Basic Concepts of Inventory Management in Manufacturing

Business -- Inventory Management Both Hewlett-Packard, Inc. and Dell, Inc. manufacture electronics, managing inventories of purchased parts, fabricated assemblies and finished goods. Manufacturers such as HP, Inc. and Dell, Inc. must work effectively with their "Capacity Management" and in doing so, have arrived at four main layouts. In addition, supply chain is measured by various metrics, to improve overall performance and profitability.

While Dell currently outperforms Hewlett-Packard in inventory management, there is room for improvement in the inventory management of both companies without harming operations and/or the customer benefit package. Determine the types of inventories these companies currently manage and describe their essential inventory characteristics. Hewlett-Packard, Inc. and Dell, Inc. are two U. S --based manufacturing corporations that deal in electronics.

Both companies manage inventories of purchased parts, fabricated assemblies and finished goods, though Hewlett-Packard maintains a far greater inventory of finished goods due to its business model (Stock Analysis on Net, 2016). 2. Analyze how each of their goods and service design concepts are integrated. Hewlett-Packard, Inc. follows a "Postponement" strategy, which is postponement of the time/place of production diversity (Davila & Wouters, 2007, p. 2246).

For example, rather than configuring computers for various European countries at an earlier point and possibly bloating inventory with specifically configured computers, Hewlett Packard sends finished-product computers to Europe and at the distribution center, those computers are configured by keyboard, manuals or software settings selections for particular countries. Due to the practice of postponement, which is intimately connected to inventory, several key business experts deem Hewlett-Packard a leader in inventory management (Miles, 2011).

Dell, on the other hand, employs a "Just In Time" approach to inventory, in which a very high percentage of its computers are immediately tailored and shipped to specific customers who "build" their own computers online (Fields, 2006, p. 128). This allows Dell to carry the minimum amount of inventory to keep its business systems operating well, as the precise amount of goods are created at the moment they are needed. 3. Evaluate the role their inventory plays in the company's performance, operational efficiency, and customer satisfaction.

As mentioned above, Hewlett-Packard's inventory is intimately connected with its "Postponement" strategy. In segmenting their production, focusing on the demand division and the product division, Hewlett-Packers employs the concepts of "No Touch" in which some aspects are totally outsourced, "Low Touch" in which sub-assembly is outsourced and "High Touch" in which most assembly is insourced, with outsourcing decisions strongly tied to IP and core capabilities (Miles, 2011).

In addition, Hewlett-Packard has a long-term arrangement with Fed Ex for speedy delivery finished products to customers and to swiftly return problematic product (Atikomtrirat, 2007, Slide 25). However, according to the American Customer Satisfaction Index (ACSI), Hewlett-Packard's strategy, coupled with the decline of the PC market, left it with a satisfaction score of 73 out of a possible 100, 4 points below the industry average of 77 (American Customer Satisfaction Index, 2015).

Dell's "Just In Time" strategy of inventory management, whereby goods are tailored, manufactured and shipped just in time for sale, focuses on ideally having the exact accessories, the exact quantities and the exact length of time to produce and distribute its tailored product (Fields, 2006, pp. 128-130). Its rapid, lean response, coupled with a series of delivery options, has been a highly effective strategy for Dell. Despite the downturn in overall customer satisfaction, Dell was the only PC maker to rise in the American Customer Satisfaction Index, rated at 78 out of 100.

This placed Dell second, along with Amazon and Samsung, though considerably lower than the most popular brand: Apple, at 84 (American Customer Satisfaction Index, 2015). 4. Compare and contrast the four (4) different types of layouts found with each company; explain the importance of the layouts to the company's manufacturing or service operations. In order to be most effective, manufacturers must work effectively with their "Capacity Management," the limits of their company resources -- such as labor, space, inventory, technology and equipment - and processes (Investopedia, n.d.).

