MANAGEMENT SKILLS

ILEMAN30
Inventory control at Hewlett Packard

Authors:Tim Boogaard 0881808

Melissa Broek0865412
Sutrilastyo0905218
Radinal Wibisono0905219
Peter Wouda0882999
Report version:1.0
Date:June 8th, 2015
Group Number:23
Course:Management Skills
Course code:ILEMAN30
Module supervisor:Mr Karbaat
Rotterdam University of Applied Sciences
M

Preface
This report is written by group 23, consisting out of 5 students whereof two are exchange students
from Indonesia and three students from Rotterdam. We as group were asked if we could improve the
inventory control at the distribution center of Hewlett Packard.
The main task is to is to optimize the safety stock with a well substantiated inventory model instead of
a inventory model which is based on some judgmental rule of thumb. HP also asked us to evaluate the
idea of supplying generic printers to the Europe DC and integrating the product by packaging the
power supply and the instruction manual at the DC just prior to delivery to the European resellers.
We would like to thank our supervisor Mr. Karbaat for his expert guidance and feedback during this
course. Also thanks go out to HP for the information they have provide us.

Tim Boogaard
Melissa Broek
Sutrilastyo
Radinal Wibisono
Peter Wouda
Rotterdam, June 8th 2015

Table of contents
Management Summary.......................................................................................... 3
Introduction............................................................................................................ 4
Chapter one: Inventory Model................................................................................ 5
Chapter two: Comparison of the Inventory Model with Current Situation...............7
Chapter three: DC inventory analysis for supplying generic printers.....................8
Chapter four: Implementation Plan........................................................................9
Conclusion and recommendations.......................................................................11
Bibliography......................................................................................................... 12

Management Summary
The company HP (Hewlett Packard) is a manufacturer of printers and computer products. In this case
we will zoom in on the Deskjet printer which are introduced in 1988 and has become one of HewlettPackards most successful products.
One of the products that fits well into the standard process is the Deskjet. In contrast, other products,
such as personal computers and monitors, require special processing called integration, which
includes addition of an appropriate keyboard and manual for the destination country.
To solve the problem within HP and their inventory problems the main task is to optimize the safety
stock with a well substantiated inventory model instead of a inventory model which is based on some
judgmental rule of thumb.
The nature of the demand of all variations of the printers are perpetual. There are two inventory
models that can be used: reorder point model and periodic review model. For this part, the reorder
point model is used, because it generates less cost compared to periodic review model.
In the current situation, the rule of thumb was applied in order to determine inventory level in HP.
For current situation, average number of monthly demand simply used to determine the stock level in
the DC. There can be concluded that the new inventory model that is developed can decrease the
inventory level which will lower the annual inventory costs with 8%. Also, the new inventory model can
reduce the error in forecast. HP can ensure that 98% order will be fulfilled which is very important to
big company like HP.
When HP supplies generic printers the DC has not only the function for a place to store and distribute
the goods. The DC has the task to implement value added logistics in their warehouse. This means
that a calculation and forecast is needed in which amount HP sells their Deskjet printers in each
European country.
The inventory investment will be lower when HP only manufactures generic printers. Because when
HP has six different options, there are six safety stocks.
Before the company wants to change something about their inventory policy, the magnitude and
nature of the changed policy should be clear to anticipate on the results of the policy. The Tropics test
is one of the tests to know these two important things before implementing a new policy. The problem
owner will able to feel the nature with this test.
In the results of this test a tendency towards the softer end of the spectrum indicates a greater
probability that it will fall into the complex category. In this case, it is safer to adopt intervention
strategy such as Total Project Management (TPM).
To implement the change, HP first needs to define the exact problem. This can be done by developing
cross-functional team, for example the inventory department and production department in Vancouver.
After that the team can define the resources needed, the tasks, and the performance indicator. The
implementation is reached only after a thorough examination of the problem and the results have been
incorporated into the planning stage. The managers are involved in monitoring the control
mechanisms and taking corrective action as and when required.

