Knowingly, global competition permits demands and products vary from country to country in consideration of differences in language, culture and local standards pushed companies to seriously consider postponement as a supply chain strategy for mass customization to maximize the competitive advantage. Postponement strategy has a great influence on the logistics (Schulze & Li 2009). Logistic is defined by Council of Logistics Management as 'Logistics is that part of the supply chain process that plans, implements, and controls the efficient, effective flow and storage of goods, services, and related information from point of origin to point of consumption in order to meet customers' requirements' (Rutner & Langley Jr 2000) which the warehouse serve an important role. The importance role of Zinn and Bowersox's (1988) postponement strategies has been agreed by Ernst and Kamrad (cited in Boone, Craighead & Hanna 2007) in logistics as well. They simplified the logistics flow into manufacturing, assembly, labeling and packaging and identified supply chain structures as rigid, flexible, postponed, and modularized which are insinuated by differing degrees of postponement mentioned by Zinn and Bowersox. Thus, warehouse plays a crucial role in logistics which is insinuated by. We will then focus on discussing Zinn and Bowersox's postponement.
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This purpose of this essay is to analyse warehouse role in postponement through literature review in manufacturing industry. It will begin by introducing postponement strategies and elaborating the characteristic of it. Warehouse role will be highlighted through case study subsequently by touching on how the warehouse in postponement helps overcoming the limitations in supply chain. It shall conclude warehouse will serve the best purpose of different postponement strategies via reengineering the manufacturing process base on firm's target market requirement.
The concept of postponement has been discussed for over 50 years. Logistics researchers began to define and study the concept only about ten years ago (Johnson & Anderson 2000). Postponement was firstly coined by Alderson in the marketing literature (Aviv & Federgruen 1999) and later expanded by Bucklin (Boone, Craighead & Hanna 2007). Five postponement strategies were then identified by Zinn and Bowersox (1988), which are four different strategies of form postponement (labeling, packaging, assembly and manufacturing) and time postponement. However, Pagh and Cooper (cited in Boone, Craighead & Hanna 2007) classify postponement applications in the mid-to-down-stream stages of the supply chain and Yang further extended and refined to include product development postponement, purchasing postponement, production postponement, and logistics postponement. They declared that Zinn and Bowersox's five postponement strategies continue, in part, to this day.
Postponement is known as "delayed differentiation" moving point of differentiation further downstream which associated with outbound logistics by satisfying end-customer demand (Dornier et al. 1998), involves developing generic products which will be customized once actual consumer demand is known (Criticas 2003). It can be designed via components and subassemblies standardization, modular design, operation postponement and operation sequence (Aviv & Federgruen 1999). Traditionally a company practices make-to-stock policy with high warehouse inventory and storage level as well as increased carrying costs and runs an increased warehouse risk of obsolescence to avoid stock-outs which postponement can alleviate these problems contrary (Kumar & Wilson 2009). It minimizes the inventory cost mainly by delaying decisions related to manufacturing, assembly, labelling and packaging postponement (Frazelle 2001). Waters (1999) agree with Dornier et. al (1998) that postponement is interrelated with modularization between product and process design which the standard modular maximizes the flexibility of end-parts in postponement while speculation is postponement opposite (Frazelle 2001). However, Hoek (1997) proposed that those heavy, bulky and inexpensive products are included as low levels postponement; wheareas high value, low volume/weight products are more likely positioned in higher level of postponement.
Form postponement comprises of labeling, packaging, assembly and manufacturing postponement. Form postponement (FPp) delays product differentiation by making a until standardized semi-finished product to stock and postpone the subsequent steps that led to many different end-products until customer orders are received where warehouse keeps low inventory levels of both common assembly parts and customized components across multiple stock-keeping units as well as the variety and volume of products and decrease the firm's reliance on speculative inventory (Rabinovich and Evers 2003). High inventory turns in generic products that serve vary customer requires lower inventory compared to customized range of products which is specific to one customer (Davila & Wouters2007). It omits the inventory of final products that requires more space which enables warehouse to have more vacancy to store generic product (Wong, Wikner & Naim 2009). It is useful strategy for products with short life cycles (Ackerman 2000) and those products value increases strongly through final manufacturing (Hoek 1997).
