1. In what way is a universal power supply a postponement strategy
2. What are the costs and benefits of a universal power supply?
3. How would such costs and benefits be different over the product life cycle?
4. Besides deciding on a universal power supply, what other operational improvements can you suggest to HP Boise?
5. What would be your recommendations about the adoption of a universal power supply?
UNIVERSAL POWER SUPPLY - POSTPONEMENT
Historically, HP printers in North American and the European market have distinct power supplies and associated fusers in the main engine of the printer. This thus resulted in two different manufacturing supply chains. Moreover, due to the long lead time for engine manufacturing, HP had to specify the requirements of the two types of printer at least 14 weeks ahead. This means that it had to forecast the demand for North America and the demand for the European separately. In addition, given that the decision for customization is made very early, HP could end up with more printers than it required in one area and less printers in the other, but no low cost way to move the excess demand to the high demand area.
With a universal power supply, HP need not make the decision for customization (whether the printer should be made for the North American or European market) when it places an order with its Japanese partner. Instead, it just had to provide an aggregate order (for both markets) and the final product will be generic. The printer is customized only when HP sees a demand for printers of a certain region. Therefore, customization of the product for the local market is pushed back further down the supply chain i.e. postponed.
BENEFITS OF UNIVERSAL POWER SUPPLY
Lower Inventory Level and Holding Cost
It is beneficial to push back the decision to manufacture the printers as much as possible. This is because the longer the horizon, the worst the forecasting. With this introduction of postponement, HP can postpone the need to decide on which printer to produce for which region by 10 weeks (Lead time of 14 weeks minus the 4 weeks that is required for the Japanese partner to prepare for customs/shipping). Compared with the average life cycle of 18 months, this postponement is very large and will have great impact on forecasting. HP will have a better idea of the demand for each region. The aggregated forecast can be done by postponement and are more accurate and have a lower variation compared to two separate supply chains.
With improved forecasting accuracy, the overall average inventory level will decrease with the aggregation of orders. With an annual holding cost of 30%, this reduction in inventory level will have a great impact on the holding and total costs.
The savings in the inventory holding cost is more important in the ramp-up and maturity stage. Because of the high stock-out cost, a huge amount of safety stocks are kept to meet a very high service standard. During these two stages, 10...