Universal Power Supply Case Study
Switching to another brand means that HP might lose its customers for over three or four generation of printer as well as the revenue from selling ink cartridges. Assume that without 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 reconfigured 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 then 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 four months ahead. • Allow HP to better forecast demand as a whole, which is more accurate. Consequently, it reduces inventory buildup issue. • Flexible to respond to customer order so that HP can increase service …show more content…
How would 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 also future revenue. The theory is the customers tend to buy similar product and/or brand to keep consistency. In addition, it takes over four life cycle of product before that customer returns to HP. • At the maturity stage, the extra cost, although very small, can be a 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. Besides deciding on a universal power supply, what other operational improvements can you suggest to HP