Mindful of those possibilities and limits, manufacturers have established four main types of layouts, including: Product/Line; Process/Functional; Fixed Position; and Combination (Chand, 2015). In a Product/Line layout, the processing tools and apparatuses are sequentially arranged according to the order of manufacturing processes. Here, a single product or product type is manufactured repetitively in uniform, large numbers. This layout allows swift movement from one task to the next with minimal labor in processing, storage and handling of materials (Chand, 2015).

Product/Line layout is advantageous in: elimination of impediments by providing unobstructed, uninterrupted production with minimal work slowdowns/stoppages; economical handling of materials by uninterrupted networks for constant flow of materials in a short time with little or no reversals; shorter manufacturing time; lower amount of ongoing work and partially-finished products; efficient floor space usage due to little work accumulation or material overstock; efficient inspection, often at only critical points and allowing quick identification of any defects; lower manufacturing costs due to less handling of materials, more efficient inspections and efficient use of space; lower labor costs due to specialized, simplified tasks using routine work by unskilled or lesser skilled workers; and effective planning of simple, uniform production processes.

Produce/Line layout is disadvantageous in: its relative inflexibility, as changes in a fixed, sequential process can be difficult and expensive; high investment in equipment, as similar machines must sometimes be duplicated and placed along the planned sequence; high overhead due to the necessity of great capital investment; costly disruptions when even one piece of equipment in the sequence breaks down, or materials are not regularly supplied, or scheduling is poorly planned or there is high employee absenteeism; limitations on production expansion in a fixed, uniform system; unspecialized supervision because a supervisor must know all equipment and all processes in the sequence; and idle/underused equipment due to duplication of machines in the process (Chand, Important types of plant layout (with advantages and disadvantages), 2015).

A Process/Functional layout equipment is set according to the kind of the operations, for example with all welding machinery in one location, and is used for relatively low production of non-standardized products (Chand, Four main types of plant layout, 2015). Here, materials might move through various departments applying their own processes, transforming the materials into finished products.

The advantages of the Process/Function layout are: optimal and economical machine usage; relative flexibility in that sequential changes can be easily made; relatively easy expansion by installing more machines in their designated production areas; specialization of equipment in designated production areas; effective labor usage, as workers are in specialized departments using their distinct abilities; effective supervision because of each area's supervisor's specialized knowledge; and fewer production slowdowns/stoppages because if one machine breaks down another machine in that same specialized production area can pick up its work.

Some disadvantages of the Process/Function layout are: greater space usage, as the separation of machines/workers according to production process consumes more production space; relatively expensive material handling as material moves from one specialized department to the next until it becomes a finished product; high labor costs because the workers are relatively specialized and skilled in each area; longer production time with greater inventory of partially produced products; greater and costlier complexity in manufacturing, planning and control, as all process areas must be coordinated; and higher inspection costs, using more supervisors and inspection of every operation (Chand, Important types of plant layout (with advantages and disadvantages), 2015).

Fixed Position layout involves the static location of a chief element of production, while other equipment, materials, parts, tools machinery and man power and are taken to that location (Chand, Four main types of plant layout, 2015). Ship building is an example of Fixed Position layout, in which a large portion of the ship stays put and other means of production are taken to its location to create a finished product.

The advantages of a Fixed Position layout are: economical production because materials are all transported to one place for production; several tasks can be undertaken at once; the finished product can be tailored to the customer's specifications; and considerable flexibility, as the product design and process can be adapted as desired.

The disadvantages of Fix Position Layout are: complexities in moving equipment, workers and other materials to the production site; a costlier, more time-consuming production process; and unsuitability for producing smaller products in greater quantity (Chand, Important types of plant layout (with advantages and disadvantages), 2015). Combined layout is the thoughtful application of two or more of the other three layouts in order to attain the advantages of the other layouts.

Due to the advantages/disadvantages of each of the other three layouts, a pure form of any of them is rare; rather, today's manufacturers tend to combine two or more layouts to maximize flexibility and efficiency (Chand, Four main types of plant layout, 2015). 5. Determine at least two (2) metrics to evaluate supply chain performance of the companies; suggest improvements to the design and operations of their supply chains based on those metrics. A supply chain is supposedly as strong as its weakest link.

