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ILEMAN30
Inventory control at Hewlett Packard
Preface
This report is written by group 23, consisting out of 5 students whereof two are exchange students
from Indonesia and three students from Rotterdam. We as group were asked if we could improve the
inventory control at the distribution center of Hewlett Packard.
The main task is to is to optimize the safety stock with a well substantiated inventory model instead of
a inventory model which is based on some judgmental rule of thumb. HP also asked us to evaluate the
idea of supplying generic printers to the Europe DC and integrating the product by packaging the
power supply and the instruction manual at the DC just prior to delivery to the European resellers.
We would like to thank our supervisor Mr. Karbaat for his expert guidance and feedback during this
course. Also thanks go out to HP for the information they have provide us.
Tim Boogaard
Melissa Broek
Sutrilastyo
Radinal Wibisono
Peter Wouda
Rotterdam, June 8th 2015
Table of contents
Management Summary.......................................................................................... 3
Introduction............................................................................................................ 4
Chapter one: Inventory Model................................................................................ 5
Chapter two: Comparison of the Inventory Model with Current Situation...............7
Chapter three: DC inventory analysis for supplying generic printers.....................8
Chapter four: Implementation Plan........................................................................9
Conclusion and recommendations.......................................................................11
Bibliography......................................................................................................... 12
Management Summary
The company HP (Hewlett Packard) is a manufacturer of printers and computer products. In this case
we will zoom in on the Deskjet printer which are introduced in 1988 and has become one of HewlettPackards most successful products.
One of the products that fits well into the standard process is the Deskjet. In contrast, other products,
such as personal computers and monitors, require special processing called integration, which
includes addition of an appropriate keyboard and manual for the destination country.
To solve the problem within HP and their inventory problems the main task is to optimize the safety
stock with a well substantiated inventory model instead of a inventory model which is based on some
judgmental rule of thumb.
The nature of the demand of all variations of the printers are perpetual. There are two inventory
models that can be used: reorder point model and periodic review model. For this part, the reorder
point model is used, because it generates less cost compared to periodic review model.
In the current situation, the rule of thumb was applied in order to determine inventory level in HP.
For current situation, average number of monthly demand simply used to determine the stock level in
the DC. There can be concluded that the new inventory model that is developed can decrease the
inventory level which will lower the annual inventory costs with 8%. Also, the new inventory model can
reduce the error in forecast. HP can ensure that 98% order will be fulfilled which is very important to
big company like HP.
When HP supplies generic printers the DC has not only the function for a place to store and distribute
the goods. The DC has the task to implement value added logistics in their warehouse. This means
that a calculation and forecast is needed in which amount HP sells their Deskjet printers in each
European country.
The inventory investment will be lower when HP only manufactures generic printers. Because when
HP has six different options, there are six safety stocks.
Before the company wants to change something about their inventory policy, the magnitude and
nature of the changed policy should be clear to anticipate on the results of the policy. The Tropics test
is one of the tests to know these two important things before implementing a new policy. The problem
owner will able to feel the nature with this test.
In the results of this test a tendency towards the softer end of the spectrum indicates a greater
probability that it will fall into the complex category. In this case, it is safer to adopt intervention
strategy such as Total Project Management (TPM).
To implement the change, HP first needs to define the exact problem. This can be done by developing
cross-functional team, for example the inventory department and production department in Vancouver.
After that the team can define the resources needed, the tasks, and the performance indicator. The
implementation is reached only after a thorough examination of the problem and the results have been
incorporated into the planning stage. The managers are involved in monitoring the control
mechanisms and taking corrective action as and when required.
Introduction
The company HP (Hewlett Packard) is a manufacturer of printers and computer
products. In this case we will zoom in on the Deskjet printer which are introduced
in 1988 and has become one of Hewlett-Packards most successful products.
Sales has grown steadily, reaching a level of over 600.000 units in 1990.
Unfortunately, inventory growth has tracked sales growth closely. HPs
distribution centres are filed with pallets of the DeskJet printer. Worse yet, the
organization in Europe claims that inventory levels there need to be raised even
further to maintain satisfactory product availability.
The DCs have traditionally envisioned their process as a simple, straight-line,
standardized process. There are four process stops:
1.
2.
3.
4.
The DeskJet printer fits well into the standard process. In contrast, other
products, such as personal computers and monitors, require special processing
called integration, which includes addition of an appropriate keyboard and
manual for the destination country. Although this extra processing does not
require much extra labour. It is difficult to accommodate in the standard process
and disrupts the material flow. There is considerable frustration within DC
management regarding the support of assembly processes.
To solve the problem within HP and their inventory problems the main task is to is
to optimize the safety stock with a well substantiated inventory model instead of
a inventory model which is based on some judgemental rule of thumb. HP also
asked us to evaluate the idea of supplying generic printers to the Europe DC and
integrating the product by packaging the power supply and the instruction
manual at the DC just prior to delivery to the European resellers.
To come to a well substantiated inventory model we have to answer the following
questions.
1. Develop an inventory model for managing the DeskJet printers in Europe
assuming that the Vancouver plant continues to produce the six models sold
in Europe. Using the data in Exhibit 15.15, apply your model and calculate the
expected yearly investment in Deskjet printer inventory in the Europe DC.
2. Compare your result from question 1 to the current policy of carrying one
months average inventory at the DC.
3. Evaluate the idea of supplying generic printers to the Europe DC and
integrating the product by packaging the power supply and the instruction
manual at the DC just prior to delivery to the European resellers. Focus on the
impact on DC inventory investment in this analysis.
4. What is your recommendation to HP?
5. Give advice on how to implement the new planning schedule (Taking in mind
your knowledge of change management).1
1 Case 3 HP
No
v.
