Tuesday, February 14, 2012

HP's Touchpad Fiasco

One of the articles in the reading pack was related to Inventory Driven Costs and how HP was facing problems with its inventory costs during the 1990s. The costs included Component Devaluation Costs, Price Protection Costs, Product Returns Costs and Obsolescence Costs. These costs were due to a lack of a more streamlined supply chain

Last year around August HP released its much anticipated tablet Touchpad with WebOS.
Due to competition from other tablets such as the IPAD and Galaxy Tab, the Touchpad couldn't garner enough sales in US.To offload its unsold inventory, HP had to slash its prices astronomically from $499 to just $99. At these rock-bottom prices, buyers rushed to snatch up the remaining TouchPads. HP was approximately losing $206 dollars for every 16GB model sold. In total it faced a loss of $200 million dollars on the Touchpads shipped to various retailers in US and all over the world. Retailers in Australia were open to product returns by customers since HP no longer provided support for WebOs platform. Those product returns meant losses incurred by HP.
HP's Touchpad was almost certainly doomed from the start because its design and build quality didn't come close to those of Apple's Ipad or even Samsung's Galaxy Tab.

The decision to scrap the TouchPad came less than two months after it first appeared in shops in the United States, and just over a month after the British launch.Since the Taiwenese part suppliers already had stockpiles of inventory for the 7 inch version of the tablet, HP had to do one final run of production of Touchpads to placate their concerns. The suppliers wanted to negotiate a solution for their remaining inventory and HP was committed to mantain its promise to its partners and suppliers in order to sustain its relationship with them. The inventory level was capable of producing about 100,000 7-inch TouchPads and was originally set to start production at the end of the third quarter, but HP's sudden change of strategy had
completely messed up upstream players' schedules.

Just like in the 90s, HP again faced losses due to its inventory and the demand for Touchpad didnt turn out to be in accordance with their expectations. Retailers had
unsold inventory in excess and HP had to bear price protection costs and product return costs. In this case, however it was more so because of the product quality and price compared to the other competitive products in the market.

One question that i would like to ask is

What could have HP done different, to minimize inventory losses in the case of the Touchpad? They had already shipped a set amount of units. A price cut allowed them to make some money out of their unsold inventory instead of earning zero dollars.






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