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Packaging postponement is defined in which final goods are packaged when the demand for various package sizes is known (Bukovinsky & Graman 2010). They depict inventory carrying costs, inventory level and shipping charges are reduced because the product is stored in bulk and are bulk shipped to the warehouse near the customer and packaged at that point. It has also avoided the errors in forecasting demand for different package sizes and brands (Bukovinsky & Graman 2010). It lose economies of scale if multiple packaging facilities are used and increased time to fill orders compared to a make-to-stock (MTS) system. Gillette Co., Boston, is taking packaging postponement for its razors and razor blades business by outsourcing its entire packaging function for these products to Sonoco Products Company's new Packaging Services business as well as inventory management (Lauren 2003). Gillette leases the building and owns the equipment in the Pack Center in Devens, but the warehouse is managed and operated by Sonoco. The warehouse hold Gillette's finished products/finished work in progress in 15,000 locations in about 30 aisles. The loads can be stacked in five-high racks, with warehouse management updating all schedules on cyclic basis. Upon the receipt of orders, the finished products pass to the packaging division. Packaging postponement shorten Gillette's lead times by reduceing six weeks order in a week - even with promotion-specific, limited-edition or time-sensitive items.
Labeling postponement is a situation where a standard product is stocked and labeled differently based on the realized demand (Zinn & Bowersox 1998). Warehouse holds only a small safety stock of generic unlabelled product instead of stocks of each brand that the product is sold under which fasten the response time as goods only need to be labeled when order being received (Bukovinsky & Graman 2010). It reduce the risk of holding unsold goods resulting from over-forecasting demand and less rework related to unlabeling and relabeling products due to scratches (Bukovinsky & Graman 2010). It increase handling and manufacturing cost as labeling is no longer an integral part of the production process (Bukovinsky & Graman 2010). Two are practicing labeling postponement, which are Compal Computers and StarKist Foods. StarKist Foods, a canned tuna fish products packed fish in its California cannery for both company-label and private-label markets. Their East Coast warehouse stores the shipped, unlabelled end products. Upon orders received, the unlabeled cans were then labeled and shipped to customers. Inventories were lowered by avoiding the costs associated with having too little or too much of the products with a particular label (Ballou 1998). According to Chiou, Wu & Hsu (2002), Compal Computers produces notebook PCs for Dell Corp. and Spectec Computers. When orders are received, Compal labels the notebook PCs at its local warehouse and ships the final products with proper label. The labeling postponement reduce the inventory depreciate for products, which are marketer under different brand names. Yet the labeling cost is increased.
To practice assembly postponement, a firm must fulfill three criteria: firstly, produces products which are configured from a number of common parts; secondly, the final assembly process is pending before the reception of purchase orders; and lastly, final products are assembled from the base product to meet the configuration requirements (Chiou, Wu & Hsu 2002). It helps in reduce inventory depreciation (Chiou, Wu & Hsu 2002). The length of response time is relying on the distance of centralized final assembly facility to the customer. The decentralized final assembly points provide quick response time and low transportation cost but they incur additional costs due to duplication of equipment and effort, loss of economies of scale (Bukovinsky & Graman 2010). For example, Acer Computer sells a range of desktop PCs with different processing powers and storage capacities (Chiou, Wu & Hsu 2002). Computer components such as CPUs, hard drives, video cards, and dynamic random access modules (DRAM) are warehoused at the local country which includes only the motherboards and the floppy drives preinstalled in standard desktop cases. Acer assembled from these components to meet the exact configuration requirements which is specify in the purchase orders. The assembly postponement reduces the cost of depreciation on the inventory value of intermediate products although the cost of assembly is increased.
