Due to world globalization, customers demanding for shorter product life cycle, wider selection of goods or greater customization of products would be a norm for organizations to step up their efforts introducing a feasible strategy. Hence, organizations may approach postponement as a solution. Simply, it's the process of delaying value added activities to the last possible time until receiving of customers orders (van Hoek 1999). Van Hoek (2000) further commented that the support or linkage between postponement and warehouse would play an important role as each type has a different impact towards the physical distribution channel cost.
When implementing these strategies, every product withholds a certain value. Generally speaking in manufacturing, products have their maximum value when they had delivered to the customer (Emmet 2005). Gattorna (1998) mentioned that 80 % of the manufacturing cost of a product can be determined by the design of the product. In other words, any stage before being delivered to the customer or consumer, cost reduction can be anticipated. Therefore, the aim of this essay is an attempt to clarify the roles of a warehouse so as to comprehend the linkages in form strategies.
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This paper shall begin continuing to outline the need to introduce postponement. Follow by the definition and stating the types of postponement and warehousing activities. Next, the discussion on postponement aspects in form strategy with some illustrated activities that occurred in the warehouse. Before concluding, it shall discuss the suitability in other industries. Finally, it shall conclude by reinstating the main roles and objectives of the roles of warehouse in postponement.
Need for Postponement as a strategy in warehousing
It is believed that every organization work towards to satisfy every requirement that the customer sets. However, satisfying is just only one part of their mission. Making profitable is another side to balance the weighting scale. Organization facing uncertainty in forecasting orders accurately had always been a disturbing matter. One reason is due to the vast options and products made available. Secondly, organizations may easily fall into the trap of holding too much non-selling models or too little fast-moving models if all products were produced for stock.
To the warehouse, this can be particularly a concern as too many non-selling finished goods in the warehouse will increase the inventory cost. Or too little fast-moving goods being stock will increase of possibility having back-log orders. When this happens, attempts to increase the buffer stock through the upstream would occur and the magnitude of the ordering stock would increase exponentially in the value chain. Sheffi (2005) called this the bull-whip effect. If the bull-whip effect persists, eventually, the hold inventory cost of the individual warehouse would be expected to increase.
Dell's products were highly customizable. To illustrate the degree of combination, Table 1 shows the number of available options for customers to build Dell's Optiplex 380 Desktop pc (Dell Inc 2010). When integrated, forms a quantifiable combination for the customers to choose. Presumably, if Dell does not recognize postponement, its warehouse would require storing and keeping these different combinations as part of their stock keeping units (SKU). Hence, the warehouse many face couple of impacts. Firstly, since the customer's orders are unpredictable, putting away and allocating the space to park will increase its storage and inventory cost. Secondly, SKUs keyed in the database may reach its maximum storing capacity within a short time frame. Lastly, as technology advances, the product life cycle shortens. As a result, a majority of the SKUs would become obsolete and thereby having a lower profit margin to sell away at discounted rate or to written off as budget deficit in the balance sheet.
Power Supply Unit
Table 1 Number of Dell options for Optiplex 380 DT
(Adapted from: Dell Inc 2010.)
Types of Postponement
Zinn and Bowersox (1988) states form postponement requires the fundamental change of the product structure in redesign and standardizing some of the components in the process flow. Accordingly, form strategies can be further broken down into different stages such as labeling, packaging, assembly and manufacturing for organizations to adopt. Rietze (2006) mentioned that labeling and packaging postponement each has its own independent characteristic but they are inter-linked. It was further mentioned that manufacturing are just an extension of assembly postponement. Therefore, their characteristics were similar. The distinction is the location in carrying out the postponement activities in the final assembly house. Figure 1 indicates the degree of customization level for the products in a manufacturing point of view.
Always on Time
Marked to Standard
Figure 1 Degree of customization level for products in a manufacturing point of view (Adapted from Zinn and Bowersox 1998).
Chiou, Wu and Hsu (2002) determined that if an organization induces manufacturing postponement, it is more likely to adopt assembly, packaging and labeling strategies as well. Conversely, labeling, positioning at the final stage of the finished product would have the least possible opportunity to adopt with the rest of the strategies. Despite these inter-related relationships, in reality, these methods had been practiced by many organizations. Organizations include Compal with Dell and Hewlett-Packard (HP), Gillette with Sonoco and Dell with APL and United Parcel Service (UPS).
