MARKETING CHANNELS
EXECTIVE SUMMARY This case study deals with Hewlett-Packard (HP), a famous manufacturer of computers and peripherals. In the early 1990s, HP faced a socalled called “Inven “Inventor tory/S y/Serv ervice ice-Cr -Crisi isis” s” concer concernin ning g one of their high volume products, the DeskJet 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.
EXECTIVE SUMMARY • 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 DeskJet 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 DeskJet Printer product line. • 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.
Improvement during the early 1980s – Manufacturing cycle time reduced » 8-12 weeks ==> 1 weeks
– Average inventory reduced » 3.5 months ==> 0.9 months
– All finished goods inventory eliminated – Importance of response time and transportation time increased – Further improvements should be made on supply chain
Improvement Improvement during the early 1980s – Manufacturing cycle time reduced » 8-12 weeks ==> 1 weeks
– Average inventory reduced » 3.5 months ==> 0.9 months
– All finished goods inventory eliminated – Importance of response time and transportation time increased – Further improvements should be made on supply chain
Improvement Improvement of supply supply chain in 1990 Comparison of Response Time (months) 6
– Time between order and delivery reduced » Europe & Asia:
5.25
5
5.25 months ==> 1.25 months
4.25
4
» North-America:
3 2
4.25 months ==> 0.2 months
1.25 1990-
1
0.2
– Importance of transportation time increased
1990+
0
e a p i o s r A u & E
- a c h i t r r o e m N A
» Europe & Asia: 1%
==> 12%
» North-America: 20% ==> 80%
ANSWERING THE QUESTIONS • • • • • • • • • • •
No.1 (a) Types of consumers of consumers to whom HP sells printers Business Personal Computer users in Offices Personal Computer users in Homes No.1 (b) Consumer’s Need: The primary need of all of all consumers is to print something in the form of images of images or text. Three option are available for the customers of HP. of HP. Dot Matrix Printer Inkjet Printer Laser Printer Prior to 1989, most customers were not aware of inkjet of inkjet technology. However, customers were discovering that inkjet print quality was almost as good as laser print quality at a much affordable price. Laser printer and other printer related products of HP of HP don’t necessary require the online selling. Because customer were discovering that inkjet print quality was almost as good as laser print quality at a much affordable price.
ANSWERING THE QUESTIONS • •
• • • •
Q No.1 Q No.1 (c)Consumer’s needs met with channel structure or not: HP led the inkjet market in US. Means in USA, HP facilitate its customers and consumer’s needs are met by current channel structure. But in other areas of the of the world especially in Japan and in Europe HP faces certain issues while satisfying customers needs. the problem is only in terms of product of product availability. Channel structure is poorly designed especially, in Europe there is no information flow between channel members and lack of commitment. of commitment. There is no product availability in some countries while others have access inventory (in terms of finished of finished goods; printers). Between 80s and 90s HP was the market leader of Inkjet of Inkjet printer but now days HP’s DeskJet printer in on sixth position in ranking. Waiting time is high in Europe and Asia and availability is low in Europe. Physical possession and information flow don’t function properly.
ANSWERING THE QUESTIONS • • • • • • • • • • • • •
No.3 If HP If HP were to sell direct, should they sell both printers and supplies? What printers should be sold online? What should not? Now days every company tries to sell their products directly as well as through third party distributors. Selling online is also important factor and DELL is the example (most successful) of direct of direct selling. quick transactions, There are many advantages of selling of selling online included: quick transactions, no physical no physical space space required for inventory, for inventory, higher product availability, product availability, no waiting time no intermediaries required. So what should needed to do in case of HP? of HP? So HP should sells both printers and supplies direct (online). There is no such need of selling of selling directly in US because of high of high product availability because of functioning as a local company here. But in Europe and Asia, HP must go direct. HP already has an online system for other product lines like PCs and Laptops. DeskJet printer is most successful brand or product of HP of HP and generates high volume of sales. of sales. So HP should sell DeskJet printer online.
ANSWERING THE QUESTIONS • • • • • • • • • • • • •
No.4 Key components of HP’s of HP’s channel management strategy Formulating marketing channel strategy Designing marketing channels Selecting channel members Motivating channel members Coordination channel strategy with members Evaluating channel member performance Managing conflict in the channels HP formulates its channel strategy in a better way and choosing channel members properly. In its channel members include: suppliers, manufacturer site (Vancouver Division), DCs, resellers, end users. While designing channels HP focused on right level and right kind of channel of channel members. Basically HP’s Vancouver division, products shipped to three DCs (distribution centers particularly located in US, Europe and Asia Pacific) then from DCs to resellers and retailers and finally to consumers. HP motivates its channel members and accepts the decisions from their side but there do not do too much effort on motivating. There is no coordination with channel members at low end. Means resellers and end users don’t know what is HP’s channel strategy. There is no evaluation or feedback and finally HP sometimes fails to resolve issues. As we know from the case study that representatives conflicting goals prevented them from reaching consensus on the issues.
ANSWERING THE QUESTIONS if HP • No.5How are channel members likely to react if HP
• • • • •
goes direct? How should they react? Channel members might be turn towards competitors of HP of HP They might be take illegal actions, called against HP in market It is possible that react in positive way and make alliances with HP They might be adopt negative policy and start to spoil the HP’s market It is possible that they would started misguiding HP’s loyal customers
RECOMMENDATIONS • • • • • • • • • • • •
HP should do work on value constellation rather than value chain. R&D staff should staff should visit all the market especially in Europe and Asia to better knowing the customer needs and for demand analysis. There is no coordination in channel members so HP must improve this deficiency through information flow Provide downstream members some extra benefits for their better performance Improve forecasting through different strategies DC localizations Manufacturing site as Vancouver is also built in Europe and Asia. HP should sell printers direct (online) as well as through the current channel members Air transportation mean is also used to reduce lead time Channel manager should perform its functions properly and resolve the conflicts among channel members Special bar codes are applied to inventory (products) according to specific regions. VMS should be introduced
Connect Supply With Demand
Information
SUPPLY
Product Cash
DEMAND
Advantages • • • • • • • • • • •
No extra warehousing charges bear by Vancouver Transportation and inventory costs are reduced Millions are saved Service level are increased Air transportation mean is worth able Freight cost is also reduced Better communication between channel members is achieved resulted in better performance Online selling reduce costs and increase product availability HP’s sales and revenues are increased ultimately Business portfolio maintenance will leads the business towards creativity, innovation, high service output demand fulfillment. Local procurement of localization of localization materials
Disadvantages • Air transportation mean is expensive • There are costs of product of product redesign and DC modifications
• More staff is staff is required to better forecasting • Conflicts arises between HP and channel members if HP if HP goes direct
EXIBITS Mobile printer The first DeskJet printer
Color printer
Photo printer
HP DeskJet Printer Supply Chain
Supplier
Integrated
Asia-Pacific
circuit
distribution
manufacturing
Vancouver final
Supplier
Printed circuit assembly & test
mechanism manufacturing
4-5 weeks
assembly & test
California
1 day distribution
Supplier
Dealers
center
4-5 weeks
Printed
Supplier
center
Dealers
European distribution center
Dealers
EXIBITS
FAT PCAT 1 week
Vancouver 1 day U.S. DC 4~5 weeks
Europe
Asia
EXIBITS THE DISTRIBUTION PROCESS Vice President of Marketing Manager
Peripherals Group Manager
Worldwide Distribution Manager
Operation manager
MIS
Quality
Marketing Physical Distribution
Distribution Service