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Therefore the DCs acted as inventory stocking points between the manufacturing site and the dealers who sell the printers to the end-customer.
Under increasing competitor’s pressure the DCs were forced to hold extremely high safety stocks to ensure high service levels. Despite the high safety stock not all customer demands could be satisfied. This led to what HP called the “Inventory/Service Crisis”.
One of the basic causes of the crisis was the magnitude of forecast errors. Besides this, safety stock levels were determined by a judgemental rule of thumb which, together with the inaccurate forecasts, resulted in simultaneously high inventory levels and high backorders...
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