A copy of the case study can be found in the attachment. APA FormatReply 1 Brad Bennett Hewlett-Packard Company Background The company was founded in 1939 and has a history rich in reach and development investing large amounts of capital to be able to develop new innovation. By the ’80s and into the ’90s the company was operating worldwide. The company gained some success in the network laser printing project which it launched project rainbow to develop this type of printer for the organizational setting. Project Rainbow would be manufactured between HP Boise and HP Japan. The issues are caused because of the different power supply between the U.S. and Europe markets. The company is exploring the idea of creating a universal power supply to meet all markets and reduce the need to rely on a different producer causing logistical issues. In what way is a universal power supply a postponement strategy? Liu et al. (2009) stated the importance of design decisions and the impact of costs during the product life cycle. Yan Yeung et al. (2007) stated that a postponement strategy intentionally delays tasks. The universal power supply is a postponement strategy because of the partners in Japan and the issue with the different power supply requires 14-weeks to prepare. The universal power supply would reduce the need to make those specific decisions and reduce the 14-weeks needed. Saghiri and Hill (2014) stated this strategy delays activities until more accurate demand is available. What are the costs and benefits of a universal power supply? Cost There are few things to consider which will impact the costs of the item if the universal power supply is developed. A universal power supply would a create production cost increase of $30.00 per unit. There will be other costs related to change in technology, as well as training. Benefits Developing a universal power supply would create several benefits for organizations. There will be a reduction in shipping costs because they are not using another step. Customer service will also increase because of faster response times to the consumer. In addition, there will be better forecasting by the company How would such costs and benefits be different over the product lifecycle? Liu et al. (2009) stated that cost during a product life cycle includes all costs from research until the conclusion. Simichi-Levi (2008) stated that the product life cycle for laser printers occurs in three stages. With the new beginning of the product, the costs would be high and the benefits would be low. But as the product progresses the improved forecasting would increase the benefits and lower the costs because of the lower inventory levels needed. Baardman et al. (2018) stated the impact of quality sales forecasting while making decisions related to launching new products. Besides deciding on a universal power supply, what other operational improvements can you suggest to HP Boise? HP could look to improve the logistical aspects of moving the products and try to reduce lead times for consumer. HP could also explore outsourcing ideas. What would be your recommendations about the adoption of a universal power supply? I do think HP should produce a universal power supply. While there are additional costs associated with the production most notably the $30.00 direct costs increase as well as additional indirect costs these could be overcome in a short period of time. As with any decisions like these, it is important to be conservative in projecting numbers to make sure the new product is not over-projected. One of the keys for HP is using cost accounting to understand what the marginal cost increase means and compare that to the potential increase in sales. References Baardman, L. , Levin, I. , Perakis, G. and Singhvi, D. (2018), Leveraging Comparables for New Product Sales Forecasting. Prod Oper Manag, 27: 2340-2343. doi:10.1111/poms.12963 Liu, H., Gopalkrishnan, V., Quynh, K. T., Nhu, & Ng, W. (2009). Regression models for estimating product life cycle cost. Journal of Intelligent Manufacturing, 20(4), 401-408. doi:http://dx.doi.org.ezproxy.liberty.edu/10.1007/s108… Saghiri, S., & Hill, A. (2014). Supplier relationship impacts on postponement strategies. International Journal of Production Research, 52(7), 2134–2153. https://doi.org/10.1080/00207543.2013.857053 Simchi-Levi, D., Kaminsky, P., & Simchi-Levi, E. (2008). Designing and managing the supply chain (3rd ed.). New York, NY: McGraw-Hill Irwin. Yan Yeung, J. H., Selen, W., Zhou, D., & Zhang, M. (2007). Postponement strategy from a supply chain perspective: Cases from china. International Journal of Physical Distribution & Logistics Management, 37(4), 331. doi:http://dx.doi.org.ezproxy.liberty.edu/10.1108/0960… Reply 2 Hewlett-Packard Company: Network Printer Design for Universality Anitha L. Williams Liberty University Case Discussion Questions and Answers In what way is a universal power supply a postponement strategy? Postponement Strategy Historically, HP printers in North American and the European market have distinct power supplies and associated users in the main engine of the printer. Thus, it 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 a 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. Besides, given that the decision for customization is made very early, HP could end up with more printers than it required in one area and fewer printers in the other, but no low-cost way to move the excess demand to the high demand area (Simchi-Levi & Kaminsky, 2008, Chapter 11, p.358). HP has two specifications for its printers, 110-volt power supply for the North American region and 220-volt power supply for European printers. One of the crucial parts of the printer is the engine. It is built by one of HP’s vendor partner in Japan who needs the specification 14 weeks in order to prepare for production. However, the production period only takes four weeks. The dilemma is that should HP could have the flexibility of postponing the specific requirement to its partner by two months if they were to develop a universal power supply. In other words, should the universal power supply strategy be explored, HP can become more responsive to the individual market utilizing its inventory and reducing its indirect costs (Simchi-Levi & Kaminsky, 2008, Chapter 11, p.358). With a universal power supply, HP need not decide 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 demand for printers of a specific region. Therefore, customization of the product for the local market is pushed back further down the supply chain, i.e. postponement. Postponement allows HP to (product standardization) allocate 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 