Introduction:

In the year, 1990, Brent Cartier, a manager in the Materials Dept of HP Company’s
Vancouer Division, is faced with a paradoxical problem of stock out and high lev
el of inventory occurring frequently in the product line of HP DeskJets. The cas
e highlights the various challenges faced by the Distribution Dept of the compan
y and calls for a solution that can maintain a high level of product availabilit
y but simultaneously keeping lowest levels of inventory.
Case Facts:
Calculated Product Price = 666.67
Long Shipment Time for the European and Asia- Pacific Markets (4-5 weeks). So it
was difficult to cope up with the demand fluctuations.
DCs are designed for “make-to-stock” mode of operation to provide high level of pro
uct availability to the dealers
Problem Statement:
The inventory carrying cost of the product line HP Deskjet Printer is very high
and at the same time the there are cases of stock-outs at the European and Asia-
Pacific Distribution Centres (DCs).
Solution Objective:
To provide 98% product availability (methods to be used LIFR/DFR for performance
measurement) at the DCs, however by keeping the inventory level at the minimum
possible.
Root Cause Analysis (Issues):
Fluctuating Demand
High lead time and long shipment time (4-5 weeks)
Commoditization of printers and hence diminishing brand loyalty
Very high Inventory carrying cost (12-620%)
Stock outs Sources of Uncertainty
1. Delivery of incoming materials (Production Side)
2. Internal Processes (Production Side)
3. Demand Fluctuation (DC Side), leading to inventory build up/stock-outs.

From Exhibit – 4, the inventory carrying cost can be found out and it comes out to
be $ 2886214 for 98% product availability, which is apparently very high.
Solution Alternatives:
1. Use air freight in case of stock outs to avoid a denial of product sale
to customers.
2. Set up a sister plant in Europe to manufacture the printers there
3. Revisit the inventory stock rules at the European DCs and use a sound sa
fety stock method
4. Postpone the localization of printers at the as later a stage as possibl
e