Warehousing in the supply chain can be defined as a planned space with facilities to handle storage, goods and materials (Emmett 2005). By itself, it involves the linkage of integrating, coordinating and controlling the movement of goods and materials between the customer, supplier or consumer. Accordingly, a warehouse is aimed to decouple the supply and demand ratio, act as a safety or protection layer for the intended goods or materials and to provide a service for both the internal and external customers. Many would have viewed that warehouse activities such as receiving, storing, sorting, kitting, picking, dispatching of orders or even the good flow of information to plan for inventory replenishment were the basic traditionally functions found to ascertain these aims (Emmett 2005). However Frazelle (2002) suggested that warehouse is no longer just a place to perform such basic functions. When customizable services were provided, value added warehouses will bring in strategic developments for the organization in aspects of the production, product, suppliers, customers or the associated volume and throughput in the value chain.
Compal's value added warehousing in labeling strategies
An organization with world class standard warehouse would agree that that customize services such as labeling, packaging, full or partial assembly and manufacturing would regard as an added value services. The objective is to go beyond what is expected from the standard performance. For labeling strategies to operate, the warehouse labeling unit can only be functioned when two or more brands of the same product were being produced by the same manufacturer. However, it does not limit the warehouse to be located within the same country or region or other parts of the world.
Taiwan computer manufacturer, Compal Electronics Incorporated had been producing notebooks, personal computers and mobile phones to global customers like Dell and HP (Dean 2010). Upon Compal's warehouse receives the order from either Dell or HP, the unlabelled SKUs would be taken off from warehouse racks and passed on to the labeling unit to process the labeling of brand names, logos, barcodes or RFID tags. Subsequently, before shipping to Dell or HP, the labeled finished products would be packed and transported to the respective customers. As both Dell and HP were multi national organizations, upon receiving of orders, Compal's warehouse manger might arrange and distribute the labeled finished products to its designated counties. Having such centralized activity, Compal's warehouse had reduced the possibility of un-labeling and re-labeling activities for the products when one brand is over-anticipated or the other under-anticipated.
The carrying inventory cost of the finished products would be reduced when different brands of electronics products had been produced for Dell or HP. Conversely, if the warehouse activities practices decentralized locations, in duplication or confusion o would incur. As all these flow of activities occurred in the warehouse premises, researchers believed that labeling postponement is often associated with packaging strategies (Rietze 2006). The following paragraphs will discuss on the packaging postponement occurred in the warehouse.
Gillette Packaging as part of the strategy
Packaging postponement aims to product yet to packaged goods in bulk and transport to the warehouse for storage purposes (Zinn & Bowersox 1998). When demands where known, the warehouse packer would base on the picking list and kit the correct package as desired by the system. Depending on the market needs, specific products can be packed differently such as type of material packages or the associated accessories that comes along with the base unit. Hence, one concern for the warehouse is to consider how the products are being packaged.
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For instance, annually, Gillette produces more than 1.7 billion razors, blades and shaving cream and gels in their production facility. Right beside its production facility is a packaging centre owned by Gillette but managed by contract packaging specialist, Sonoco. Because of this collaboration, this packaging centre had integrated warehouse and packaging operations in the same area. An approximate figure of 350 different SKU packages can be packed into different combination formats such as thermoformed clam shells, blister packs or pillow bags. With the aid of Sonoco's state-of-the-art packing equipments such as robotic 360 degrees axis pick-and-place feeding systems, blister packing equipments, RF-sealing and die cut systems to optimize its warehouse and packaging production, Gillette can therefore focus on their core competency (Hartman 2003).
The bright red March 3 Champion Turbo Triple-blade razor was one of the products that use these advance machines. Firstly, the blade cartridges were packed in clear PVC blister-packs with paperboard card inserted by the robotic subassembly. Following, these razor blister-packs would be loaded and unloaded from the trays by robotic programs. Before sealing, each pack was put scanned and ensure all components assembled would be securely fitted into the packaging (Hartman 2003).
From this short illustration, warehouses that use packaging postponement might face decrease in transportation and inventory cost. On the other hand, the cost of packaging should increase. Reasons being, firstly, its location is situated close enough to the production facility to control the transportation cost. Secondly, Sonoco engages high technology packing methods to speed up its efficiency and productivity. In addition, from the procedural assembly process, further linkages of warehouse activities and postponement could be surface in the form of assembly and manufacturing (Rietze 2006).
