Structural and infrastructural decisions in operations

In Operations Management, the infrastructural decisions are the kind of decisions that determine how the resources of a company are used (James, 2011). There are divided into four categories; planning & control, inventory management, capacity management, and supply chain management.

First, according to James (2011), planning and control is the reconciliation of demand and supply in order to determine the timing of initial as well as alternatives actions in the future. Second, inventory management lists all components of the product (manufacturing), the service delivery system; or the service itself (services) (James, 2011). Third, as suggested by the name, capacity management is related to capability of the company to satisfy the demand and make choices accordingly. Finally, managing the \”flow of material\” from suppliers to customers is called supply chain management (James, 2011).

That said, nothing comes without costs. Therefore, in this post, we will discuss the price paid for the second category of infrastructural decisions.

In an article published by Harvard Business Review in 2005 (Callioni et al., 2005), the authors discussed the costs of being an inventory-driven organization and shed light on the hidden side of this infrastructural component of Operations Management for Hewlett-Packard in the last decade of the 20th century. Based on the article, we will try to answer two main questions: 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? Would I pay a premium for a product or service price for an earlier delivery? And for which type of products or services?

· 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?

Despite the fact that delivery speed is an order-winning factor in the PC market, HP decision to minimize inventory costs may be useful in maintaining control over the material flow (especially its cost) and, as a consequence, be able to eliminate the costly impact of price cutting.

This will allow HP to become more affordable over time, knowing that price is one of the major competitive advantages in the market. Also, delivery speed may become less important in comparison to other technical characteristics of the product.

In the case discussed by Callioni et al. (2005), integrating the IDC metrics to the process improved the communication flow among managers, allowed an accurate cost assessment of their decisions on all units of the company,

and raise awareness among R&D teams of the importance of inventory costs in the design phase.

· Would I pay a premium for a product or service price for an earlier delivery? For which type of products or services?

I am definitely not inclined to pay a premium for an early delivery and there is no product that I can think for which this may be applicable. In fact, I value quality over delivery speed

References:

Callioni, G., de Montgros, X., Slagmulder, R., Van Wassenhove, L., Wright, L. (2005). Inventory-Driven Costs. Harvard Business Review. Retrieved from: https://hbr.org/2005/03/inventory-driven-costs

James, T. (2011). Operations Strategy. Bookboon.