Postponement

From Supply Chain Management Encyclopedia

Russian: Отсрочка производства

Postponement is as an operations design principle to mitigate the negative impact of product variety on operational performance. It has been widely acknowledged by practitioners (may innovative business models were developed based on postponement principle, for instance, Zara and Dell business models)^[1] and by scholars.^[2][3][4] Is based on the principle of seeking to design products using common platforms, components or modules but where the final assembly or customization does not take place until the final market destination and/or customer requirement is known. Local differences in customers and customers’ requirements are significant (tastes, language, standards, preferences). The concept of postponement was developed by Alderson in 1950^[5] and represented a place, where differentiation of product take place. Later, in 1965, the theory of postponement and speculation was developed by Bucklin, who suggested different managerial speculation decisions based on time and place of differentiation basing on inventory situation.^[6] Zinn and Bowersox (1988) introduced 5 types of postponement, where first four are associated with form (or manufacturing) postponement (see Form postponement] for details) and fifth – with time (or logistics, geographic) postponement (see Geographic postponement for details)^[7].

Five forms with examples are listed below:^[8]

• Manufacturing postponement means that manufacturing activities are initiated by pulling raw materials from raw material inventory when actual orders are coming. It means that the system doesn’t start to produce unless there is a hard order. This also called make-to-order approach. For more information, go to Form postponement. Examples:
  • Paint is blended in needed color in the store
  • Print-on-demand of books or burn-on-demand of CD/DVD by publisher
  • Dyeing fabrics
  • Grinding coffee beans in supermarket
• Assembly postponement is relevant for companies with modular product design. Having the base materials (modules) it is possible to construct various end-products. Good example of assembly postponement made by customer itself is Swedish store IKEA, where customers assembly comfortable furniture based on different modules. Examples:
  • Assembly-to-order of cars, computers, laptops, etc.
  • Dell business model
• Packaging postponement is when goods, that might be stored in different packages (size of package, etc.) are not packaged till the last moment. This allow to store finished products unpacked and minimize the risks of excessive stocks. Examples:
  • The same core product in different package sizes
  • Co-packaging
• Labeling postponement is when product differentiation take place only by putting the labels on the package. This type of postponement is useful, when companies use different markets. Examples:
  • Private labels of the retailers
  • Printing labels “best before”
  • Printing informative labels in language of country where product is going to be sold
• Time postponement, where finished products are shipped only when there is an order from ultimate customer. For more information, go to Geographic postponement. Examples:
  • Centralized warehouse instead of many decentralized warehouses.

Costs and Benefits of Postponement

There is a number of benefits of using the postponement approach:^[8]

• Improving customer satisfaction and improvement
• Inventory reduction
• Improved order fulfillment
• Lesser obsolescence
• Reduced level of discounted sales
• Reduced risk for loosed sales / loosed goodwill
• Reduced costs for manufacturing, purchasing, transport

At the same time there are some costs of postponement:^[8]

• Increased product development costs
• Increased manufacturing costs (re-design of production process in order to implement postponement)
• Cost related with change of sourcing, distribution, transportation, etc.

Critical success factors of implementing postponement might be summarized as:^[9]

• Standardized product design
• Cross-functional collaboration
• Restructured business processes
• Collaboration with customers and suppliers
• Organizational design and responsibility
• Explicit performance management
• Change management and training
• Supporting technologies

References

1. ↑ Matthews P. and Syed, N. (2004) The power of postponement. Supply Chain Management Review 8(3), 28-34.
2. ↑ Feitzinger E. and Lee H.L. (1997) Mass customization at Hewlett-Packard: the power of postponement. Harvard Business Review, 75 (1), 116-121.
3. ↑ Swaminathan J.M. and Tayur S.R. (1998) Managing broader product lines through delayed differentiation using vanilla boxes. Management Science, 44 (12), 161-172.
4. ↑ Aviv, Y. and Federgruen, A. (2001) Design for postponement: a comprehensive characterization of its benefits under unknown demand distributions. Operations Research, 49 (4), 578-598.
5. ↑ Alderson W. (1950) Marketing efficiency and the principle of postponement. Cost and Profit Outlook, 3 (4), 15-18.
6. ↑ Bucklin L.P. (1965) Postponement, speculation and the structure of distribution channels. Journal of Marketing Research, 2 (1), 26-31.
7. ↑ Zinn W., Bowersox, D.J. (1988) Planning physical distribution with the principle of postponement, Journal of Business Logistics, Vol. 19, No. 2, pp. 117-136.
8. ↑ ^{8.0 8.1 8.2} Wong, C.Y. and Arlbjørn, J.S. (2008), Managing uncertainty in a supply chain reengineering project towards agility, International Journal of Agile Systems and Management, Vol. 3 No. 3/4, pp. 282-305.
9. ↑ Arlbjørn, J.S., Haas H., Mikkellsen O.S. and Zachariassen F. (2010) Supply chain management. Academica