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In what way is a universal power supply a postponement strategy?
Postponement strategy or delayed differentiation is a process in which a product is
manufactured in a standardized manner until the final step (Simchi-Levi et al., 2021). In the case
of the HP rainbow printer, the power supply and corresponding circuit boards are installed
during the initial 14-week lead time process in Japan. Because the current 110v and 220v power
supplies are not interchangeable with the circuit boards, HP needs to allocate production units
early in the production cycle. With the universal power supply installed, HP can “postpone” the
allocation of which units will be 110v and 220v later in the process, where they can be finalized
at the distribution centers.
What are the costs and benefits of a universal power supply (include assumptions)?
The initial cost of adding the universal power supply is $30 per unit. HP estimates it will
sell 450,000 units in the first year. The universal power supply will add an approximate total of
$13.5 million. HP will absorb the cost if the cost is not passed on to the consumer. However,
with a stated price of $5,000-6,000 depending on configuration, a $30 increase in price does not
seem significant. When calculating revenue, if HP sells 450,000 units, they could expect
approximately $2.2-2.7 billion in revenue. $13.5 million is less than 1% of total revenue and
could be absorbed if needed.
Another factor to consider is the cost of shipping and reconfiguring units for use in other
markets as needed. The case study stated that the forecasts could deviate around 40%. The cost
of shipping each unit is $75, and the minimum reconfiguration cost is estimated at $250 per unit.
This indicates that as many as 180,000 units could need to be reconfigured and redistributed at
approximately $58.5 million.
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The reconfiguration process also adds significant lead time, and customers may purchase
another brand out of necessity. There will be at least one month in shipping; then, the unit must
be reconfigured and shipped to the customer. This increase in time can cause HP to lose the
initial sale of the printer, maintenance, and consumables like parts and toner cartridges over the
printer’s life cycle. Also, customers may be more likely to stick with that brand for the following
printer. The lack of inventory and reconfiguration lead time can also affect HP's reputation. This
can impact customer satisfaction and loyalty across HP’s product line. A company’s image and
reputation directly impact customer satisfaction and brand loyalty (Ozkan et al., 2020). The case
study also states that the annual inventory holding costs are approximately 30%. Units with the
universal power supply will not need to be held in inventory for as long and can reduce the
overall holding costs.
How would such costs and benefits be different over the product life cycle?
The life cycle of a product includes all the steps from initial R&D to its obsolescence.
New products have the potential to generate significant sales volume with a higher initial
production cost, but the production cost will typically decrease from 10% to 25% over the life
cycle (Feng et al., 2019). Also, because the Japanese manufacturer will only produce one unit
type, they may improve efficiency and reduce lead time. The forecasting accuracy will also
likely improve over time, which may lead to reduced inventory holding costs. Every market has
its challenges that include unpredictability and volatility. Risk pooling can be advantageous
throughout the life cycle. In the early stages of the life cycle, safety stock volumes are high and
incur high inventory holding costs (Simchi-Levi et al., 2021). Because the universal power
supply unit can be used in all markets, HP can use risk pooling on a broader spectrum.
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Besides deciding on a universal power supply, what other operational improvements can
you suggest to HP Boise?
HP Boise has two principal metrics: cost reduction goals and break-even projections.
However, they have some other opportunities in logistics as well. Reducing the lead time in any
of the steps could significantly strengthen their supply chain. The 14-week lead time with the
Japanese manufacturer is costing HP time and resources. HP’s manufacturing manager, Sara
Donohoe, suggested that internalizing production would give HP more control over the supply
chain and decrease the shipping costs of the circuit boards from Japan to Boise (Simchi-Levi et
al., 2021). If HP can not do this immediately, they should seek out other manufacturers to give
the Japanese manufacturer some competition and open additional sources.
What would be your recommendation about the adoption of a universal power supply?
Although there is an increase in production costs, the recommendation is to adopt the
universal power unit. The increased cost of $30 per unit is less than 1% of annual revenue. The
universal power supply pays for itself when other savings are included, like reduced inventory
holding costs and reconfiguring costs. Also, if HP wants to maintain and increase its 57% market
share, it needs to innovate, and innovation costs money. The HP management should view the
universal power supply as an investment, not a cost. Besides the costs tied directly to the
universal power supply, there will be improvements across the supply chain and in customer
satisfaction if adopted. Overall,
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References
Feng, L., & Chan, Y. (2019). Joint pricing and production decisions for new products with
learning curve effects under upstream and downstream trade credits. European Journal of
Operational Research. 272(3), 905–913. https://doi.org/10.1016/j.ejor.2018.07.003
Özkan, P., Süer, S., Keser, İ. K., & Kocakoç, İ. D. (2020). The effect of service quality and
customer satisfaction on customer loyalty: The mediation of perceived value of services,
corporate image, and corporate reputation. International Journal of Bank Marketing,
38(2), 384-405. https://doi.org/10.1108/IJBM-03-2019-0096
Simchi-Levi, D., Kaminsky, P., & Simchi-Levi, E. (2021).QDesigning and managing the supply
chain: Concepts, strategies, and case studiesQ(4th ed.). New York, NY: Richard D. Irwin,
Inc.
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