Consequently, several metrics are used to evaluate each step of the supply chain. Two of the most commonly used metrics are "Inventory Turnover" and "Cycle Time." Inventory turnover (or "turn") one of the typical metrics, is the number of times inventory cycles or turns over in a year. Inventory turn varies among industries, often depending on inventory volume and profit margin. The rule of thumb is that the higher the inventory turns, the better.

Manufacturing companies typically have 6-8 inventory turns per year while grocery stores -- with high volume and low margin -- can have at least 12 inventory turns per year (Supply Chain Metric.com, n.d.). Hewlett-Packard reportedly has 3.94 turns per year while Dell has a whopping 32.28 turns per year (CSIMarket.com, 2016). Compared to its competitors, Dell is third, behind Unisys Corp. (80.21 turns) and Apple, Inc. (60.05 turns).

Five steps have been suggested for improving inventory turns, which can be applied to both Hewlett-Packard and Dell: increasing demand for products by working with the company marketing team; increasing demand for products by setting better overall prices through temporary discounts or permanently lower pricing for slower-selling products; reducing inventory investment by obtaining better pricing from distributors products/materials purchased by the company; focusing on products that consistently sell; and reducing the amount of inventory purchased per time and continually recycling the same investment amount (Ball, 2016).

"Cycle Time," when applied to the supply chain, is the entire time it would take to fulfill a customer order from a point of zero inventory. It is determined by totaling the longest lead time in each manufacturing cycle stage (Supply Chain Metric.com, n.d.). For competitive purposes, the shorter the cycle time, the better. The obvious way to improve cycle time would be to focus on shaving the longest lead time in each manufacturing cycle stage by increasing efficiency and speed at each stage. 6.

Suggest ways to improve the inventory management for each of the companies without affecting operations and the customer benefit package. Provide a rationale to support the suggestion. While Dell currently outperforms Hewlett-Packard in inventory management, there is room for improvement in the inventory management of both companies without negatively affecting operations and/or the customer benefit package.

Eight guidelines suggested by a panel of inventory management experts are: using inventory optimization tools, commonly stand-alone software tools using WMS and ERP systems data, to determine the optimal amount of inventory at variable times; using real-time analytics to analyze data about demand, supply chain and finance and instantly respond to inventory needs; treating each product uniquely according to its supply and demand variability; closely monitoring suppliers according to promise date, receipt date, quantity ordered vs.

quantity received and condition upon receipt, and then dealing effectively with unreliable suppliers; tracking product lineage and traceability, preferably electronically noting country of origin, serial numbers and vendor lot numbers and then sending that information by EDI/ASN to the next step on the supply chain, in order to keep down labor and handling costs; using mobile devices to capture and communicate inventory data; controlling slow moving and obsolete (SLOB) inventory, ideally by selling them quickly, because they take space, use labor and resources, become increasingly obsolete and obstruct the flow of more popular products; and slotting by appropriately locating faster moving products closer to transport locations, in order to reduce travel distance and increase productivity.

C. Conclusion Both Hewlett-Packard, Inc. and Dell, Inc. deal in electronics, managing inventories of purchased parts, fabricated assemblies and finished goods. HP, Inc. follows "Postponement" strategy, which reduces inventory by postponing some aspects of manufacturing until the distribution stage. Dell, Inc. employs a "Just In Time" strategy, which allows Dell to ideally carry the precise amount of inventory to create the exact amount of goods as they are needed.

At HP, inventory varies according to "No Touch" in which some aspects are totally outsourced, "Low Touch" in which sub-assembly is outsourced and "High Touch" in which most assembly is insourced, with outsourcing decisions strongly tied to IP and core capabilities. HP also has a long-term arrangement with Fed Ex for speedy delivery and return; however, HP scores only a 73 on the ACSI index, 4 points lower than the 77 industry average.

Meanwhile, Dell's "Just In Time" strategy produces a lean, rapid response that made Dell the only PC maker to rise in the American Customer Satisfaction Index, with 78 out of 100. Manufacturers must work effectively with their "Capacity Management,".