Introduction
The company HP (Hewlett Packard) is a manufacturer of printers and computer
products. In this case we will zoom in on the Deskjet printer which are introduced
in 1988 and has become one of Hewlett-Packards most successful products.
Sales has grown steadily, reaching a level of over 600.000 units in 1990.
Unfortunately, inventory growth has tracked sales growth closely. HPs
distribution centres are filed with pallets of the DeskJet printer. Worse yet, the
organization in Europe claims that inventory levels there need to be raised even
further to maintain satisfactory product availability.
The DCs have traditionally envisioned their process as a simple, straight-line,
standardized process. There are four process stops:
1.

Receive (complete) products from various suppliers and stock them.

2.

Pick the various products needed to fill a customer order.

3.

Shrink-wrap the complete order and label it.

4.

Ship the order via the appropriate carrier.

The DeskJet printer fits well into the standard process. In contrast, other
products, such as personal computers and monitors, require special processing
called integration, which includes addition of an appropriate keyboard and
manual for the destination country. Although this extra processing does not
require much extra labour. It is difficult to accommodate in the standard process
and disrupts the material flow. There is considerable frustration within DC
management regarding the support of assembly processes.
To solve the problem within HP and their inventory problems the main task is to is
to optimize the safety stock with a well substantiated inventory model instead of
a inventory model which is based on some judgemental rule of thumb. HP also
asked us to evaluate the idea of supplying generic printers to the Europe DC and
integrating the product by packaging the power supply and the instruction
manual at the DC just prior to delivery to the European resellers.
To come to a well substantiated inventory model we have to answer the following
questions.
1. Develop an inventory model for managing the DeskJet printers in Europe
assuming that the Vancouver plant continues to produce the six models sold
in Europe. Using the data in Exhibit 15.15, apply your model and calculate the
expected yearly investment in Deskjet printer inventory in the Europe DC.
2. Compare your result from question 1 to the current policy of carrying one
months average inventory at the DC.
3. Evaluate the idea of supplying generic printers to the Europe DC and
integrating the product by packaging the power supply and the instruction
manual at the DC just prior to delivery to the European resellers. Focus on the
impact on DC inventory investment in this analysis.
4. What is your recommendation to HP?

(in the conclusion)

5. Give advice on how to implement the new planning schedule (Taking in mind
your knowledge of change management).1

1 Case 3 HP

Chapter one: Inventory Model

This part of the report will discuss about the first question of the case. The first
question of this case is as follows:
1. Develop an inventory model for managing the DeskJet printers in
Europe assuming that the Vancouver plant continues to produce
the six models sold in Europe. Using the data in Exhibit 15.15,
apply your model and calculat the expected yearly investment in
DeskJet printer inventory in the Europe DC.
The first step to determine which inventory model should be used, the nature of
the demand needs to be known. The demands for all of the printer versions can
be seen in the following figure.
`
A
AB
AU
AA
AQ
AY
Tot
al

No
v.
80
20
57
2
45
64
40
0
40
08
24
8
29

De
c.
0
20
89
5
32
07
25
5
21
96
45
0
27

Jan
.
60
19
25
2
74
85
40
8
47
61
37
8
32

Fe
b.
90
11
05
2
49
08
64
5
19
53
30
6
18

Ma
r.
21
19
86
4
52
95
21
0
10
08
21
9
26

87

00

34

95

61

Demand
Apr Ma Jun
.
y.
.
48
0
9
20 13 10
31 33 57
6
6
8
50
90
0
04
43 81
87
2
6
23 16 54
58 76
0
20 24 48
4
8
4
23 15 17
10

69

Se
p.
84
23
71
2
43
02
45
6
17
97
38
4
30

Oc
t.
42

43
85
43
0
23
10
16
4
13

Au
g.
54
14
49
6
51
03
63
0
20
46
36
3
22

40

69

73

45

Jul.
20
60
95

43

4
7
3
2
1
Figure 1.1. Printer Demand

The nature of the demands can be seen in the figure below.

Avera
ge
Dema
nd
43

Product
Type

Total
Dema
nd

508

AB

15830

AU

18996
0
50496

AA

5042

421

4208

Std.
Dev.

C.V.

