Hewlett-Packard Company Deskjet Printer Supply Chain

Any company has to worry about its inventory and customer service level, especially once it gains more market share. Hewlett Packard began in 1939 by William Hewlett and David Packard and has grown to have $13.2 billion in revenue by 1990. Hewlett Packard had developed a new type of printer that would replace the dot matrix printers currently used. The price of the printers and cartridges has decreased enough to increase sales. Unfortunately, with the increase in sales has also led to an increase in inventory. Even worse, to keep up customer satisfaction levels, some warehouses in Europe were asking to increase the inventory even more. High inventory levels bring higher costs and more leftover stock as newer units are developed. HP needs to implement a system to keep customer satisfaction high as well as reduce the amount of inventory in their warehouses.

In order to provide better service to the various customers, Vancouver tends to maintain high level of inventory because the shipping usually takes 4-5 weeks and both the power supplies and languages are different in Europe. Another reason for the inventory levels is because the forecasting is not good, since the target inventory level usually comes from rule of thumb. This leads to the situation that some models are in shortage while others pile up. In addition, when they realize there is a spike in demand and ship the finished goods to Europe, those goods will arrive at least one month later and are no longer needed. Another problem that may make things worse is that different departments do not cooperate with each other. The representatives from the production, materials and distribution organizations just focus on their own goods and unwilling to reach consensus on the inventory issues, which leads to a standstill in any improvement.

To achieve desired service level in Europe, HP should carry inventory at least more than the reorder point R. R = L*AVG + Safety stock, we used the Exhibit 4 data to do the calculation as shown in the attached Excel spreadsheet. The inventory level is shown in the cell in green. We recommend HP to redesign the product by using standardized components. Thus, it will reduce the localization process and benefit from risk pooling. The generic products will be sent to Europe and then finish its final differentiation. Using this order policy, we re-calculated the inventory level, as shown in the yellow cell, we can see that inventory has been reduced.

Brent had received some suggestions from his colleagues concerning about the company’s current problem that holding high inventory while maintaining low service level. Some people recommended stocking more inventories for the unsatisfied models/option to make sure that the target service level would be fulfilled. Unfortunately more inventories means more inventory holding cost, which would hurt HP’s cash flow in long term.

Some believed that setting up a sister plant in Europe