In the beginning of the case, it states three alternative ways for HP to continue the business in tape drive, outsource the final assembly, develop a lowest total cost supply chain, join forces with a competitor and outsource the final assembly. HP, as a major computing and imaging solutions company, had many different service departments, such as imaging and printing systems, computing systems, IT services, and other business. The tape drive belonged to the computing systems. The reason for HP still wanted to keep the tape drive business was, as the supply chain manager, Gary, described, there still existed huge potential demand for tape. Gary assumed the consumer would keep requiring large information from the Internet so that the storage business would keep growing till 2007. Gary knew that in the high competitive market required HP to keep a low cost with a high volume to obtain a high profit and margin.
HP had become the leader in tape drive business in the medium segment market for a long time and new technology had been introduced to the market and HP wanted to be a strong competitor in the new tech market. While, since HP did not have special technology and expertise as well as enough space, HP could not do the business in-house. On the other hand, HP sold its products to reseller and OEM, these two sources then sell products to consumers. HP had a good delivery system and delivered products on time to the OEM. In 1997, due to the high overhead cost in HP in house production, HP outsourced one of its products DDS1 to contract manufacturer. The low overhead cost in the contract manufacturer could give a low average total cost and helped HP to obtain a high profit margin. At first, the cooperation went on well, however, after HP outsourced DDS 3 to the CM, there appeared some problems. The performance went down in the CM that worsened the relationship between HP and CM. Thus, HP decided to outsource the DDS4 to a new CM. Besides the outsourcing problem, HP also had to face to a new technology problem, the production of Ultrium. Even though the supply chain of Ultrium was similar to DDS series, the inventory controlling still not went on well after the sales for 6 months.
Thus, in 2000, Gary came up with 4 factors need to consider in the future decision-making process. The strategic alignment, total cost of ownership, partner choice, and cost of production were the four factors. Given these four factors, the three alternative ways all provided both advantages and disadvantages.
In my opinion, the first thing HP needs to consider is the cost. HP should find a way that can keep cost as low as possible. In this sense, the first way is not preferred, even though it is least resistance. The second alternative can give a low cost, but it cannot ensure Mitsumi have enough power to buy and produce the mechanism. Therefore, HP will prepare for assisting Mitsumi to do the development, which will lead to a high cost finally as well. The third option, even it will keep a competitor alive, if HP can develop a good relationship with the competitor, it will create a cournot situation for HP in the market. In that way, HP can not only gain the market, but also keep the cost down. What’s more HP and the competitor can share good resources together and that will improve the overall situation a lot. Therefore, I support the third option if Gary need to make a choice.