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© 2006 Hewlett-Packard Development Company, L.P.

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  • Storage of components inside the product enables the recto-linear shape Need to view this page in slide-show mode to see the animation. Space is reduced by packing many of the contents inside of the printer body. Notice the rectilinear product shape and limited padding requirement due to product strength and robustness.
  • Since we want to maximize the number of units that we get into a container, we have found if the product is box-shaped, it uses the space better. On Homer, the designers made the paper tray of the unit fold up so in shipping the product is box shaped and when in use, it folds down and is the tray. Additionally, we wanted to reduce the thickness of the foam padding so we made the product structurally robust to handle the shake, rattle and roll of shipping both in the end pack and bulk pack configurations. The team came up with a method of using the end shipping foal for bulk pack so there are lots of savings – no new foam, less labor, and no bulk packaging to dispose of.
  • Here are a couple of different control panel plates. You can see here that we have both an English and a Chinese version here. Since the end customer installs the control panel in most regions, it is very effective to include a number of control panel plates in the end package so the customer sets up the language themselves. The improvements in variety control and postponement made it possible for the Homer product to meet IPG's supply availability and delivery performance targets with less inventory
  • Margins are very thin. The product is sold through the channel to mainly retail customers- quite a bit of inventory is in place, and we face significant exposure in upcoming ‘rolls’ to new versions. Several managers suspect that there are big efficiencies to be gained from improving supply chain management. Unfortunately, time to market and product performance take up most of the mind share of the division. Question: how to determine the opportunities in supply chain? Once determined, how to get functional alignment around these opportunities and the resources to transfer them to the bottom line? Your job, should you choose to accept it, will be to do an analysis to make several “design for supply chain” recommendations. Take out your pencils and calculators… I will first step through the math you will need and then give you a few minutes to work through a question with a partner.
  • Design decisions come in all shapes and sizes. You may need to trade-off material costs, TTM costs, lost sales costs, and inventory costs. In many cases, we find that people are looking for guidance on quantifying inventory costs. It is a little tricky, so that is what we will focus on today. (As an aside, if you have questions around the others we have some rough cut techniques to help out.) The most common design for supply chain decision is usually of the form: “Should I pay $X per unit more in material cost to reduce inventory costs?” Sound familiar? What are some ways to reduce inventory costs? You may reduce inventory costs by reducing lead time and lead time uncertainty, by increasing part yield or supplier delivery frequency, by postponing differentiation, or by eliminating SKUs. But what are these actions worth? Whenever you face a DfSC question, the first step is to figure out how much inventory is at stake and whether it is worth doing any more analysis. Q1. People often think about inventory - the combination of cycle stock and safety stock - in terms of weeks of supply WOS. The first equation quantifies the cost per unit for holding 1 WOS. Q2. What if you don’t know how much inventory you are carrying? The second set of equations estimates the WOS based on lead time, forecast error, desired service level, review period, and delivery frequency. Of course we assume efficient use of inventory and deterministic lead time. k factors: 99% = 2.326; 98% = 2.054; 95% = 1.645; 90% = 1.282; 84% = 0.994; 50% = 0.000 A1. You are spending about 40% * $200/unit / 52 = $1.54/unit for every WOS of inventory. A2. You are carrying about SS + CS = 1.645 * 60% * sqrt(8 + 1) + 1 / (2 * 1) = 3 + 0.5 = 3.5 WOS. This means their IDC is about 3.5 * $1.54 = $5.40/unit. In other words, an idea to reduce inventory to 0 would be worth $5.40 per unit - but not more! Check error on safety stock. 0.8^2 / (8+1)/0.60^2 = 0.20
  • When people talk about SKU reduction they mean a number of things. Some people mean we get rid of SKUs and also lose sales. The analysis then looks at the marginal cost of a SKU vs. the marginal benefit (contribution margin). Here we talk about physical SKU reduction without the loss of revenue or margin. In other words, we look at opportunities for creating products that are more “universal”: they satisfy the same number of customers with fewer physical SKUs. We assume that marketing can differentiate the products in other ways so we can capture the appropriate margins. We will present 3 techniques to consider based on the situation you face. 1. If you create 1 universal product, then all demand variability is risk pooled together. 2. If you reduce the number of SKUs from n to m and the m SKUs share demand variability equally, there is one technique. An example of this is when you have 10 products that serve 1 market. If you eliminate 1 product and can still satisfy customers, demand may equalize out across the remaining 9 products. 3. If you reduce the number of SKUs from n to m and the m th SKU consolidates all the eliminated demand variability, there is a different technique. An example of this is when you have 10 products that serve 10 markets. If you combine 2 products into 1, the 1 product may be able to serve 2 markets.
  • Q5. What if you could create 1 universal SKU? A5. RR = 1 - 1 / sqrt(20) = 78% reduction SSs = 3 WOS * $1.54/unit/WOS * 78% = $3.60/unit
  • SPaM develops a wide range of tangible innovation assets and also presents at conferences and industry forums. Publications are important for a number of reasons—it is amazing how often external publications lead to better knowledge sharing inside of HP. It is also an important way for us to contribute to the academic community so we can receive benefit—it is important for us to be a contributing member of the academic community and to have a high profile.
  • Transcript

