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Hewlett packard deskjet printer supply chain case study

Consider the periodic-review, order-up-to model. If the lead time is 5 weeks with sea freight and 1 week by air, and if the review period is 1 week because of production cycles at the factory, what savings in average inventory are available?

D of demand 32. The above calculation shows that transport by air is a better option compared to transport by sea and incremental savings obtained per year is substantial. The Safety Stock week of supplies decreases from 5.

  • If the lead time is 5 weeks with sea freight and 1 week by air, and if the review period is 1 week because of production cycles at the factory, what savings in average inventory are available?
  • As we see from the above table, the inventory holding costs decreasing substantially which is mainly because of the lower average inventory in the warehouse;
  • This shows that product availability is taken care of even at reduced safety stock levels;
  • Since the product is assembled to order in European Distribution Centre, the lead time due to transport by air 1 week and sea 5 weeks is assumed to be Zero;
  • This shows that product availability is taken care of even at reduced safety stock levels.

This in turn will lead to better product availability even at lower inventory levels Question 2: And the product is assembled and distributed directly from the European Distribution Centre. Since the product is assembled to order in European Distribution Centre, the lead time due to transport by air 1 week and sea 5 weeks is assumed to be Zero.

Hence the lead time in this case is only 1 week.

  1. This in turn will lead to better product availability even at lower inventory levels Question 2.
  2. And the product is assembled and distributed directly from the European Distribution Centre.
  3. Now solving for the inventory savings as done in the previous problem gives the following solution.

Now solving for the inventory savings as done in the previous problem gives the following solution: Here Distribution centre is present in Europe itself, and the transportation is assumed to be made via sea.

Lower safety stock levels and average inventory The safety stock levels reduces considerably when the transportation is done via air compared to ship and those levels can further be reduces when using a separate distribution channel in Europe.

Lower inventory holding costs: As we see from the above table, the inventory holding costs decreasing substantially which is mainly because of the lower average inventory in the warehouse.

Zero transportation costs when a factory can be established: Lower safety stock week of supplies The safety stock week of supplies which indicates how many weeks of demand would the safety stock levels service which is calculated by dividing safety stock levels by demand. This shows that product availability is taken care of even at reduced safety stock levels. The lead time for the whole process is decreased substantially from the order of Few weeks to the order of days thereby helping in reducing the lost sales.

  • As we see from the above table, the inventory holding costs decreasing substantially which is mainly because of the lower average inventory in the warehouse;
  • Establishing Distribution centre along with a factory in Europe is a capital intensive process, the capital expenditure should be accounted while fixing the selling price of the product to cover the additional cost incurred.

Establishing Distribution centre along with a factory in Europe is a capital intensive process, the capital expenditure should be accounted while fixing the selling price of the product to cover the additional cost incurred.

Root of the problem still unresolved: As per the enthusiastic student Brent from Stanford University, the root cause of the problem is the horrible forecasting system and establishing distribution centre in Europe though can help in reduce the cost of inventory, the problem of forecasting the demand is still unresolved.

  • Lower safety stock levels and average inventory The safety stock levels reduces considerably when the transportation is done via air compared to ship and those levels can further be reduces when using a separate distribution channel in Europe;
  • Hence the lead time in this case is only 1 week;
  • Lower safety stock week of supplies The safety stock week of supplies which indicates how many weeks of demand would the safety stock levels service which is calculated by dividing safety stock levels by demand;
  • The above calculation shows that transport by air is a better option compared to transport by sea and incremental savings obtained per year is substantial.