Perpet
ual/
Lumpy

32,413
05
5624,7
36
2204,5
83
203,92
68

0,7537
92
0,3553
21
0,5239
03
0,4843
87

Perpetu
al
Perpetu
al
Perpetu
al
Perpetu
al

97
92
61
53
27
3
29
61
23
4
19

AQ
AY

27614

2302

1168,4 0,5075
93
99
3682
307
103,12 0,3359
29
05
Figure 1.2. Printer Demand Type

Perpetu
al
Perpetu
al

As seen on the table above, the nature of the demand of all variation of the
printers are perpetual. There are two inventory models that can be used: reorder
point model and periodic review model. For this question, reorder point model is
used, because it generates less cost compared to periodic review model. The cost
for implementing this inventory model can be seen in the following figure.

Prod
uct
Type

$
250,
00

AB

$
250,
00

$
250,
00
$

AU

AA

AQ

AY

250,

Inv.
Carr
ying
Cost

LT
(mon
ths)

RO
P

Q*

S'd

AIL

Saf
ety
Sto
ck

25%

1,15

50

131

34,81
72

98
%

2,053
749

32

72

25%

1,15

182
65

253

6041,
936

98
%

2,053
749

616

124
09

485
5

130

2368,
102

98
%

2,053
749

318

00
$

$
250,
00

250,

$
250,
00

250,

$
250,
00

250,

$
250,
00

250,

25%

1,15

00
$
25%

1,15

00
$
25%

1,15

486

265
6

413

968

00
$
25%

1,15

354

353

00

98
%

2,053
749

100

1255,
163

98
%

2,053
749

235

98
%

2,053
749

$
6.461,28
$
814.062,
20
$
323.829,
97
$

219,0
526

110,7
718

486
3

Total
Cost

450

257
8

34.393,6
3
$
175.799,
78
$

86

227

19.581,9
5
$
1.374.12
8,81

Figure 1.3. Inventory Cost

There is an assumption made for the order cost. It is assumed to be the same as
the value of the product. The achieved service level of this inventory model can
be seen in the following figure.
Product
Type
A
AB

Service
Level
99,8%
98,3%

AU
AA

98,7%
99,6%

AQ
99,0%
AY
99,8%
Figure 1.4. Service Level

10

Chapter two: Comparison of the Inventory Model with

Current Situation
In this chapter the second question is discussed from the case which is:
2. Compare your result from question 1 to the current policy of
carrying one month average inventory at the DC.
In the current situation, the rule of thumb was applied in order to determine
inventory level in HP. The rule of thumb is a principle with a wide scope of
application which is not intended to be accurate for every situation. This method
also easily approximate some value. For current situation, the average number of
monthly demand is simply used to determine the stock level in the DC. The
calculation of current situation can be seen in figure 2.1 and the comparison for
current situation and new inventory model in term of cost and stock level can be
seen in figure 2.2.
Produ
ct
Type

Total
Dema
nd

Avera
ge
Dema
nd
43

Inventory
Carrying
Cost

Total Cost

508

25%

$ 250

15830

25%

$ 250

AU

18996
0
50496

4208

25%

$ 250

AA

5042

421

25%

$ 250

AQ

27614

2302

25%

$ 250

AY

3682

307

25%

$ 250

27730
2

23111

$
2,647.50
$
989,375.00
$
263,000.00
$
26,312.50
$
143,875.00
$
19,187.50
$
1,444,437.25

AB

Total

Figure 2.1. Current Situation Calculation

Stock level
Cost

Current Situation
23111
$
1,444,437.25
Figure 2.2. Comparison

New Situation
21986
$ 1.374.128,81

From the figure above, it can be conclude that new inventory model that
developed can decrease the inventory level which costly lower around 8% annual
inventory cost. And also, new inventory model can reduce the error in forecast.
HP can ensure that 98% order will be fulfilled which is very important to big
company like HP.

11

12

Chapter three: DC inventory analysis for supplying

generic printers
This chapter will discuss the third question from the case which is:
3. Evaluate the idea of supplying generic printers to the Europe DC
and integrating the product by packaging the power supply and the
instruction manual at the DC just prior to delivery to the European
resellers. Focus on the impact on DC inventory investment in this
analysis.
When HP supplies generic printers the DC has not only the function for a place to
store and distribute the goods. The DC has the task to implement value added
logistics in their warehouse. This means that a calculation and forecast is needed
in which amount HP sells their desk jet printers in each European country. This
information is needed to determine the right power supply and manual for the
final product.