80
20
57
2
45
64
40
0
40
08
24
8
29
De
c.
0
20
89
5
32
07
25
5
21
96
45
0
27
Jan
.
60
19
25
2
74
85
40
8
47
61
37
8
32
Fe
b.
90
11
05
2
49
08
64
5
19
53
30
6
18
Ma
r.
21
19
86
4
52
95
21
0
10
08
21
9
26
87
00
34
95
61
Demand
Apr Ma Jun
.
y.
.
48
0
9
20 13 10
31 33 57
6
6
8
50
90
0
04
43 81
87
2
6
23 16 54
58 76
0
20 24 48
4
8
4
23 15 17
10
69
Se
p.
84
23
71
2
43
02
45
6
17
97
38
4
30
Oc
t.
42
43
85
43
0
23
10
16
4
13
Au
g.
54
14
49
6
51
03
63
0
20
46
36
3
22
40
69
73
45
Jul.
20
60
95
43
4
7
3
2
1
Figure 1.1. Printer Demand
Product
Type
Total
Dema
nd
508
AB
15830
AU
18996
0
50496
AA
5042
421
4208
Std.
Dev.
C.V.
Perpet
ual/
Lumpy
32,413
05
5624,7
36
2204,5
83
203,92
68
0,7537
92
0,3553
21
0,5239
03
0,4843
87
Perpetu
al
Perpetu
al
Perpetu
al
Perpetu
al
97
92
61
53
27
3
29
61
23
4
19
AQ
AY
27614
2302
1168,4 0,5075
93
99
3682
307
103,12 0,3359
29
05
Figure 1.2. Printer Demand Type
Perpetu
al
Perpetu
al
As seen on the table above, the nature of the demand of all variation of the
printers are perpetual. There are two inventory models that can be used: reorder
point model and periodic review model. For this question, reorder point model is
used, because it generates less cost compared to periodic review model. The cost
for implementing this inventory model can be seen in the following figure.
Prod
uct
Type
$
250,
00
AB
$
250,
00
$
250,
00
$
AU
AA
AQ
AY
250,
Inv.
Carr
ying
Cost
LT
(mon
ths)
RO
P
Q*
S'd
AIL
Saf
ety
Sto
ck
25%
1,15
50
131
34,81
72
98
%
2,053
749
32
72
25%
1,15
182
65
253
6041,
936
98
%
2,053
749
616
124
09
485
5
130
2368,
102
98
%
2,053
749
318
00
$
$
250,
00
250,
$
250,
00
250,
$
250,
00
250,
$
250,
00
250,
25%
1,15
00
$
25%
1,15
00
$
25%
1,15
486
265
6
413
968
00
$
25%
1,15
354
353
00
98
%
2,053
749
100
1255,
163
98
%
2,053
749
235
98
%
2,053
749
$
6.461,28
$
814.062,
20
$
323.829,
97
$
219,0
526
110,7
718
486
3
Total
Cost
450
257
8
34.393,6
3
$
175.799,
78
$
86
227
19.581,9
5
$
1.374.12
8,81
Service
Level
99,8%
98,3%
AU
AA
98,7%
99,6%
AQ
99,0%
AY
99,8%
Figure 1.4. Service Level
10
Total
Dema
nd
Avera
ge
Dema
nd
43
Inventory
Carrying
Cost
Total Cost
508
25%
$ 250
15830
25%
$ 250
AU
18996
0
50496
4208
25%
$ 250
AA
5042
421
25%
$ 250
AQ
27614
2302
25%
$ 250
AY
3682
307
25%
$ 250
27730
2
23111
$
2,647.50
$
989,375.00
$
263,000.00
$
26,312.50
$
143,875.00
$
19,187.50
$
1,444,437.25
AB
Total
Stock level
Cost
Current Situation
23111
$
1,444,437.25
Figure 2.2. Comparison
New Situation
21986
$ 1.374.128,81
From the figure above, it can be conclude that new inventory model that
developed can decrease the inventory level which costly lower around 8% annual
inventory cost. And also, new inventory model can reduce the error in forecast.
HP can ensure that 98% order will be fulfilled which is very important to big
company like HP.
11
12
Plant Vancouver
DeskJet
The
inventory
Printer
Final
produ
ct
Deep-sea
investment
generic
six
different
Power
supply
options,
there are six safety stocks. Now HP has one safety stock, in figure 3.1 are
shown the inventory costs.
Europe
options
Generic
Figure
EOQ
Std.
Dev
SS
667
AIL
17756 18089,
6243,9
5
6
Inventory costs generic product
13
Inventory
costs
$1.130.593
,75
3.1.
14
Time scales
Resources
Objectives
Perceptions
Interest
Control
Source
Factors
Time Scales
Resources
A/B
B
A
Definition
Medium to long term
Clearly defined and reasonably
Objectives
Perceptions
Interest
Control
Source
fixed
A
Objective and quantifiable
B
Creates conflict of interest
B
Widespread interest
B
Shared between the group
B
Originates externally
Figure 4.1. Tropics Test
To implement the change, HP first needs to define the exact problem. This can be
done by developing cross-functional team, for example the inventory department
and production department in Vancouver. After that the team can define the
resources needed, the tasks, and the performance indicator. The implementation
is reached only after a thorough examination of the problem and the results have
been incorporated into the planning stage. The managers are involved in
monitoring the control mechanisms and taking corrective action as and when
required.
16
17
Bibliographys
Ballou, Ronald H. Reader Business Logistics
Paton, R., & McCalman,J. Change Management: A Guide to Effective Implementation. SAGE
Publications Ltd., 2008.
Case 3 HP, N@tschool
-
18