Is HP’s focus on minimizing inventory costs is feasible for a company operating in a
market where delivery speed is an order-winning factor?
The global business is becoming more and more competitive and businesses are looking to
increase their delivery speed to give them an edge. Based on research, 65% of consumers are
willing to pay extra money for the same-day delivery option (Portcity Logistics, 2020). It is a
clear indication that delivery speed is a crucial factor for any business. However, having a large
inventory to increase delivery speed is becoming a less viable option for many businesses.
High inventory is a sign of costly and ineffective operation and logistic processes. A survey by
Donovan (2005) showed that 82% of senior executives who responded said that inventory
reduction was a major concern.
The cash that is tied up in inventory can be used for R&D, marketing and sales, acquisitions, and
expansion. Based on the article inventory levels were the main factor for HP's high PC costs and
had led inventory-driven costs (IDC) to be equal to the PC's business total operating margin
(Calloni, 2005). This was a very serious issue that needed an urgent solution.
Optimizing inventory levels without significantly decreasing delivery speed is the ideal objective
for any global business. A simple reduction in inventory levels would not be an answer to this
complicated problem rather a detailed analysis was needed. Consequently, HP’s Strategic
Planning and Modeling (SPaM) group needed to find out the major cost components and provide
an alternative to this predicament (Calloni, 2005). Devaluation, price protection, return costs, and
obsolescence costs were the major cost components related to excess inventory levels.
Additionally, the team identified that the impact of each IDC component differed for different
products.
These findings help the company to assess its actual costs more clearly and evaluate its
alternatives by incorporating IDC. This helps the firm to rethink its whole supply chain
decisions. Based on the article HP’s Personal Systems Group, was able to minimize inventory
levels by 50% between 2000 and 2002, and decreased IDC by some 70%. This is without a doubt
a significant achievement for the company (Calloni, 2005).
market where delivery speed is an order-winning factor?
The global business is becoming more and more competitive and businesses are looking to
increase their delivery speed to give them an edge. Based on research, 65% of consumers are
willing to pay extra money for the same-day delivery option (Portcity Logistics, 2020). It is a
clear indication that delivery speed is a crucial factor for any business. However, having a large
inventory to increase delivery speed is becoming a less viable option for many businesses.
High inventory is a sign of costly and ineffective operation and logistic processes. A survey by
Donovan (2005) showed that 82% of senior executives who responded said that inventory
reduction was a major concern.
The cash that is tied up in inventory can be used for R&D, marketing and sales, acquisitions, and
expansion. Based on the article inventory levels were the main factor for HP's high PC costs and
had led inventory-driven costs (IDC) to be equal to the PC's business total operating margin
(Calloni, 2005). This was a very serious issue that needed an urgent solution.
Optimizing inventory levels without significantly decreasing delivery speed is the ideal objective
for any global business. A simple reduction in inventory levels would not be an answer to this
complicated problem rather a detailed analysis was needed. Consequently, HP’s Strategic
Planning and Modeling (SPaM) group needed to find out the major cost components and provide
an alternative to this predicament (Calloni, 2005). Devaluation, price protection, return costs, and
obsolescence costs were the major cost components related to excess inventory levels.
Additionally, the team identified that the impact of each IDC component differed for different
products.
These findings help the company to assess its actual costs more clearly and evaluate its
alternatives by incorporating IDC. This helps the firm to rethink its whole supply chain
decisions. Based on the article HP’s Personal Systems Group, was able to minimize inventory
levels by 50% between 2000 and 2002, and decreased IDC by some 70%. This is without a doubt
a significant achievement for the company (Calloni, 2005).
