Class 11-1 - COMM 399-972 Logistics and Operations Management Class 11-1 Supply Chain Management HP Case and Postponement 1 Selling HP Deskjet in Europe

Class 11-1 - COMM 399-972 Logistics and Operations...

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Unformatted text preview: COMM 399-972 Logistics and Operations Management Class 11-1: Supply Chain Management - HP Case and Postponement Aug 11, 2015 1 Selling HP Deskjet in Europe 2 1 HP Deskjet Case: Background • Manufacturing in Vancouver WA – Plant is capable of high volume, high speed – Can manufacture many different models • 3 DC’s: North America, Asia, Europe – simple standardized process • Transportation lead times – Europe & Asia: 5 weeks – US: 1 day 3 HP Deskjet Case: Analysis Problem (Europe) Causes • High inventory levels • Long Lead Time • Printer Market is • Low product Competitive (requrie availability high service level) • Product differentiation (six models) • Demand variability • What are HP’s options? 4 2 HP Deskjet Case: Options Short Term Options • Rationalize Safety Stock Long Term Options • • • • • More inventory European factory Air shipment Better forecasting DC localization • Advantages, disadvantages of each options? 5 HP Deskjet Case: Short Term Option Safety Stock Rationalization • Monthly Demand BRAND Monthly Demand Mean Standard Dev A 42.3 32.4 AB 15830.1 5624.6 AU 4208.0 2204.6 AA 420.2 203.9 AQ 2301.2 1168.5 AY 306.8 103.1 6 3 Annual Total Supply Chain Cost = Annual Inventory Cost + Annual Transport Cost + Annual Purchasing Cost Annual Holding Cost = H * Total AVG Inventory (Q,r): = i C * ( + + ∗ ) 2 or (R,T):= i C * ( ∗ + + + ∗ ) 2 Variable cost included in C (Q,r) = S* ; Annual Setup Cost Variable cost included in C Fixed cost included in S 1 (R,T) = S* ; In HP case, S=0, C=$250, i = 25%, T =1w, LT=5w, z=2.06 = C*D 7 Analysis Objective • Compare delayed differentiation strategy to current practice – Delayed differentiation (postponement) is achieved by supplying generic printers (non model specific) to the local (Europe) DC at which the integration process of packaging the power supply and instructional manuals are performed • Focus on inventory cost among total supply chain cost – Assume same annual demand: constant transportation, purchasing cost – Assume same (R,T) policy: constant setup cost 8 4 Question 1: Current Inventory Investment • What should be safety stock assuming weekly replenishment and 98% service level? Given CSL(cycle service level)=98%, how to find Z and SS? 9 Z=2.06 10 5 Annual Holding Cost Total Avg Inventory = Avg Safety Stock + Avg Cycle Stock + Avg Pipeline Stock (Sum over all six models) Annual Inventory Holding Cost = Total AVG Inventory * annual interest rate (i) * Unit cost (c) When we compare different inventory methods, we always compare the Avg unit inventory (holding) cost (Why?) Annual unit inventory (holding) cost Annual total Inventory (holding) cost = ( ) 11 Question 2: Evaluating DC Localization Note that = + + + + + Therefore, the pipeline and cycle stock keeps the same. For given CSL, z = generic = = ( + + + + + ) ≈ 2 + 2 + 2 + 2 + 2 + 2 < + + + + + Insight: Risk Pooling (by DC localization) uses less safety stock but maintains the same cycle service level (CSL). 12 6 HP Deskjet Case Evaluating DC Localization BRAND Monthly Demand Mean Standard Dev A 42.3 32.4 AB 15830.1 5624.6 AU 4208.0 2204.6 AA 420.2 203.9 AQ 2301.2 1168.5 AY 306.8 103.1 Generic (Total) 23108.6 6244.0 Sum of demands Don’t just sum up! 13 HP Deskjet Case Evaluating DC Localization Benefits Costs Safety Stock Reduction Product redesign Lower value of transit inventory DC Modifications Local presence of “manufacturing” Custom implications Local procurement of localization materials 14 7 HP Deskjet in Practice: Outcomes After Implementing DC Localization Implementation Issues R&D Support: “This product is working, so why bother?” Results Successful implementation Millions saved DC Support: “Not our core competency” Service levels increased New packaging Packaging won awards Capital investment Best practice spread to other HP divisions 15 Hewlett-Packard LaserJets • Previously, the printers had two different power supplies (110, 220 volts) • An improved design enables a single power supply to work for both voltages. • 5% Cost Savings 16 8 Delayed Differentiation: A Common Practice Old Manufacturing Process Spin/Purchase yarn Dye yarn Finish yarn Manufacture garment parts Join parts New Manufacturing Process Spin/Purchase yarn Manufacture garment parts Join parts Dye garment Finish garment Which step is postponed? 17 Delayed Differentiation: Key Concepts • Make a generic/family product that is later differentiated into a specific end-product • Delay differentiation of products in the same family as late as possible • Enables the use of aggregate forecasts, and enables the delay of detailed forecasts • Risk pooling: reduce the demand variance, therefore reduce safety stock and inventory cost • May require new processes or product design with associated costs 18 9 Far From the Factory, Adding Final Touches • 19 10 ...
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