HP DeskJet Printers

In the early 1990s, HP faced a so-called “Inventory/Service-Crisis” concerning one of their high volume products, the Desk-Jet printer. Despite growing inventory levels at the distribution centers in Europe and Asia-Pacific, customer service levels were unsatisfactory. Affected by growing competition this problem had to be handled quickly.

Brent Cartier, Manager for Special Projects in the Materials Department of HP Company’s Vancouver Division, had tried his best to find the possible solutions of the issues related with inventory of Desk-Jet printers that were arisen at world level especially, at Europe. He had short time for these tasks because preparation was needed to be done for Monday’s meeting with Group Management on worldwide inventory levels for the Desk-Jet Printer product line. Each quarter, representatives from the production, materials and distribution organizations in Europe, Asia Pacific and North America met to discuss the ‘I-word’, as they referred to it, but their conflicting goals prevented them from reaching consensus on the issues. Each organization had a different approach to the problem.

The Desk-Jet printer was introduced in 1988 and had become one of HP’s most successful products. Sales had grown steadily, reaching a level of over 600,000 units in 1990 ($400 million). Unfortunately, inventory growth had tracked sales growth closely. Already, HP’s distribution centers had been filled with pallets of the Desk-Jet printer. Worse yet, the organization in Europe were claiming that inventory levels there needed to be raised even further to maintain satisfactory product availability. As Brent saw it, there were two main issues. The first was to find the best way to satisfy customer needs in terms of product availability while minimizing inventory. The second and stickier issue involved how to get agreement among the various parties that they had the right level of inventory. They needed to develop a consistent method for setting and implementing inventory goals and get every one to sign off on it and use it. Manufacturing is done at Vancouver Division and then outgoing products were shipped to the three distribution centers; US DC, Europe DC and Asia Pacific DC. From the DCs, the products were then shipped to distributors, resellers, and retailers. Customers of HP’s computer products (resellers) wanted to carry as little inventory as possible, yet maintaining a high level of availability 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. Manufacturing of the Desk-Jet printer operated in a pull mode. Production plans were set to replenish the DCs ‘just-in-time’ to maintain the target inventory levels. 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 downtime); and 3) demand. In order to assure high availability to customers, the European and Asian DCs had to maintain high levels of safety stocks. To limit the amount of inventory throughout the Desk-Jet supply and at the same time provide high level of service needed had been quite a challenge to Vancouver’s management. The magnitude of demand imbalances was especially alarming in Europe.

Finally opinions and reactions of different company divisions concerning the implementation of DC localization are analyzed. The solution of problems is the reconfiguration of key strategies related with channel’s management. There is no proper information flow performed by any channel member. There are no mutual tasks and goals and individual interest is common. Forecasting is not done properly so, there is a need to improve forecasting strategies. There is no degree of commitment among channel members. There personal conflicts can’t be solved. Mishandling is a problem rather than inventory because in Europe, there is no proper distribution flow. In some countries there is much shortage while other countries have access stock at retail shops. Demand side factors in Europe don’t analyze properly. Transportation activities are performed through only one way; ocean. Safety stock rules would have to be revisited. There is the idea of having a European plant to take care of the inventory and service problem in Europe. There is a need of value constellation for the efficient flow of channel. Channel structure should be redefined and more channel members should be attracted especially in Europe. HP must be selling direct too.

References: ppt. slides

http://www.slideshare.net/mhussain480/hp-channel-analysis

http://kursinfo.himolde.no/lo-kurs/lo904/Randall/HP%20Deskjet%20supply%20chain.pdf