UBCSauder School of Business COMM 204: Logistics and Operations Management Sections 206-20! 206- 20! "om "om McCormic# McCormic #
Assignment 3: HP DeskJet case Recall that you can work work on this assignment assignment (and other assignments assignments in this course) either individually, or in groups of up to four total students (you can organize groups on your own, from any students in Sections 20620!)" #our #our written assignment is due on or before 9:30am the morning of Tuesday, 15 drop$o% on the course&s course&s 'onnect we$page" March , to the assignment drop$o% Remem$er to write the names names and students num$ers num$ers of all students in your your group on your su$mitted assignment" assignment" Company DeskJet Printer Supply Chain (A) case. Read the Hewlett-Packard Company Answer these five questions (the “current policy” referred to in question 2 is described at the bottom of this document):
. !evelop !evelop an inventor inventory y model for for mana"in" mana"in" the !es#$et !es#$et printer printerss in %urope assumin" that the &ancouver plant continues to produce the si' models sold in %urope. %urope. sin" the data in the the %urope table in %'hibit * apply your model and calculate the e'pected yearly investment in !es#$et printer inventory in the %urope !+. 2. +ompare +ompare your your results results from question question to the current current policy policy of carryin carryin" " one month,s avera"e inventory at the !+. -. %valuate %valuate the idea idea of supplyin" supplyin" "eneric "eneric printer printerss to the %urope %urope !+ and inte"ratin" the product by pac#a"in" the power supply and the instruction manual at the !+ ust prior to delivery to the %uropean resellers. /ocus on the impact impact on !+ inventory inventory investment in this this analysis. . 0nstead 0nstead of supplyin" supplyin" "eneric "eneric printers printers to the %uropean %uropean mar#et* mar#et* another another alternative su""ested by 1ay $ohnson (the ransportation ransportation !epartment supervisor at 34) was to air frei"ht the printers to the %uropean !+. sin" air frei"ht would cut the shipment time from 5 wee#s to wee#. 6he said (on p. 7 of the case) that “6hortenin" the lead time means faster reaction time to une'pected chan"es in product mi'. hat should mean lower inventory and hi"her product availability. 0 tell you* air frei"ht is e'pensive* but it is worth it.” 6uppose that air frei"ht costs an additional 89 per unit. 6hould this option be used
instead of supplyin" "eneric printers ( Hint : !oes the reduction in inventory cost per unit offset the increase in the transportation cost per unit) 5. ;hat is your recommendation to 34 Other Hints to the Case:
0n comparin" different options (e.".* usin" air frei"ht* locali
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se demand data from the %urope table in %'hibit . /or your convenience* the %uropean data from %'hibit have been pre=entered into a spreadsheet posted on +onnect* alon" with computation of the monthly mean* standard deviation* and coefficient of variation* and a template for further computations. >uestion as#s for an “inventory model”? this ust means that you need to compute the safety stoc# 66 for each option: ;e already #now that we are usin" the periodic review policy. his policy requires that you fi"ure out 66 for each printer option. hen this 66 would "ive you the ar"et level* which would allow you to compute the order quantities each wee#. +omputin" 66 also allows you to compute avera"e total inventory. Assume a @7 +ycle 6ervice Bevel. he z value to ensure a @7 +6B is /=(9.@7) C 2.95. Assume .-- wee#s in a month. 4. 7 says that inventory carryin" cost estimates ran"ed from 2 to D9? you should assume h C 25 and the manufacturin" cost of each printer is + C 8259. Eote that this is a fixed time period model (periodic review model) with review period C wee#. Bead time for ocean transit C 5 wee#s* and lead time for air frei"ht C wee#. ;hile calculatin" annual inventory costs* remember to include
pipeline (in=transit) inventory* safety stoc#* and cycle stoc#s. •
he annual avera"e inventory cost is computed as follows: Annual Avera"e 0nventory +ostC (6afety 6toc# F Avera"e 0n= ransit 0nventory F Avera"e +ycle 0nventory) G (unit cost) G (percent carryin" cost). Eote that in a fi'ed time period model* the orderin" cost is fi'ed and can therefore be i"nored.
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;e can find the avera"e inventory cost per printer by dividin" the annual avera"e inventory cost by mean annual demand (mean monthly demand G 2). he total supply chain cost per printer sold is "iven by(unit cost) F (avera"e inventory cost per printer) F (transportation cost per printer). Hour recommendation to 34 should be to use the option that minimi
“Current Policy” for Question 2: he “current policy” used by 34 is not clearly e'plained in the case. Accordin" to the case* the “the tar"et inventory levels at the !+s were based on safety stoc#s that were a result of some ud"mental rule of thumb” (p. I)* which you should assume is equal to one=month,s avera"e sales. o be consistent* use the followin" interpretation: “ar"et physical inventory level at the !+” C “Avera"e physical inventory at the !+”. Recall that (av" physical inv) C (av" cycle stoc#) F (safety stoc#)* whereas (av" inv position) C (av" physical inv) F (av" pipeline inv). hus if we are #eepin" one month,s avera"e sales as physical inventory* then we have ( month,s av" sales) C (av" cycle stoc#) F (implied level of 66)* or 66 C ( month,s av" sales) J (av" cycle stoc#). 6ince we #now that (av" cycle stoc#) C (av" demand durin" )K2* and since C wee#* we "et 66 C ( month,s av" sales) J ( wee#,s av" sales)K2.
nder the fi'ed time=period (periodic review) model* the avera"e inventory at the !+ is the cycle stoc# plus the safety stoc# (C >K2 F 66)* where the cycle stoc# is half of the sales durin" the review period. /or e'ample* for Lption A one=month,s avera"e sales C 2.- units* i.e.* one=wee#,s avera"e sales C 2.-K.-- C @.7 units. 0f the avera"e physical inventory at the !+ is set to 2.- units* then: 2.- C (av" cycle stoc# ) F 6afety 6toc# 6afety 6toc# C 2.- M (av" cycle stoc# ) C 2.- M (@.7)K2 C -I. items. Hou should be able to compute that if the safety stoc# is -I.* then the service level for Lption A will be less than @7. 6o* under the “current policy*” inventory for Lption A will probably be lower than what you computed in >uestion (and thus inventory cost will be lower)* but the service level for Lption A will be lower than the required @7. Eote that pipeline (or in=transit) inventory is not held by the !+* but its cost should be included in the supply chain cost. 6u""ested len"th: 2 pa"es* possibly more when %'cel printouts are included.
