Hewlett-Packard Co.: DeskJet Printer Supply Chain (A) Custom Case Solution & Analysis

1. Evidence Brief (Case Researcher)

Financial Metrics

Desktop printer division generates 50% of HPs total revenue and 60% of profits (Para 3).
DeskJet printer price: $495 (Exhibit 1).
Manufacturing cost (Vancouver): $290 (Exhibit 1).
Inventory carrying cost: 2% per month (Para 12).
Air freight cost: $17 per unit; Ocean freight: $1 per unit (Para 15).
Vancouver lead time: 1 week; Local warehouse lead time: 4 weeks (Para 13).

Operational Facts

Manufacturing process: Printed Circuit Board (PCB) assembly, final assembly, and localization (power supply and manual) (Para 8).
Current state: Vancouver plant performs all steps, ships finished goods globally (Para 9).
Localization bottleneck: Power supply and manual differences prevent global shipping flexibility (Para 10).
Safety stock: 12 weeks of supply required to maintain 98% service level due to 4-week transit (Para 14).

Stakeholder Positions

VPD (Vancouver Printer Division) management: Concerned with high inventory costs and stockouts in European/Asian markets.
Logistics team: Favors ocean freight to reduce costs but fears impact on service levels.

Information Gaps

Specific demand volatility coefficients per region.
Detailed cost breakdown of the localization process (labor vs. materials).

2. Strategic Analysis (Strategic Analyst)

Core Strategic Question

How can HP optimize the DeskJet supply chain to reduce inventory costs while maintaining a 98% service level across geographically dispersed markets?

Structural Analysis

Value Chain Analysis: The current model forces high-cost air freight to mitigate long lead times. Decoupling the localization process from final assembly allows for regional postponement.
Inventory Positioning: Carrying finished goods inventory is inefficient. Moving to a semi-finished goods model (postponement) allows for cheaper ocean transport of generic units.

Strategic Options

Option 1: Centralized Vancouver Production (Status Quo). Maintains control but incurs high logistics costs and high inventory buffers. Rejected: Costs are unsustainable given competitive pricing pressure.
Option 2: Full Decentralization (Local Assembly). Localize all production. Rejected: Loss of economies of scale and quality control risks.
Option 3: Strategic Postponement (Recommended). Assemble generic printers in Vancouver, perform localization (power/manuals) at regional distribution centers (RDC).

Preliminary Recommendation

Implement regional postponement. Ship generic units via ocean freight to RDCs. Perform final localization locally. This reduces transit costs by 94% per unit and reduces safety stock requirements.

3. Implementation Roadmap (Operations Planner)

Critical Path

Phase 1 (Months 1-3): Redesign product packaging to allow for easy insertion of regional power supplies and manuals.
Phase 2 (Months 3-5): Qualify and audit regional distribution centers (RDCs) in Europe and Asia for assembly capability.
Phase 3 (Months 6-8): Transition logistics from air to ocean freight for generic units.

Key Constraints

Facility Capability: RDCs currently lack assembly-line infrastructure.
Labor Variance: Ensuring consistent assembly quality across disparate regional sites.

Risk-Adjusted Strategy

Maintain 25% of production in Vancouver for high-priority North American demand during the transition.
Implement a 90-day pilot in the European RDC before full global rollout.

4. Executive Review and BLUF (Executive Critic)

BLUF

HP must adopt regional postponement immediately. The current reliance on air freight to maintain 98% service levels is a failure of supply chain architecture, not a logistics problem. By shifting to ocean freight for generic units and localizing power and documentation at the regional level, HP will reduce transportation costs by 94% and significantly lower safety stock requirements. The transition carries moderate execution risk regarding assembly quality at regional hubs; this is manageable through standardized, modular assembly kits. The status quo is a direct tax on the division margins.

Dangerous Assumption

The analysis assumes that regional distribution centers can perform assembly at a cost-per-unit equal to or lower than the Vancouver facility. If local labor and facility overhead exceed the savings from lower freight costs, the strategy fails.

Unaddressed Risks

Quality Variance: Regional assembly sites may introduce defects that are not present in the centralized Vancouver model. Consequence: High; probability: Moderate.
Regulatory Compliance: Localized assembly may alter the country-of-origin classification for customs and tariff purposes. Consequence: High; probability: Low.

Unconsidered Alternative

The team failed to consider a hybrid model where only high-volume SKUs are localized in regions, while low-volume or niche models continue to be shipped finished from Vancouver to maintain total cost efficiency.