Plant Vancouver

Distribution Centre Europe

Instructi
on
Manual

DeskJet
The

inventory

Printer

Final
produ
ct

Deep-sea

investment

will be lower when HP only

manufactures

generic

printers. Because when HP

has

six

different

Power
supply

options,

there are six safety stocks. Now HP has one safety stock, in figure 3.1 are
shown the inventory costs.
Europe
options
Generic
Figure

EOQ

Std.
Dev

SS

667

AIL

17756 18089,
6243,9
5
6
Inventory costs generic product

13

Inventory
costs
$1.130.593
,75

3.1.

14

Chapter four: Implementation Plan

This chapter will explain the additional question for this case which is
implementation plan with change management knowledge. Before the company
wants to change something about their inventory policy, the magnitude and
nature of the changed policy should be clear to anticipate on the results of the
policy. The Tropics test is one of the tests to know these two important things
before implementing a new policy. The problem owner will able to feel the nature
with this test. The result of the Tropics test can be seen in figure 4.1. The factors
that should be determined in the Tropics test are as followed:

Time scales
Resources
Objectives
Perceptions
Interest
Control
Source
Factors
Time Scales
Resources

A/B
B
A

Definition
Medium to long term
Clearly defined and reasonably

Objectives
Perceptions
Interest
Control
Source

fixed
A
Objective and quantifiable
B
Creates conflict of interest
B
Widespread interest
B
Shared between the group
B
Originates externally
Figure 4.1. Tropics Test

The inventory problem can be identified as a soft problem or a complex situation

which can be seen in Tropics test above where A stands for a complex situation
and B for soft problems. Almost all aspects are soft problems. It can become an
input for the problem owner when they want to implement a new inventory
policy. A participative method or creating a team from many departments that
will be involved can be done in this case, such as the inventory department and
the production department in Vancouver can be included in the team.
There are different kinds of models for change management. As seen above, the
problems faced by HP incline to the softer side. A tendency towards the softer
end of the spectrum indicates a greater probability that it will fall into the
complex category. In this case, it is safer to adopt intervention strategy such as
Total Project Management (TPM).
TPM consists of both hard and soft issues, by focusing on the technical and
more physical aspects of a project and adopting techniques associated with
organization development. The integrated manner of both aspects will bring the
problem to a set of knowledge bases to effectively manage the total project.
TPM has three phases:
Phase 1: Project Definition
15

o Evaluation of the project using system diagramming

Phase 2: Planning
o Integrated project plan using gantt charts
Phase 3: Implementation
o Application and monitoring of review systems using process charts

To implement the change, HP first needs to define the exact problem. This can be
done by developing cross-functional team, for example the inventory department
and production department in Vancouver. After that the team can define the
resources needed, the tasks, and the performance indicator. The implementation
is reached only after a thorough examination of the problem and the results have
been incorporated into the planning stage. The managers are involved in
monitoring the control mechanisms and taking corrective action as and when
required.

16

Conclusion and recommendations

The inventory investment will be lower when HP only manufactures generic
printers. Because when HP has six different options, there are six safety stocks.
To implement the change, HP first needs to define the exact problem. This can be
done by developing cross-functional team, for example the inventory department
and production department in Vancouver. After that the team can define the
resources needed, the tasks, and the performance indicator. The implementation
is reached only after a thorough examination of the problem and the results have
been incorporated into the planning stage. The managers are involved in
monitoring the control mechanisms and taking corrective action as and when
required. There can be concluded that the new inventory model that is developed
can decrease the inventory level which costly lower around 8% annual inventory
cost. Also, the new inventory model can reduce the error in the forecast. HP can
ensure that 98% of the orders will be fulfilled, which is very important to a big
company like HP.

17

Bibliographys
Ballou, Ronald H. Reader Business Logistics
Paton, R., & McCalman,J. Change Management: A Guide to Effective Implementation. SAGE
Publications Ltd., 2008.
Case 3 HP, N@tschool
-

18