Europe

Options
A
AA
AB
AQ
AU
AY
Total
Average

Nov
80
400
20,572
4,008
4,564
248
29,872
4,979

Dec

Jan

Feb

Mar

Apr

0
255
20,895
2,196
3,207
450
27,003
4,501

60
408
19,252
4,761
7,485
378
32,344
5,391

90
645
11,052
1,953
4,908
306
18,954
3,159

21
210
19,864
1,008
5,295
219
26,617
4,436

48
87
20,316
2,358
90
204
23,103
3,851

Data From the HP Case Statement:

The total factory throughput time through the PCAT and FAT stages
The transportation time from Vancouver to the European DC (ocean transit)
The plant sends a weekly to the DC in Europe
HP's cost of debt plus some warehousing expenses
Assume that all printers cost an average of approximately
Safety stock probability for the model
service factor for 98% service level

Sea Freight Cost per Unit

$9

Existing Inventory Model: P-Model

Weekly Order (Q ) = Restocking Level (R ) - Invent
R = 1 month average sales

May
0
432
13,336
1,676
0
248
15,692
2,615

Jun
9
816
10,578
540
5,004
484
17,431
2,905

Jul

Aug

Sep

Oct

20
430
6,095
2,310
4,385
164
13,404
2,234

54
630
14,496
2,046
5,103
363
22,692
3,782

84
456
23,712
1,797
4,302
384
30,735
5,123

42
273
9,792
2,961
6,153
234
19,455
3,243

Manufactureing Lead Time(L1)

Transportation Lead Time (L2)
Review Period(T)
Inventory Cost

Service Factor(z)

del: P-Model
king Level (R ) - Inventory Level (I)
sales

1 week
5 weeks
1 week
25%
$250
98%
2.05

Option
wise Total
508
5,042
189,960
27,614
50,496
3,682
277,302
46,217

One-month Average Sales

Europe Options
A
AA
AB
AQ
AU
AY
Total

Options
Monthly
Mean
42.3
420.2
15,830.0
4,208.0
2,301.2
306.8
23,108.5

Monthly
SD
32.4
203.9
5,624.7
2,204.6
1,168.5
103.1

Options
Weekly
Mean

Options
Weekly SD

10.6
105.0
3,957.5
1,052.0
575.3
76.7
5,777.1

16.2
102.0
2,812.4
1,102.3
584.2
51.6

Lead Time in
Weeks(L1 +
L2)
6.0
6.0
6.0
6.0
6.0
6.0

Improved Inventory Model

Average Inventory
D/2 + safety stock
Where:
D
average weekly demand
safety stock
service factor *standard deviation of demand
Expected Investment (year)
Average Cost of the Product
Average Demand per month (units)
Average Inventory Investment
Sea Frieght Cost per unit
Frieght cost per month
Average Inventory per month (units)
Inventory Cost = 25% * $250
Warehousing Cost
Total Cost

$
250.00
$
23,108.50
$ 5,777,125.00
$
9.00
$
207,976.50
$
28,210.27
$
62.50
$ 1,763,142.08
###

Review
Period T in
Weeks
1.0
1.0
1.0
1.0
1.0
1.0

Service
Factor
2.05
2.05
2.05
2.05
2.05
2.05

Exposure
Demand SD
42.9
269.8
7,440.8
2,916.4
1,545.8
136.4

Safety
Stock
87.9
553.0
15,253.7
5,978.6
3,168.8
279.7
25,321.7

Monthly
Average
Inventory
93.2
605.5
17,232.4
6,504.6
3,456.5
318.0
28,210.3

Europe
Generic
Generic

Total
Monthly
Mean
23,108.5

Monthly
SD
6,244.1

Total
Weekly
Mean

Total
Weekly
SD
3,122.05

Lead
Time in
Months
1.25

Review
Period T
in
Months
0.25

Service
Factor
2.05

Exposure
Demand
SD
3,823.7

Safety
Stock
7,838.6

Monthly
Average
Inventor
y
10,727.2

As per the Existing Policy the Expected Investment(year)

Average Cost of the Product
Average Demand per month (units)
Average Inventory Investment
Sea Frieght Cost per unit
Frieght cost per month
Average Inventory per month (Units)
Inventory Cost ( 25% of $250)
Warehousing Cost
Total Cost
1 month average sales

$
$
$
$
$
$
$
46,217

250.0
23,108.5
5,777,125.0
9.0
207,976.50
46,217.0
62.50
2,888,562.50
8,873,664.0

Difference in Yearly Investment between current and existing policy

Reduction of yearly Inventory in units
Reduction of yearly Inventory in %

current and existing policy

###
18,006.7
38.96

Suppling Generic Printers to the Europe DC

Europe
Generic
Generic

Total
Monthly
Mean
23,108.5

Monthly
SD

Total
Weekly
Mean

6,244.1

Total
Weekly
SD
3,122.05

Lead Time in
Months
1.25

Expected Yearly Inventory Investment

Average Inventory per month in units
10,727.2
Inventory Cost = 25% * $250
$
62.50
Total Warehousing Cost
$ 670,448.72
Total Warehousing Cost of Existing Model
Total Warehousing Cost of Current Model

###
###

Review
Period T
in
Months
0.25

Service
Factor
2.05

Exposure
Demand
SD
3,823.7

Safety
Stock
7,838.6

Monthly
Average
Inventory
10,727.2

Models
Existing Policy
Current Policy
Supply of Generic Printers

Average
Inventory
Units
46217
28210
10727

Inventory
Inventory
Cost
Reduction
$2,888,562.50
$1,763,142.08
38.96%
$670,448.72
76.79%

Capital
Investment
zero
zero
High