Dell assembly and manufacturing using vendor's warehouse
With labeling and packaging done at the final stages of form postponement, the next level that involves a higher degree of customization is assembly and manufacturing postponement. By definition, assemble-to-order in postponement is the method whereby production will assemble the generic modular components needed to build the final products after the receipt of orders (Chiou, Wu & Hsu 2002). Because of this modularity of the basic components, organizations would able to achieve substitution, ability of reuse or regain of original value of the components for the finished goods. Even when there are last minute changes pertaining to the order, the organization would have the flexibility to react.
Dell is one of the organizations who practices assemble-to-order strategy to gain competitive advantage. Partnering with supply chain specialist such as APL logistics, dell holds little or no inventory in their plant. These partners were expected to store and manage these modules it in small warehouses located nearby approximately 3 miles from dell's assembly plant (Hoffman 2005). With such commitment, these small warehouses named as revolvers were required to keep enough stock for 4 days of inventory. Reason being that any gaps in delaying the supply of modules to the assembly plant would cause ripple effects to the consumers.
When orders obtained from the internet or calls, before order confirmation, Dell would obtain the stock level from the VMI system. Upon confirmation of stock availability, these modules would deliver to the dell's assembly plant within 2 hours to initiate the assembly process. Typically, these revolvers would require make deliveries to dell two or three times a week. Its only when the modules reached dell's premises, the title of these components will then be transferred to Dell (Kumar & Craig 2007).
When shortages of components exist, the revolver operations will source and replace for substitute components so as to fulfill the order. In the event no suitable modules available, these revolvers would provide information and feedback to their manufactures. From the information and trends adjusted, dell allows these VMI providers to forecast and make provisions to their inventory levels so as to react better when components have allocation or long lead time manufacture process. When dell receives the modules, basic activities such as kitting of modules, building and installing of standard platforms would be carried out before a quick test of configuration to ensure the workability of the finished product (Kumar & Craig 2007). Upon every successful test, the computer assembly process would deem as complete. After which, it shall be push to the packaging and labeling stage before shipping out to third party logistics like UPS to perform final manufacturing postponement strategy (Kumar & Craig 2007).
Manufacturing postponement is defined as goods are shipped to the warehouse from multiple sources (Zinn & Bowersox 1988). Apart from Dell computers, typically, customers would add in additional items and purchase as a package bundle. Examples would be monitors, storage devices, printers or even networking equipments. To a certain extend, these products were not considered as their core products. Hence, upon the assembled computers had left dell's assembly plant, UPS would be responsible to bring these non-core products from different suppliers and perform its final package with dell's core products to make the final configuration to the end customers (Kumar & Craig 2007).
This arrangement of using third parties' warehouse to product insertion as part of the manufacturing process would consider as a value-added services to dell. Because of this unique relationship, additional services such as reverse logistic would be able to carry out in a more cost effective manner (Kumar & Craig 2007). As a result from this collaboration, their inventory carrying cost and transportation cost can be vastly reduced. Conversely, focusing on its precision in assembly, the cost in building its finished goods may proportionally increase.
Not all is suitable
Form postponement may seem to be popular in many manufacturing organizations. But not all warehouses activities are suitable to engage in postponement strategies. Manufacturing of inexpensive consumer products (eg those easily available in the convenience store) would be one example (Sheffi 2005). For one reason is that the warehouse inventory cost would be relatively low as compared to the holding cost in Compal or Dell.
Clearly, postponement techniques and warehouse activities when integrated together may form an inseparable strategic supporting role for organizations to concentrate on areas that strive to obtain maximum business profitability. This unique relationship, not only affects the upstream but also to the downstream. Because of the high usage of standardize yet configurable products, its warehouse may be able to focus better on its organization capital efficiency. From the organizations as illustrated, evidently, different stages of product manufacturing in form postponement pose different process effects. The only common impacts that lie across all 4 stages are the reduction in inventory cost. Regardless, these effects in one way or another does not imply postponement techniques performed with warehouse activities will completely suitable for all other types of industries. It depends on the degree of comprehension within the organization able to strike a balance between the warehouses' basic and value added services.