reduce its inventory cost better. Outlined below are some strategies: Delay the point of differentiationUnder postponement certain part of the supply chain are undertaking a push strategy while other parts perform a pull strategyUpstream suppliers provide commodity parts using a push strategyDownstream supplier employs a pull strategy & do not customize products or services until an order is placedManufacturing is the foundation of core production stageIntegration is the core part of the product and key componentsCustom design has different accessories together to form a significant difference between the productsProduct localization measures adapt to local requirements of different countries and region What are the costs and benefits of a universal power supply (assumptions)? Universal power supply costs and benefits 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 customized shipping). Compared with the average life cycle of 18 months, this postponement is very large and will have a 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. Incorporating a universal power supply into the Rainbow printers increase costs by $30 per printer. This is a small amount compared to the cost of the engine which totals up to $1000 per printer. Demand forecasts are a major issue leading to stock-outs and inventory pileups. While the loss in sales per printer costs HP $5000-$6000, along with the loss of customers to competitors, inventory pileups lead to discounted sales and transshipment. A universal power supply eliminates all rework. The old power supply may induce regulatory issues and must be disposed of. Costs Benefits Higher cost per units = $50 Increase forecast accuracy Length Break-Even Time Less safety stock required Problems allocating supply Few lost sales Less stock out How would such costs and benefits be different over the product life cycle? Product life cycle costs and benefits Over the course of the product life cycle, both costs and benefits differ at the beginning of the life cycle of the product. The product life cycle of printers can be divided into three stages: ramp-up, maturity, and end of life. Ramp-up stage: Allows HP’s production volume to level off from the time the product is introduced. The cost of stockouts is the highest and more forecast errors. There also limit market information and knowledge about the new product. In this stage, the financial analysts would have to consider the cost for warehousing, insurance, cost of capital and shrinkage. Maturity stage: Reflects a period in the market of having one printer with distinctive features. There is a reasonable high cost of shortage at this stage. This is a unique opportunity to compare printers and prices over the product life cycle before introducing it to the market. There is no need for transshipment at this stage. End of life stage: Profits are at the lowest point as margin are squeezed at the retail level. If there is an imbalance of demand in North America and Europe, printers are reconfigured and sold. As this stage transshipment is most needed to adjust inventories in response to market demand. Sending printers across the Atlantic by sea reduces cost significantly. The division may discount product to create demand, dismantle the product and sell the parts to HP’s service division in Roseville or just write the product off. As HP aims to introduce its next generation of products. Although the printer engine costs $1000 each, $30 is the estimated cost for materials. Increase cost of material; decreases HP’s profit. Reconfiguring the product with a different power supply is challenging, but it also increases costs from materials to transshipment across regions. A universal power supply eliminates all rework, but the company has not measured the break-even time from project initiation to sustainment. The goal is to get the labor, material, and manufacturing overhead costs down and use that funding to improve the forecasting process and speed up a time to market. Below are some cost impacts and benefits Decrease Increase Benefits Inventory carrying cost $30 material cost Lower risk of unsold items Inventory holding cost Product/Process redesign for standardization may increase system cost Easier upgrade, service at the customer location Stock out cost Increased order fulfillment Faster response to customer Standardization decreases admin cost Customization An additional cost of transshipping Discounted prices Besides deciding on a universal power supply what other operational improvements can suggest to HP Boise? Operational Improvements To improve the forecasting ability to ensure appropriate demand is met in all sector while optimizing inventory level To create similar standardization of power supply in other product offering such as workstations and servers. It is also possible that HP can consolidate all power supply (for servers, workstations, and printers) to its manufacturing partner in a low-cost country. The idea is to consolidate and standardize which in theory creates efficiency and optimize all level of cost including inventory. To reduce the risk, try to accept the other vendors as the partner apart from relying just on the single vendor in Japan. The Lead Time is very high as compared to the product Life Cycle, also under the Buy/Make framework outsourcing a key component could be a risky decision. To reduce the risk & Lead Time it should consider manufacturing the products in-house thus saving cost & time in transportation & transshipment. What would be your recommendations about the adoption of a universal power supply? Adoption Recommendations My recommendations to HP would be to adopt a universal power supply as the potential to outweigh the costs. It will add value to customers in sense HP may be the only company that offers universal power supply. Rationalized inventory management as a short-term treatment of supply chain problems. “One central feature of mass customization is postponement” (Hsuan & Skjott-Larsen, 2004), which can be used as a supply chain strategy. References Hsuan, J., Skjøtt-Larsen, M. & T. (2004). “Supply-chain integration: implications for mass customization, modularization and postponement strategies,” Production Planning & Control, Vol. 15 Issue 4, pp. 352-361. Liberty University Custom: Young (2017). Supply chain management (Custom ed.). New York, NY: McGraw-Hill Create. ISBN: 9781309072783. Simchi-Levi, D., Kaminsky, P., & Simchi-Levi, E. (2008). Designing and managing the supply chain: Concepts, strategies and case studies (3rd ed.). New York, NY: Richard D. Irwin, Inc. ISBN: 9780073341521.
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