Replies: HP
In what way is a universal power supply a postponement strategy?
The rate of change in which organizations are exposed to, in addition to, the growing complexity of supply chain networks and competitive environment, has highlighted the need for more comprehensive approach to cope with strategic issues in global supply chain management (Choi et al., 2012, p.170). The universal power supply consideration is an example of a comprehensive approach to cope with the strategic issues that have been identified in the global supply chain management for Hewlett Packard.
The decision to implement a universal power supply is being used as a postponement strategy will be an attempt for Hewlett-Packard to maximize potential profits benefits and minimizing risk by delaying product or service decisions, such as estimating product demand and allocation to the various regions, until the last minute.
The decision could be a good strategy for Hewlett-Packard as it will effectively reduce inventory undesirability and reduce the risk and uncertainty associated with products having been allocated to a specific market where there ends up being little to no demand.
What are the costs and benefits of a universal power supply?
The first cost of the universal power supply is the increase in material cost by $30 per unit. Consumers and/or retailors may not be willing to pay this additional cost should Hewlett-Packard try to pass on the expense to them, leading to a potential decline in sales and loss of customers for future purchases due to product loyalty.
The second cost to consider is the cost that will be incurred from warehouse transshipment which will be possible due to the universal power supply. The ability for transshipment will prevent excess inventory having to be housed in one market or the other, such as the situation with VIPER.
There are several advantages to the universal power supply including improved forecasting accuracy which reduces the risks associated with out-of-stock and reduced inventory. According to Carbonara and Pellegrino (2018, p.5251), postponements carry benefits that “directly improve operational performance in terms of inventory order costs, delivery lead times, processing costs, transportation costs, quality conformance, and service level.”
Overall, implementing a universal power supply, Hewlett-Packard will have much more flexibility with meeting the demands of their customers to provide better service and quicker order fulfillments which in turn will possibly prevent excess inventory.
How would such costs and benefits be different over the product life cycle?
The advantages of the universal power supply are rather high at the beginning of the life cycle. This is the time when there should be more safety stock held, as inventory holding costs are high. In addition, the stock-out costs are higher during the advertising stage during the product life cycle as Hewlett-Packard will be able to charge a premium because they initially have no competition.
Towards the end of the life cycle, the stock is reduced, and transshipment now is an option to ease inequalities between the two markets. Thus, the profits from a cost decrease in transshipment become vital at the end of the product life cycle (Luo & Zhang, 2018).
Besides deciding on a universal power supply, what other operational improvements can you suggest to HP Boise?
Outsourcing the printer engine to a Japanese supplier has created an issue with long lead times before the product is shipped to the distribution centers and then to the retailers. This extended period monopolizes manufacturing and is much too long compared to the total product life cycle, which is 18 months.
One suggestion is for Hewlett-Packard to explore other outsourcing options that can be utilized that allows them to maintain more control over the manufacturing process. Another suggestion to reduce the risk of losing the key component or remanufacturing would be for HP Boise should explore manufacturing the printer engine in-house if the company has enough production capacity to do so.
Inhouse production might increase the opportunity for the company to save on lead time and in costs of transportation since printed circuit boards would not require shipping.
What would be your recommendations about the adoption of a universal power supply?
Due to the high level of uncertainty in the way of forecasting, the recommendation is to adopt the universal power supply.
However, there is the need for more research and exploration to determine methods in which the increase in manufacturing costs incurred by implementing the universal power supply can be recouped throughout supply chain to lessen the impact to the bottom line.
The marginal cost increase of the universal power supply when compared to the potential increase in sales, lower risk of unsold items, an increase in order fulfillment and faster response time to customer demands and orders will likely be a cost that is worth Hewlett-Packard incurring.
References
Carbonara, N., & Pellegrino, R. (2018). Real options approach to evaluate postponement as supply chain disruptions mitigation strategy. International Journal of Production Research, 56(15), 5249-5271. https://doi.org/10.1080/00207543.2017.1403663
Choi, K., Narasimhan, R., & Kim, S. W. (2012). Postponement strategy for international transfer of products in a global supply chain: A system dynamics examination. Journal of Operations Management, 30(3), 167-179. https://doi.org/10.1016/j.jom.2012.01.003
Luo, J., & Zhang, Q. (2018;2019;). Operations mechanism of postponement strategy for service-oriented manufacturing. International Journal of Advanced Manufacturing Technology, 104(9-12), 3335-3341. https://doi.org/10.1007/s00170-018-3092-5
Simchi-Levi, D., Kaminsky, P., & Simchi-Levi, E. (2022). Designing and managing the supply chain: Concepts, strategies and case studies. McGraw-Hill Education
Discussion 2: RA
Universal Power Supply
The universal power supply is a postponement strategy by figuring out how to accurately forecast custom configurations of a power supply, as this is a challenge for the HP team (Simchi-Levi et al., 2022).
