The encyclopedia · Engineering & Operations · Operational decision · 1988–1995
Hewlett-Packard cut deskjet supply costs 25% by postponing customisation.
HP made its deskjet printers modular and postponed customisation to the last point, cutting supply costs 25%.
Hewlett-Packard
the move
In the late 1980s Hewlett-Packard faced inventories mounting into the billions of dollars and alarming customer dissatisfaction with order fulfilment, much of it caused by country-specific printer variants.
The obvious answer is better forecasting for each variant. HP instead used inventory models to analyse how the location of inventory within the supply chain affects cost.
The analysis showed that a modular design plus postponement would let one base printer be built and shipped, with regional parts added near the customer. That moved the expensive, uncertain part of the chain far from the forecast error.
The result cut deskjet printer supply costs by about 25% and made HP the canonical example of postponement and mass customisation.
why it works
- Forecast error grows with product variety, so variety is the real cost
- A common product absorbs the uncertainty of many markets at once
- Adding late customisation only happens once an order is known, not forecast
- Inventory models made the cause visible instead of guessing at it
what transfers
When product variety drives inventory, move the point of customisation as late as possible so one common product absorbs the forecast uncertainty of many markets.
what came after
The modular design and postponement cut deskjet supply costs by 25%, and the Lee and Billington (1995) Interfaces paper became a canonical supply-chain case. HP later extended the approach to inkjet cartridges, moving freight lanes from air to sea for $80 million in net present value.
references
- Introduction — Supply Chain Management and Advanced Planning (notes HP's 25% deskjet cut)
- The Evolution of Supply-Chain-Management Models and Practice at Hewlett-Packard
spotted an error? The archive wants to know.