Supply Chain Management Essay

1905 Words Feb 27th, 2011 8 Pages
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1. What has caused the so-called Inventory/Service "Crisis"? 1

2. What are the important "drivers" of safety stock? 2

3. Recommend quantitative target inventory levels for the six European options, assuming a weekly periodic review replenishment. 4

4. Assuming a 20% gross margin for each printer, sea transportation costs of $1 per printer and air transportation costs of $10 per printer (air shipment lead-time is three days), evaluate the various alternatives available to Brent Cartier to address the inventory and service problem. 6

5. Bibliography 8

1. What has caused the so-called Inventory/Service "Crisis"?

In 1990’s, Hewlett-Packard faced several problems with inventory levels for the Deskjet Printer
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This is a system whereby any regularly used material is re-ordered when the inventory drops to a certain level. This level is usually a function of the lead time, daily demand, and safety stock.
•How Much to Order - The quantity to be ordered is determined through the Economic Order Quantity. The Fixed-Time Period Model is the inventory planning system where inventory policy consists in ordering at a designated time period regardless of whether the reorder point has been reached. This does not involve physical count of inventory items. Since the system is time triggered, it must have a larger average inventory to protect against stockout during the review period. In this model, there is a fixed quantity that HP should order each time, which is given by: q = Target Stock – Inventory (at the beginning of the period)

This way of compute the order quantity, leads us to the concept of Target Stock. This is the level of stock desired by the company at each moment of its operations, and it’s given by:
Target Stock = Average demand + Safety stock or Target Stock =[pic] + [pic]

Since we know that the level of inventory at the beginning of the year is equal to 0.9 months (in relation with demand), it is easy to compute the target stock. We assume a periodic review of one weak (0,25 months).

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