HP Case Report
1. Causes for the Inventory Problem: HP was used to guarantee maximum order fill without putting major attention to stock level. The inventory problem was raised from a corporate order that business needed to meet customer needs with less inventory quantities. In fact, the situation was increasingly deteriorating due to the growing sales in European and Asian-Pacific, resulting in increased inventory levels to ensure satisfactory product availability. From our point of view, the main reasons for this crisis were:
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Customer loyalty was dropping, which increased the pressure to ensure quick satisfaction of costumers’ orders and avoid loss of sales. This fact, associated with a dramatic growth of sales
This will be considered as an extra week of lead time. The quantity to reorder every T time is given by the expression:

q = d ⋅ (T + L ) + z ⋅ σ T + L − A
Where,

d
T L z

Weekly average of demand Time Period between orders Total Lead Time (transport + factory production time) Service Level

σ T +L Standard Dev for T+L period
A Level of Inventory
(considering previous orders)

In the case under analysis the goal is to determine the target quantity of inventory and not the reorder quantities through time. This means that the formula above can be used with A parameter equal to zero.

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Operations Management

Non-Aggregated Case In this case the demand for each product model is considered separately and the target inventory values for each product option can be found on the following table:
Europe Target Inventory Target Inventory Options L=5 L=6 Model A 146 163 Model AA 1144 1290 Model AB 37893 42984 Model AQ 6391 7202 Model AU 11858 13354 Model AY 720 818 Table 1 - Quantity to Order (Variable L)

The auxiliary calculations for the application of the model to this case can be found in Exhibit 3 and Exhibit 4 in the Appendix. As expected, when the lead time increases the target inventory increases as well for the same level of service. The more time elapses (T+L) the higher inventories have to be available to guarantee that the probability of “stockout” keeps low enough.

Aggregated Case In this case the demand considered was