Postponement Strategy in Supply Chain Management

Postponement is first implemented in manufacturing processes to reduce cost of inventory and improve service level within the company while the product variety increases. The concept of postponement is to delay the change in form, identity and place to the latest possible point until customer commitments have been obtained. It is by exploiting the commonality between items and by designing the production and distribution process so as to delay the point of differentiation. Postponement is closely intertwined with modularization where products in a certain product family are designed where all of them consist of different standardized units. With modularization, combination of different standardized sub-components allows the producing of different end products. The form, function and place of the product are altered and is in contra with the push systems in which goods are manufactured entirely in anticipation of future customer orders and stored downstream without customer’s formulated specifications.

Postponement Strategy in Supply Chain Management

Postponement is a mass customization technique that is applicable for certain products that can have their variety postponed until just before shipping. Here’s a list of methods for achieving mass customization:

  • Create products and services that are customizable by customers (involving design function)
  • Modularize components to customize finished products and services (involving the manufacturing, distribution, marketing function and the product design).
  • Provide quick response throughout the value chain (involving the design, manufacturing, distribution and marketing function).
  • Customize services around standard products or services (involving the distribution and marketing function).
  • Provide point of delivery customization (involving the marketing function).

Need for Postponement

The application of postponement strategies is increasing in the practice of international business. Final processing or manufacturing activities are moving either upstream from national operations or downstream from global production plants. The biological products life cycle of product is the concern in respect to inventory risks and this is in contrast with electronics industries where short product life cycles in the market are a key driver of postponement. Postponement reduces the uncertainty and risks coupled with product variety. In additional, it saves costs and adds values to the supply chain by eliminating obsolete inventory and making the product to customer’s specification more easily. The accelerating need for simultaneous product differentiation, rapid delivery, regional product variation and competitive cost levels are also the factors that led to the usage of postponement strategy.

Types of Postponements

That there are three generic types of postponement: form, time and place postponement. Form postponement refers to the postponement of final manufacturing or processing activities; time postponement refers to the delaying of the forward movement of goods until customer orders have been received; place postponement refers to the positioning of inventories upstream in centralized manufacturing or distribution operations to postpone the forward or downstream movement of goods. With the combination of time and place postponement, it is referred to as logistics postponement. An example is whereby in centralized European distribution structures where goods are stored at a limited number of central locations and shipped to customers on the basis of actual orders.

Depending on the type of final manufacturing operation, the type of product and market, there are four possible final manufacturing structures in postponement: unicentric manufacturing, bundled manufacturing, deferred assembly, deferred packaging. In unicentric manufacturing, the final stage of manufacturing is delayed until the point of consumption. This type of postponement is used through integrated manufacturing in a global manufacturing plant, distribution to order, for global brands with standard formulation and peripherals for example CPUs. In bundled manufacturing, it is forecast-driven where final manufacturing in a continental plant, for products with a global brand, standard peripherals and different formulation, for example TVs. In deferred assembly, it is order-driven where final manufacturing or processing in the international distribution channel, for products with a global brand and different formulation and peripherals. Lastly on deferred packaging, it refers to packaging and configuring shipments in a local warehouse, for products with a global brand, standard formulation and different peripherals.

Postponement Activities

Five types of postponements are there: labeling postponement, packaging postponement, assembly postponement, manufacturing postponement and time postponement. Labelling and packaging postponement is related to the level of postponement in deferred packaging, both impacting the place and form of the finished product. For assembly and manufacturing postponement, it is in related to bundled manufacturing and deferred assembly where both impacting the form and place of the finished product and also its function. The distinction between assembly and manufacturing postponement is the use of various sourcing locations and the resulting converging stream of goods. Manufacturing postponement operation is obligated to have a complete job-shop layout in manufacturing postponement which contrasts to assembly postponement systems where products are sourced mainly from one source, only some peripherals or additives may be sourced locally. And lastly on time postponement, it is related to the level of postponement in unicentric manufacturing, in which the place of the finished goods in the supply chain is impacted.

Examples of Postponements Strategies

Some examples of different postponement strategies used by various companies are noted here. Benetton have used manufacturing postponement or bundled manufacturing where the fabrics are dyed after the completion of the stitching processes, in which they are more able to react quickly and ship products of greater variety. Dell Computers is one of the examples where its standardized sub-components are kept standing by and the product is assembled upon order as part of the assembly postponement or deferred assembly structures. Hewlett Packard is another company that uses the packaging postponement strategy or deferred packaging where it handles the multilingual requirements of its customers through packaging postponement by including an instruction manual relevant to the language of the customer at the point of sales. An example for labeling postponement is for companies in food industries. Labeling is postponed until food marketing companies buy and brand it at different times during the year according to product and market conditions. Labeling postponement minimizes the risk of inaccurate forecasts on inventory and economizes on canning production during a busy season.