Supply Chain Management
Total Annual Inventory Cost
COMM 449
Tom Culham P. Eng, Ph. D.
This slide deck is accompanied by an Excel spreadsheet
File Name: HP Annual Average Inventory Cost Calculations

Hewlett Packard 17-2Compute HP’s annual average inventory cost of movement from the FAT to European DC given the case data. This case is accompanied by an Excel spreadsheet File Name: HP Annual Average Inventory Cost Calculations

17-3
Fixed Time Period Model
Including Safety Stock
Hewlett Packard uses a fixed time period model for ordering inventory.
T= the review period (the frequency orders are placed)
L = the lead time.

4
Case Data

Calculating Annual Average
Inventory Costs
Annual Average Inventory Costs =
(Safetystock(SS)+Pipeline(PL)+Cycle Stock(CS))x(unit
cost)
(percent carrying cost).
SS= Z value * standard deviation of the exposure period
(T+L)
Z value for service level of 98%= 2.06
PL= Inventory in transit
CS = Average weekly order/2