What is the relationship between inventory and the nine competitive priorities discussed in Chapter 1, “Using Operations to Compete”? Suppose that two competing manufacturers, Company H and Company L, are similar except that Company H has much higher investments in raw materials, work-in-process, and finished goods inventory than Company L. In which of the nine competitive priorities will Company H have an advantage?
The relationships between inventory and the nine competitive priorities is the right amount of inventory to meet their competitive priorities. When using the operations to compete the below priorities: 1. Low-cost operations. Costs include materials, scrap, labor, and equipment capacity that are wasted when products are defective. Competitor L will enjoy competitive advantages with lower setup, materials, labor, equipment, and inventory holding costs. 2. Top quality. More features, toughness, and safety result from better designs. High inventories force competitor H to choose between scrapping obsolete designs. Competitor L will still have an advantage 3. Consistent quality. Consistency in conforming to design specifications requires consistency in supplied materials, setups, and processes. Small lots made frequently tend to increase consistency. Competitor L will still have an advantage, again.
4. Delivery speed. Large lots take longer to produce than small lots. A customer will wait less time for competitor L to set up and produce orders made in small batches 5. On-time delivery. Contrary to expectations, large inventories do not equate to on-time delivery. It’s more like, lots of inventory equals lots of chaos. Big lots make big scheduling problems. Big lots get dropped, mishandled, and pilfered. Most lean companies experience dramatic improvement in on-time delivery. 6. Development speed. This response is similar to that given for top quality. Low inventories result in getting new designs to the market more quickly. 7. Customization. Lean companies usually don’t claim an advantage in customization.
However, large inventories provide no advantage with regard to customization either. It remains unlikely that a customized product will be found in inventory, no matter how large. 8. Variety. Mass customizers compete on service or product variety. They will keep products at raw material or component levels until a customer orders a specific configuration. Inventories are at as low a level as possible. 9. Volume flexibility. Lean (low inventory) companies tend to produce the same quantity of every product every day, but they claim considerable volume flexibility from month to month. On the other hand, a large finished goods inventory can be used to absorb volume fluctuations.