In what way is a universal power supply a postponement strategy
Hewlett-Packard Company: Network Printer Design for Universality
Assignments
Gary W. Smith Jr.School of Business, Liberty University
BUSI 740: Managing the Supply ChainDr. Deloris Easley
June 17, 2021
In what way is a universal power supply a postponement strategy?
Postponement strategy is a supply chain management (SCM) concept that allows manufacturers to create a generic item that is later modified before delivery to the customer (Carbonara and Pellegrino, 2018). This practice is also used to improve forecasting and SCM strategies. For Hewlett-Packard (HP), the long lead time for engine manufacturing in Japan required the company to specify printer requirements fourteen weeks ahead of time (Simchi-Levi et al., 2019). As a result, HP could use four-month worldwide demand estimates by moving to a universal power supply versus creating forecasts for each market. Additionally, the postponement would reduce the risk of costly localization errors and improve forecasting accuracy. This approach stands in contrast to the Viper, a previous HP laser printer. Viper required a dedicated power supply and fuser that was not interchangeable. This dependency gave HP little flexibility in their product forecasting (Simchi-Levi et al., 2019). Eventually, HP’s demand forecasting predicted less demand in Europe and heavy demand in the United States, but the opposite occurred. The forecasting error caused excess Viper printers to be sold at reduced and fire-sale prices, impacting consumer price expectations and the company’s ability to price at historic levels. This issue highlights the positive impact a postponement strategy can bring to SCM.What are the costs and benefits of a universal power supply (feel free to make assumptions)?The story of HP highlights the benefits of a universal power supply by explaining difficulties the company experienced with its Viper laser printer (Simchi-Levi et al., 2019). As stated above, Viper’s power supply and fusers were static, and modifications were not possible. As a result, HP shifted its risk by relying heavily on demand forecasts. This limitation meant all predictions needed to match current inventory levels and product orders based on geographic locations. Eventually, the company’s projections drastically overestimated their most prominent market, the United States, and underestimated demand in Europe. An oversight that led to excess equipment and large amounts of printers sold at a discount.Armed with this knowledge, HP recognized the cost savings of maintaining an inventory of adjustable power supplies. As the company’s Japanese engine manufacturer completed orders, HP could modify power supplies to meet product demand worldwide. These actions helped mitigate the financial risk associated with inaccurate forecasts and excess inventory. Additional benefits include scheduling flexibility and low or no-cost modifications to power supplies. However, at $30 per power supply, HP estimates they could incur $13.5 million in additional material costs if they sell 450,000 printers (Simchi-Levi et al., 2019). This cost could result in less profit or higher retail prices if it is not addressed. Additionally, like HP’s engine manufacturer, relying on one provider for all power supplies could introduce quality and lead time risks over time.How would such costs and benefits be different over the product life cycle?On costs, HP is exposed to the most risk early in a product’s life cycle. As the company increases production, inaccurate product and demand forecasts could result in stockouts and orders not being filled (Simchi-Levi et al., 2019). However, the power supplies’ universality and lead time flexibility should reduce the likelihood of this outcome (Zhang et al., 2017). The more significant problem of spending an additional $30 could prove difficult, as HP printers reach the maturity stage. During this time, companies face the most competition, and product pricing drastically impacts sales (Zhang et al., 2017). However, if the company can lower their production costs and limit price increases to the consumer, switching to universal power supplies could improve overall SCM. Lastly, as HP begins to phase specific printer models out of the market, actions taken to reduce production costs earlier in the life cycle will increase their ability to maintain a profit.Besides deciding on a universal power supply, what other operational improvements can you suggest to HP Boise? Other than power supplies, the most significant operational issue is HP’s printer engine manufacturer. Located in Japan, the company only has one engine supplier that uses its monopoly to require extensive lead times for all product orders. Once complete, shipping times further delay orders. I would suggest implementing process standardization throughout their supply chain (Simchi-Levi et al., 2019). This approach utilizes management’s ability to standardize manufacturing, production, logistics, and operational processes. If conducted properly, companies can identify bottlenecks or monopolies within their supply chain and reduce costs as they are eliminated (Goel et al., 2021). Over time, this will introduce competition between manufacturers, streamline product pricing, and improve HP’s ability to remain competitive in the marketplace.What would be your recommendations about the adoption of a universal power supply?
The decision to adopt universal power supplies appears highly beneficial. However, the $30 price for materials is an issue. However, if I could test and implement changes, I would reduce the cost of power supplies by sourcing materials from competing manufacturers. After establishing an agreement with a manufacturer, I would distribute any additional costs between operational overhead and consumers. This approach would allow HP’s prices to remain competitive while limiting the reliance on individual manufacturers (Hinterhuber and Liozu, 2019). All these actions help standardize the company’s equipment, approaches and make up a process known as procurement standardization (Simchi-Levi et al., 2019). Over time, these actions are likely to continuously reduce the cost of producing expensive equipment such as laser printers.ReferencesCarbonara, N., & Pellegrino, R. (2018). Real options approach to evaluate postponement as supply chain disruptions mitigation strategy. International Journal of Production Research, 56(15), 5249-5271. https://doi.org/10.1080/00207543.2017.1403663Goel, K., Bandara, W., & Gable, G. (2021). A typology of business process standardization strategies. Business and Information Systems Engineering.Hinterhuber, A., & Liozu, S. M. (2019). Pricing Strategy Implementation: Translating Pricing Strategy Into Results. Routledge.Simchi-Levi, D., Kaminsky, P., Simchi-Levi, E., & Shankar, R. (2019). Designing and managing the supply chain: Concepts, strategies, and case studies. Tata McGraw-Hill Education.Zhang, Y., Ren, S., Liu, Y., Sakao, T., & Huisingh, D. (2017). A framework for dig data driven product lifecycle management. Journal of Cleaner Production, 159, 229-240. https://doi.org/10.1016/j.jclepro.2017.04.172
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