Case Studies

HP – Design for Localization Reduces Deskjet Inventory by 18% & Saves Millions

Hau L. Lee, Corey Billington, and Brent Carter (1993) “Hewlett-Packard Gains Control of Inventory through Design for Localization,” Interfaces, 23:4, 1-11. Hau L. Lee and Corey Billington, (1995) “The Evolution of Supply-Chain-Management Models and Practice at Hewlett-Packard,”Interfaces, 25:5, 42-63

Hewlett-Packard (HP) is a leader in the application of operations research models to manage and continuously improve its supply chain. The first modeling efforts focused on the supply chain for the PC and Deskjet-printer divisions. The Deskjet-Plus was manufactured in Vancouver, BC and it became the focus of the 1990 effort to model the impact of uncertainty on inventory. At one time, this Vancouver plant manufactured and assembled printer products for all markets worldwide, while packaging the appropriate power-supply and manual before shipping. These printers were shipped to three distribution centers, two of which were non-US (Europe and Far East). Shipments to non-US centers involved transit time of one month. This long lead-time made it difficult to respond quickly to fluctuations in demand. To meet uncertain demand promptly, these distribution centers had to maintain high levels of safety stock. HP developed an inventory model to explore strategies that would reduce inventory holding costs while maintaining high levels of service.

HP used its Worldwide Inventory Network Optimization (WINO) model to analyze a policy of design for localization. Under this policy, the printer would be redesigned so that a generic printer could be manufactured and shipped without, for example, an installed power supply unit. The local distribution center would then localize the generic printer for different specifications. The estimated potential impact of this redesign was 18% in total inventory investment in the supply. (This concept, "design for localization," is closely related to design for "delayed-product-differentiation." Analogously, the clothing manufacturer-retailer Benneton developed a strategy for manufacturing clothing out of undyed material, then dying the finished product as the demand for different colors became apparent.)

WINO explicitly evaluates the tradeoff between inventory investment and customer service. It was later used to study and identify a wide array of improvements in supply chain management for various HP divisions: laserjet, inkjet components, integrated circuits and computer manufacturing. The modeling team identified opportunities for reducing inventory levels between 10% and 30% in the various divisions. The WINO model was also used to study the combined inventory maintained by HP's distribution centers, as well as by retail dealers. They found duplication in safety stock that could be significantly reduced without compromising customer service.

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