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The printer industry was highly competitive. Customers of HP’s computer products (resellers) wanted to carry as little inventory as possible, yet maintaining a high level of
SGSCMF-002-2001 HP DeskJet Printer Supply Chain 6availability to end-users (consumers) was critical to them. Consequently there had been increasing pressure for HP as a manufacturer to provide high levels of availability at the DCs for the resellers. In response, management had decided to operate the DCs in a make-to-stock mode in order to provide very high levels of availability to the dealers. Target inventory levels, equal to the forecasted sales plus some safety stock level, were set at the three DCs. As mentioned earlier, Vancouver prided itself as an almost “stockless” factory. Hence, in contrast to distribution, manufacturing of the DeskJet printer operated in a pull mode. Production plans were set to replenish the DCs “just-in-time” to maintain the target inventory levels. To ensure material availability, safety stocks were also set up for incoming materials at the factory. There were three major sources of uncertainty that could affect the supply chain: (1) delivery of incoming materials (late shipments, wrong parts, etc.); (2) internal process (process yields and machine downtimes); and (3) demand. The first two sources of uncertainties resulted in delays in the manufacturing lead time to replenish the stocks at the DCs. Demand uncertainties could lead to inventory buildup or backorders at the DCs. For the European and Asian DCs, since finished printers were shipped from Vancouver by ocean, the consequence of the long lead-time was that the DC’s ability to respond to fluctuations in the demand for the different versions of the product was limited. In order to assure high availability to customers, the European and Asian DC’s had to maintain high levels of safety stocks. For the North American DC the situation was simpler; since an overwhelming majority of the demands was for the US version there was little localization-mix fluctuation. The Distribution Process At HP, while a typical DC shipped hundreds of different peripheral and computer products, a small number of products accounted for a large share of the volume. The DeskJet printer was one of these high volume products. The Operations Manager of each regional DC reported into a Worldwide Distribution Manager, who reported directly to HP’s Vice President of Marketing, and dotted line to the Peripherals Group Manager (peripherals made up the bulk of shipments through distribution centers). Each Operations Manager had a staff of six functional managers, representing Finance, MIS, Quality, Marketing, Physical Distribution and Distribution Services. The first three functions were similar to their respective functions in a manufacturing organization.