Hp Case Study
CASE DISCUSSION QUESTIONS
1. In what way is a universal power supply a postponement strategy? It allows HP to postpone (product standardization, postponement) the allocation of 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 better respond to regional demand (US & Europe) and reduce its inventory costs.
2. What are the costs and benefits of a universal power supply (feel free to make assumptions)?
Costs If HP incorporate the universal power supply and sell 450,000 units of Rainbow, it will cost the company approximately $13.5 million in additional material costs (an extra cost of $30 for each printer). If the $30 extra cost is eventually passed through to customer, the increase in price by may also reduce revenue (sale). Since all the printers assembly will heavily depend on one single power supply accessory which is supplied by only one supplier, any design defect (or even global recall) may need to a sales and reputation disaster. Benefits Avoid cost of stock out due to the switching to another brand of customers. Switching to another brand means that HP might lose its customers for over three or four generation of printer as well as the revenue from selling ink cartridges. Assume that without universal power supply Product life cycle: 18 months; Monthly sales: 25,000 units. Total sales = 450,000 If there are 20% of goods needed to be transshipped and then reconfigured between DCs due to incorrect market forecast. The extra cost will be: 450,000 * 20% * ($75 shipping cost + $250 reconfiguration cost) = $29,250,000 With universal power supply – The forecasting improved so that only 10% of goods needed to be transshipped and then reconfigured between DCs, the extra cost will be $450,000 * $30 + $450,000 * 10% * $75 =
1. In what way is a universal power supply a postponement strategy? It allows HP to postpone (product standardization, postponement) the allocation of 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 better respond to regional demand (US & Europe) and reduce its inventory costs.
2. What are the costs and benefits of a universal power supply (feel free to make assumptions)?
Costs If HP incorporate the universal power supply and sell 450,000 units of Rainbow, it will cost the company approximately $13.5 million in additional material costs (an extra cost of $30 for each printer). If the $30 extra cost is eventually passed through to customer, the increase in price by may also reduce revenue (sale). Since all the printers assembly will heavily depend on one single power supply accessory which is supplied by only one supplier, any design defect (or even global recall) may need to a sales and reputation disaster. Benefits Avoid cost of stock out due to the switching to another brand of customers. Switching to another brand means that HP might lose its customers for over three or four generation of printer as well as the revenue from selling ink cartridges. Assume that without universal power supply Product life cycle: 18 months; Monthly sales: 25,000 units. Total sales = 450,000 If there are 20% of goods needed to be transshipped and then reconfigured between DCs due to incorrect market forecast. The extra cost will be: 450,000 * 20% * ($75 shipping cost + $250 reconfiguration cost) = $29,250,000 With universal power supply – The forecasting improved so that only 10% of goods needed to be transshipped and then reconfigured between DCs, the extra cost will be $450,000 * $30 + $450,000 * 10% * $75 =