Another reason the strategy for a universal power supply can be construed as a postponement strategy rn the marketing side of the problem, whereby consumers are unwilling to pay for features they do not need, so developing a custom power supply may not be the best solution in the short-run, and this gives the marketing team time to figure out whether the long-term solution with consumers is a universal power supply or do they need to incorporate more processes within the product development side for changing consumer preferences as it relates to power supply features and benefits (Simchi-Levi et al., 2022).
Firms that introduce elevated levels of product customization introduce supply chain operational risk and complexity, keeping up with demand for multiple products requiring customization to meet customer demand (Sreedevi & Saranga, 2017).
The postponement of customizing power supply to specific printer innovations gives HP time to thoroughly investigate how they can customize to meet demand, assess if customization is called for or not based upon the marketing perspective, and solve problems associated with forecasting in multiple countries (Simchi-Levi et al., 2022).
Costs and Benefits of Universal Power Supply
The case study will cost HP an added $13 million in material to produce a universal power supply (Simichi-Levi et al., 2022). However, there may be some efficiency gains in transshipments of one SKU for the supply chain costs and the overall ability to meet customer demand, given it is one single SKU rather than multiple products (Simchi-Levi et al., 2022).
Product Life Cycle Effects
The beginning of the product life cycle and maturity may have cost neutral from increased material costs; however, the end of life of the product (universal power supply) poses problems for HP (Simchi-Levi et al., 2022). The end of the product life presents issues for HP; profit margins at their retail partners get squeezed, and margins become a central focus, so having only one power supply in the market can be dangerous if the universal power supply does not meet customer preference (Simchi-Levi et al., 2022). The key to managing product life cycle and cost control rests with precise supply chain coordination control at HP, as supply chain coordination requires all the necessary information from raw material quantities, consumer demand, and other variables to ensure forecasting accuracy so that HP does not overproduce and can replace with a new power supply when the timing is right for market conditions (Vosooghidizaji et al., 2019).
HP Boise Recommendations
HP should implement a safety stock plan and on-time delivery goals to enable a chance at meeting customer demand. The lengthy lead times across the ocean to North America alone stipulate the need for a push/pull method to cut bull-whip effects within the HP supply chain (Simchi-Levi et al., 2022). Even though HP is confident in reducing stockout scenarios, there is always a risk of material delays to production, so having safety stock in both raw material inputs and finished goods helps to reduce the risk of stockout situations (Simchi-Levi et al., 2022).
Recommendations on Universal Power Supply
Since HP is struggling with forecasting in regular production to printer consumer demand, HP should take advantage of a short-term approach in introducing the universal power supply to use this time to fix forecasting issues, implement policy, and review for continuous improvement in their forecasting methodology (Simich-Levi et al., 2022). HP should also deploy a committee with cross-functional personnel in product development, marketing, finance, supply chain, and distribution to assess product customization to determine if the universal power supply is a long-term solution or just a short-term solution based on consumer preference within their existing printer portfolio and for determination of customization in power supplies for future innovations (Simchi-Levi et al., 2022).
References
Simchi-Levi, D., Kaminsky, P., Simchi-Levi, E., & Shankar, R. (2022). Designing and managing the supply chain: Concepts, strategies, and case studies. McGraw-Hill/Irwin.
Sreedevi, R., & Saranga, H. (2017). Uncertainty and supply chain risk: The moderating role of supply chain flexibility in risk mitigation. International Journal of Production Economics, 193, 332–342. https://doi.org/10.1016/j.ijpe.2017.07.024 (Links to an external site.)
Vosooghidizaji, M., Taghipour, A., & Canel-Depitre, B. (2019). Supply Chain Coordination Under Information Asymmetry: A Review. International Journal of Production Research, 58(6), 1805–1834. https://doi.org/10.1080/00207543.2019.1685702