Manufacturing postponement, also known as 'product postponement' (McCrea 2004). It reduce the depreciation cost on the inventory value of intermediate products (Chiou, Wu & Hsu 2002) and can be successfully applied when it is important to have inventories near to customers, and there is no specialized manufacturing capabilities (e.g. technological or knowledge based) or highly restrictive economies of scale, requires that the operations are performed centrally (Pagh & Cooper 1998). It derives greatest benefit when decentralized facilities close to customer and ubiquitous materials are involved. Decentralize manufacturing with smaller quantity lead to the increase of manufacturing costs (Bukovinsky & Graman 2010). It practices more on shorter product life cycle item, especially on IT products. Chiou, Wu and Hsu (2002) argue that the postponing manufacturing doesn't necessary force assembly, packaging, and/or labeling to be delayed as many IT products do not have to be customized with additional components after they are manufactured. For example, the DRAM chips produces by United Microelectronics (UMC) are the final products which the warehouse performs no additional assembly or customization by holding it till the manufacturing. By storing fully configured computer, it facing the rise of obsolesces when new processor/chipset technology is introduced (Chiou, Wu & Hsu 2002).UMC produces dynamic random access memory (DRAM) chips for its affiliate company in Japan by using its Japanese warehouse capacity (Chiou, Wu & Hsu 2002). UMC does not produce DRAM chips in advance of orders received because of volatile DRAM prices. However, UMC does maintain an anticipatory inventory of semiconductor wafers necessary to produce IC chips. Hewlett-Packard's postpone final manufacturing and customization of their DeskJet printer at local warehouse rather than its factory for the European and Asian markets (Feitzinger & Lee 1997). HP postpone the final manufacturing operations (power supplies, packaging, and manuals) until the local warehouse based on customer orders. It is now only necessary to manufacture, distribute and stock (at the local distribution centers) one kind of DeskJet printer. As a result of the decentralization of the final manufacturing operations, manufacturing cost has increased slightly, but the numbers of SKU's and the safety stock have dropped. Furthermore, the total manufacturing, shipping and inventory costs were reduced by at least 25%.
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In time postponement, the finished products are shipped from plant to warehouse prior to customer demand. The product is inventoried close to the customer to fasten the delivery upon order receipt (Rabinovich & Evers 2003). Hoek (1997) coined that products with minor value and volume/weight increase do not suit for form postponement but time postponement. Delay inventory movement until the arrival of customer orders which allows delay shipments of goods; serve the demand from central facilities and allowing decentralized warehouse to come to the aid of one another through the use of emergency shipment (Rabinovich & Evers 2003). With the aid of warehouse, it increases the customer service levels and response time by decreasing customer lead time (Rabinovich & Evers 2003). It allows firms knowing the exact level and location of the demand prior to product shipment offers the potential to reduce distribution cost because safety stocks can be consolidated. For example, Schneider Electric Singapore Pte Ltd is practicing time postponement. They manufacture the components in India but keep inventories at different nation warehouse (such as Indonesia, Malaysia and etc) and only send components to customers when an order is received. This allows the safety stocks level in their warehouse to prevent out of stock which lead to dissatisfaction.
Postponement has been practiced not only in manufacturing field but also others. Due to the tight requirement, we are only able to address some manufacturing firms' warehouse role played in postponement strategies. Different business natures have their own target market requirement. To meet these requirements and make the firm more competitive in the market, they postpone some of their process or procedure. Postponement is most effective when demands between product derivatives are roughly equal and also very useful when managing multiple channel derivatives where the volume in each channel is almost similar. In conclusion, with the warehouse role in postponement they able to lower warehouse stocking level of less popular inventory, high stocking costs of big assembled final goods, inventory obsolescence, manufacturing and shipping costs, infrastructure cost as well as increase higher order fulfillment accuracy and higher levels of customer satisfaction.