Hewlett-Packard Company Case Study
It allows HP to postpone (product standardization, postponement) the allocation of laser printers (or specification of printer engine) to specific regions by about two months. Thus, in these two months the decisions can be made based on the aggregate demand forecast (US & Europe) in all regions. Production team believes universal power supply can enable HP to better respond to regional demand (US & Europe) and reduce its inventory costs.
1. Disadvantages / costs of the universal power supply include:
i. Increase material cost (USD 30/unit) ii. Possible power play among warehouses / Distribution centers (DCs) when …show more content…
The lead time that results from outsourcing the printer engine to a Japanese supplier that holds monopoly power is very long compared to the life cycle of the product (41/2 mths. in an 18 mths. PLC). Also, under the buy/make framework, outsourcing a key component of a modular product may be a risky decision for the company. Therefore, in order to reduce this risk and the lead times, HP Boise should consider manufacturing (and develop competency) of the printer engine in-house if there is enough production capacity. In addition, this would provide savings in transportation costs because printer engine would not have to be shipped from Japan to Boise/ European distribution centers.
Given the short life cycles of laser printers (18 months) along with high demand uncertainty, and the past experiences (the VIPER example), we recommend adopting the universal power supply strategy. However, clearly, to make the final decision, a thorough cost vs. benefit analysis needs to be carried out in order to determine the trade-off between the increase in manufacturing costs ($30 per printer for the universal power supply) and the decrease in stock-out and inventory holding (and improved forecasts) costs due to risk pooling and data aggregation as well as re-configuration and transshipment costs.