Case Overview

The HP Managers from each department had a meeting to discuss about whether
using auniversal power supply for the next generation of network laser printer
called Rainbow is benefivial or not. They have the authority to make the decession
while strong justification should be provided to defend their proposal.
HP is developing its new generation network printer while it has been struggling
from 3 main issues:
1. The power specification for the printer is different in North American (110Volt)
and Eur (220 Volt). This difference brings a big challenge in HPs market
forecasting and subsequences stockout and transshipment between region
2. HP needs to provide the spesifications to its major partner in Japan at least 14
weeks a head due to the above mentioned different power standars issue.
3. The specification readiness time can be postponed for 2 months if a
universial power supply is used, how ever an extra cost of $30 for each
printer will be needed.
Case Question
1. In what way is a universal power supply a postponement strategy?
HP has two spesifications for its printers, 110-v for NA Region and 220-v for
EUR Region. One of the crucial part of the printer is engine.It is built by one of
HPs vendor partner in Japan who needs the specification 14 weeks in order
prepare for production. How ever production period only takes 4 weeks. The
dilemma is that should HP were to develop universal power supply, it can
have the flexibility of postponing the spesification requirement to its partner
by 2 months. On the other hand,should the universal power supply strategy is
implemented, HP can respond the demand in the individual market by
optimizing is inventory and reducing its indirect cost that hits is SG&A
Expenses. (Selling,General and Administrative).

2. What are the costs and benefits of a universal power supply (feel fre to make
asumptions)?
Cost:

A. if HP incorporate the universal power supply and sell 450,000 units of

Rainbow, it will cost the comoany approximately $13,5 Million in additional
material costs (an extra cost $30 for each printer).
B. If the $30 extra cost is eventually passed through to customer, the
increase in price by may also reduce revenue (sale).
C. Since all the printers assembly will heavily depend on one single power
suppy accessory which is supplied by only one supplier, any design defect
(or even global recall) may need to a sales and reputation disaster.
Benefits:
A. Avoid cost of stocks out of due to another brand of customers. Switching
to another brand menas that HP mkight lose its customers for over three
or four generation of printer as well as the revenue from selling ink
cartridges.
Assume that whihout 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
reconfigurated 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 the reconfigured between DCs, the extra cost will be
450,000*$30+(450,000*10%*$75)=$16,875,000
The extra cost of with universal power supply is SMALLER than without it.
. With universal power supply, ideally HP no Longer needs to develop
demand forecast for each market. It only needs to generate estimated
worldwide product demand 4 months a head.
. Allow HP to better forecast demand as whole, which is more
accurate.Consequently, it reduces inventory build up issue.
. Flexible to respond to customer order so that HP can increase service
level.
3. How whould such costs and benefits be different over the product life cycle?
Over the product life cycle, both cost and benefit are different
. At the beginning life cycle (ramp-up) of product, the cost of stock out would
be high because for every order lost would not only result in lost in revenue
but future revenue.
The theory is the customer tend to buy similar product and/or brand to keep
consistency. In addition, it takes over four life cycle of product before that
customerreturns to HP.
. At the Maturuty stage, the extra cost, although very small, can be real
disadvantage because during this period, the market becomes very
competitive and many players enter the same field causing price to drop.

Customers also become more price-sensitive. However, the benefit of better

forecasting demands significantly helps lower the level of inventory.
. At the ending life cycle, cost of stockouts is lower than compared to at
beginning because there is less fear of losing future sale.
4. Beside deciding on universal poer supply, what other operational
improvements can you suggest to HP Boise?
One of the suggestion HP should consider is improving forecasting ability to
ensure appropriate of demand is meet in all sector while optimizing inventory
level. In addition, HP should also look I to creating similar standardization of
powersupply in other product offering such as workstation and servers. It is
also possible that HP can consolidate all power supply (for
servers,workstation and printers) to its manufacturing partners in low cost
country. The idea is to consolidate and standardize which in theory creates
efficiency, and optimize all level of cost including inventory.
5. What would be your recommedantioan about the adoption of universal power
supply?
In Looking at this issue from all perspective, I would recommend HP to adopt
universal poer supply as the potential benefits outweigh the costs. From one
perspective, $30 increases in product that sale for $1000 which is only 3%.
This 3% increase will eliminate a lot marketing,manufacturing,forecasting,
and logistical problem that HP is spending millions each year. I believe that by
spending 3% more upfront will have bette bottom line effect in end. Not to
mention, ut will also add values to customer in sense HP may be the only
company that offers universal power supply.