specific set of products. Products included printers, plotters, magnetic disc and tape drives, terminals and network products. The Peripherals Group had set technological standards with many of its products, with innovations such as the disposable print head used in its ink- jet printers and moving-paper plotters. While these innovations contributed to its success, the Peripherals Group was also recognized for its ability to identify and profitably exploit market opportunities, as in the case of its most successful product, the LaserJet printer. ‘The Retail Printer Market Worldwide sales of small workgroup /personal printers in 1990 were about 17 million units, amounting to $10 billion. The market tracked personal computer sales closely; the market was mature in the US and Western Europe but was still developing in Eastern Europe and in the Asia-Pacific region. 42Small workgroup/personal printers were sold almost exclusively through resellers. The reseller channels were changing rapidly, particularly in the US. Traditionally, printers had been sold through computer dealers, but as personal computers became commodity products, more and more sales were flowing through superstores and consumer mass merchandisers such as K- Mart and Price Club. The retail printer market was composed of three technology segments: impact/dot matrix (40%), ink-jet (20%) and laser (40%), Dot matrix was the oldest technology, and was viewed as noisy and of lower print quality compared to the other two types. The dot matrix printer market share was expected to fall to 10% during the next few years as the technology was replaced by either ink-jet or laser printers in all applications except multi-part forms and wide carriage printing. Prior to 1989, most customers were not aware of ink-jet technology. However, customers were discovering that ink- jet print quality was almost as good as laser print quality at a much more affordable price. Sales had increased dramatically. In the monochrome market, it remained to be seen which technology would eventually dominate at the low end. Much would depend on the pace at which technology developed in both areas, and the relative costs. HP and Canon separately pioneered ink-jet technology at their respective corporate laboratories during the early 1980s. The key technological breakthroughs had been ink formulation and the disposable print head. HP had introduced its first disposable head model, the Thinkjet printer, in the late 80's, while Canon had just introduced one in 1990. HP led the ink-jet market in the US, while Canon led the market in Japan. European competitors included Epson, Manisman-Tally, Siemens and Olivetti, though only Olivetti had introduced a printer with a disposable print head by 1991. Some dot matrix printer companies were also starting to offer ink-jet printer products. Ink-jet printers were rapidly becoming commodity products. The end- customer, choosing between two ink-jet printers of equal speed and print quality, increasingly used general business criteria such as cost, reliability, quality and availability to decide. Product loyalty continued to decrease. The Vancouver Division and its Quest for Zero Inventory In 1990, Vancouver Division's mission statement read: "Our Mission is to Become the Recognized World Leader in Low Cost Premium Quality Printers for Printed Communications by Business Personal Computer Users in Offices and Homes."