HP OM CASE.docxVIP

Operations Management (Fall 2010)Hewlett-Packard company case studyNovember 2, 2010Prepared by:Meian Cha, Anushirvan Esteki, Jialu Jiang, Jonathan Lee, Yinhan Wang, and Lisa ZhangHewlett-Packard: DeskJet Printer Supply ChainCase Questions:Consider the current system with shipments by ship from Vancouver to the European DC (five weeks transit time) and weekly production plans by the plant. Generate the pipeline inventory, the safety stock and associated holding costs for the European models in Exhibit 4.First, we calculated the average weekly demand by dividing annual demand by 52 weeks. Then, we were able to derive the variance by dividing the yearly variance also by 52 weeks. After taking the square root of the variance, we obtained the standard deviation. To compute the safety stock, we were given the service level of 98% and used the normal probability table to obtain a Z-score of 2.05. The uncertainty in customer demand can be calculated as the square root of the lead time multiplied by the variance. Therefore, the safety stock is a product of the Z-score and the uncertainty in customer demand, or σT+L. To compute the pipeline inventory, we determined the inventory status to be zero. Because of the limited information provided, we assumed weekly demand to be order quantity. Therefore, the pipeline inventory can be derived as the product of the order quantity and the lead time. To compute the holding costs, we first needed to find the cycle inventory, which is the order quantity multiplied by half of the review cycle. Next, we calculated the average inventory as a sum of the safety stock, pipeline inventory, and the cycle inventory. Additionally, given that the holding cost is 12% of the value of our inventory, the holding cost per printer is $48 (12% of the cost of a printer - $400). Therefore, the holding cost is a product of the average inventory and the holding cost per printer.Repeat the analysis above if shipments were by air(1 week transit time)For the saf