Hewlett-Packard Company Desk Jet Printer Supply Chain (A) Case Study Help
Generic product:
The strategy involves assembling and distribution of the generic printer options at one distribution center i.e. the European Distribution Centre. In order to evaluate the financially viability of the option and saving inventory cost, it was assessed that lead time in the case will be one week. It is evaluated that the inventory cost using this strategy will be significant as compared to the other two models, considering the inventory turns i.e. the number of times the inventory will be sold or used in a defined period will be 0.111.
Moreover, it is evaluated that the organization will experience stock outs, considering the fact that the weekly demand of the products is expected to be greater than the on hand inventory, which is short by 745 million. In addition, due to low inventory turns and shortfall of inventory as compared to its demand, it is estimated that the organization’s inventory cost will be 359 million dollars, which is significant as compared to other two options.
In addition, the strategy appears to be risky as the assembling of inventory level is based on the performance of the Distribution Center in Europe as inefficient performance by the center will cause delays. The inefficiencies include lack of human capital to complete the assembling of inventory, which will cause the procedure to be very lengthy and extensive.
Establishing a factory in Europe:
The organization can also reduce the inventory cost while maintaining optimum inventory levels and providing high level of services to the customers by establishing its own factory in Europe where the inventory will be held and the assembling of the options will take place at a separate distribution center. This will ensure that the transportation cost is zero as the factory will be established in Europe, where the organization has a distribution center. In addition, the lead time will also be reduced as products will be distributed faster as a result of establishing a factory in Europe.
However, the option will require significant capital expenditure as establishing factory in Europe is a capital intensive process. Moreover, employing the specified strategy might reduce the profitability of the business, as sales might be affected as a result of increase in selling price in order to cover the additional cost incurred form establishing the factory. In addition, significant human capital will be required for establishing the plant and running the operations at the factory, which will increase the human capital cost for the company.
Recommendation
Based on the financial evaluation, it will be recommended to the business to employ supply chain model, comprising of assembling and shipping the options using Air Freight as this option has a low lead time and requires low inventory cost as compared to other strategies. Moreover, considering the increasing demand of the products, this strategy will ensure that the organization fulfills the customers’ demands quickly, maintaining an optimum inventory level i.e. the level at which the organization’s holding and transportation cost is minimum and stock outs are not experienced. In addition, as the strategy has a lead time of only a week, the significant delays in the assembling and distribution of products are not faced by the organization.
Conclusion:
The case report involves taking appropriate steps to reduce the uncertainty caused by the incoming material delivery, providing the high level of service and determining the right inventory level (best safety stock amount). Therefore, each strategy was evaluated on financial grounds and its was assessed that the air freight option had the lowest inventory cost as compared to current distribution model, which involved shipping of products between three distribution centers and assembling and distributing one generic product at the European distribution Centre..........................
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