Supply Chain

1. In what way is a universal power supply a postponement strategy.

A universal power supply would provide more flexibility to HP. As they don’t need to care which printer should install which power supply by region, HP can assemble the in a later stage. By adopting this postponement strategy, HP are able to predict the demand much more exactly and react more rapidly.

2. What are the costs and benefits of a universal power supply?

The cost of a universal power supply is $30 per unit, assume the total demand is 450,000 units, the total additional cost should be 13.5 million. This cost cannot be covered by price increased as customer would not think this universal power supply a value added item.

The benefits of a universal power supply included the following:

a. Reduction of stockouts cost. Assume the profit margin is 30%, and the stockouts cost is 2 times of profit margin, so stockout cost of each unit is 5000*30%*2=3000. As demand is 80-90% in standard deviation to the estimation, and US market owns 60% of market demand, we calculated that our maximum stockouts in EU would be 450,000*40%*80%= 144,000, the total cost would be 144,000*3000=432 million. Also, there are additional transportation cost for relocation, it’s around 144,000*75=10.8 million. The additional benefits saved from stockout cost would be around 400 million.

b. The reduction of inventory cost. Say as above, the 144,000 units of wrong estimation would lead to inventory cost at 144,000*300= 43 million. This benefit was derived from reduction of inventory cost.

There are definitely some other benefits and cost cannot be quantified, such as decision making power arose due to the allocation of products and transportation, these are management costs. Also the benefits from less UL certification needed to avoid trouble and repeated work.