Hewlett Packard Supplying the Deskjet Printer in Europe

¶ … 1988, the DeskJet printer has become one of the best sold products in Hewlett Packard's product portfolio, with figures reaching 600,000 units in 1990. Much of the DeskJet printers are sold to Europe, a significant market both in terms of absorption capacity and increasing demand. However, the European market has several characteristics of its own.

The most important one is the necessity to adapt the printers to the exact requirements of the European market. One of these requirements refers to the language in which the manual is written, but, at the same time, energy adaptations need to be performed as well, meeting the correct voltage and power cord plug requirements. Given the fact that all printers are produced and assembled in the Vancouver facility, one needs to add to actual production time the time of transport and distribution to the European resellers.

It is important to note that the market in which HP operates is a highly competitive one, with resellers wanting to operate on stock as little as possible. This implies the need for HP to have a constant and significant reserve of printers ready to be distributed to its resellers. Due to the high level of availability needed by the industry, it is natural that the growth of HP sales in Europe has concomitantly led to the accumulation of large inventory figures. This is the main problem that the company is currently facing, given the cost of carrying inventory that is implied.

There are several cost factors involved in carrying inventory. The management of all inventory in the warehouse implicates a large amount of workers, while the portion of the warehouse used to store the printers brings about additional costs related to rent and utilities

. Insurance of all goods on stock needs to be taken into consideration as well.

In my opinion, all these cost factors associated with carrying inventory are less important than two main factors. One of them is related to obsolescence costs. In the computer industry, we need to consider a period of optimal use between six months and maximum a year. In other words, it may be the case that the products on stock that HP has produced will have no demand on a market that wants to stay in touch with technological advances. The most radical case will imply that the products in the warehouse will, at a certain moment, have no target consumers.

The second important cost factor in this case is related to the opportunity cost. Indeed, the money used to build up inventory in order to meet demand from the European market at a possible future time could be used to create present revenues from investments in other products.

As such, in order to deal with the correlation between the workforce size, the inventory quantity and the production levels, HP needs to have an aggregate planning scheme that would include all three and, in my opinion, an additional important factor: a forecast over the next 6-12 months on the estimated demand for the DeskJet printer. The workforce size increases proportional with the inventory quantity, as more people will be needed to properly manage the stock, including moving it around, storing it, etc. On the other hand, production levels, inventory size and demand are strictly correlated. How much the company will store is determined by how much it is likely to sell and these two elements will determine how much the company has to produce.

As quantitative data, in the form of historical data (number of DeskJet printers sold in the past), does not provide sufficient information for the evaluation in this case, I would recommend the use of qualitative forecasting techniques

. In this case, surveys of the sales force may provide the necessary answers for the management. The main reason for this is the fact that the sale force in Europe is closer to its customers and better understands the market and the changes it may be subject to in the future.