    • 1. Brian Cargille APJ Manager HP Strategic Planning and Modeling (SPaM) Product Design for Supply Chain
    • 2. Agenda
      • Introduction to the DfSC techniques and results we are seeing at HP
      • The best DfSC has to offer; multiple techniques in concert
      • Spreading the approach across HP
        • Process of diffusion
        • An example technique that accelerates adoption
          • Practice: rough cut analysis for product variety management
        • Resources and Support
    • 3. DfSC Success Examples Tax and Duty Reduction Environment & Take-Back 45% reduction Reducing physical size saves >$1/unit for all-in-ones Logistics enhancement Variety management 107 modules 95 options 55 modules 49 options 42% less inventory and better availability for PCs ; $25M Commonality and Reuse Move from ~12 rail kits to 5 for servers $32M annual material cost reduction InkJet supplies recycling increased 25% Postponement > 98% fill rate with ~2 WOS FGI of Laser Jets > $10M in savings in storage products
    • 4.
      • Logistics
      • Dramatic decrease in size and weight vs. previous generation
      • More robust product allows minimal packing material and a high density per shipping pallet
      • Rectilinear package design
      • Use of internal space to ship small accessories
      • End pack box size reduced from 4760 to 1540 cu inches
      Multiple DfSC techniques Example: Redesign of All-In-One Printer
      • Commonality and Reuse
      • Reused existing print mechanisms across printer, AIO and scanner platforms:
        • ~ $30/unit cost reduction
        • Increased bargaining power with suppliers
        • Increased flexibility in product mix
      • Variety Control & Postponement
      • Only one base hardware model
      • Use of control panel plate to localize language and product configuration
      • Combination of two above enables fewer touches and shift of all assembly to WW factory in low cost labor region
    • 5. Early Product/ Packaging Prototype
    • 6. Product Designed to Maximize Bulk Pack Units per Container
      • Excellent use of rectilinear
      • volume space
      • Robust product design so less
      • external padding is required
      • Bulk pack materials used for
      • end packing to save material, time, and labor
    • 7. Control Panel Plastic Plate Enables Product Variety at Low Cost
      • Installs localized language and product features
      • Postponement
        • End customer installs control panel plate
      • Variety
        • In multi-lingual regions, multiple control panel plates allow customers to self select their language
    • 8. Key Steps for Diffusing Best Practices
      • Use a combination of business experts and internal consultants
      • Recognize and reward early successes
      • Create brief, positive messages that appeal to the needs of the adopters
      (1) Prove the concept with early wins (2) Formalize the concept Develop Collateral Formalize (3) Formalize the program (4) Accelerate adoption
      • Crystallize definitions
      • Develop educational materials that identify adopter concerns, provide relevant examples, and give reliable information
      • Promote discussion with satisfied peer adopters
      • Develop not only live courses but also online training, experience stories, articles, etc.
      • Assign business owners and create incentives for success
      • Establish metrics and use them to measure the company’s performance
      • Set up a process for non-experts to learn skills, adopt the practices, and connect with a network of experts for support
      • Use metrics to identify gaps in performance
      • Conduct opportunity assessments to help management prioritize future applications
      Diffuse
    • 9. DfSC Opportunity Assessment Personal Computing “ SPaM clearly identified some significant opportunities for us. We will definitely take them to the next step.” HP Vice President and General Manager Significant opportunity Moderate opportunity Commonality and Re-Use $0-5M/yr
      • Focus on ODM managed components
      Postponement $0-1M/yr
      • Address ship delays through postponement of Wireless EE prom burn at ODM
      Tax and Duty Reduction No opportunity identified Take Back Facilitation Not included in the analysis Logistics Enhancement $4-5M/yr
      • Plastic Pallets
      • Pallet loading efficiency
      Variety Control $8-18M/yr
      • Platform, localization, and SKU-level management
      • Business need
      • Fast market growth, commoditization, growing competition have led to shrinking margins for the business
      • To remain competitive, supply chain efficiency and coordinated design will be critical
      • Also used the assessment as an opportunity to provide training and disseminate DfSC concepts across design team
      • DfSC contribution
      • Through data collection and a series of remote and on-site interviews, systematically investigated each of the 6 DfSC techniques (take-back facilitation excluded) and identified opportunities to apply the techniques on a forward-looking basis
      • Estimated the potential financial impact to HP from applying DfSC against the identified opportunities
      • Advised business on recommended action plan
      • Value delivered
      • Potential savings: $12-$29M/Year
    • 10. Sample Product for Analysis* Digital Camera
      • Mean demand:  = 5,000/week
      • # SKUs: n = 20
      • Forecast error: fe ~60% (CoV)
      • Product cost: c ~ $200/unit
      • Product price: p = $220/unit
      • IDC percent: h = 40% per year
      • Mean lead time: L = 8 weeks
      • Std. dev. lead time: s = 0.8 weeks
      • Review period: R = 1 week
      • Delivery frequency: f = 1/week
      • Service level target: SL = 95%
      Make design for supply chain decisions Goal: * All data presented are for illustrative purposes only and do not reflect actual demand, costs, portfolio size, prices, operating policies, supplier performance, or forecast accuracy at Hewlett-Packard.
    • 11. What’s at stake? Calculate current inventory costs How much are we currently spending per WOS? How many WOS do we expect?
    • 12. Safety Stock Factor Cum “k” 99% = 2.326 98% = 2.054 95% = 1.645 90% = 1.282 84% = 0.994 50% = 0.000 “ k” is the safety stock factor 95% 1.645
    • 13. Safety stock reduction through risk pooling Spread Volume Consolidate Volume Universal SKU
    • 14. What’s it worth to have one universal SKU? Benefit of going from 20 SKUs to 1 How much is safety stock reduced by pooling uncertainty to 1 SKU?
    • 15. Expertise and resources
        • Proven approaches and inspiration from articles in a variety operation journals and practitioner magazines – including Supply Chain Management Review and publications of INFORMs as well as textbooks from IE/OR courses.
        • the supply chain and design engineers in your company currently working on new product introductions, packaging, procurement, competitive product analysis, product portfolio development, supply chain network design, inventory control, and capacity management.
    • 16.  

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