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The aim of this essay is to examine how various types of postponement exist in the warehouse management role and practices. The purpose of this essay is to demonstrate how organizations have gained from using postponements, especially in warehousing. It will begin by investigating the relationship of time postponement in a warehouse. It will then demonstrate how organizations have employed postponements, especially time postponement and how a warehouse plays an important role to bring about supply change activities by using time postponement. Many organizations have employed time postponement successfully. This essay will emphasize in detail a case study on Reebok. Reebok is a producer of athletic footwear, apparel, and accessories. This case study will demonstrate how the role of a warehouse uses time postponement to improve customer satisfaction and at the same time reduce inventory costs to the organization. In improving the ability to respond to changes in demand from local and global markets, organizations are better able to compete on time and at the same time remain cost competitive. It will conclude by backing up the theory of this essay and demonstrate how a warehouse plays a key role in postponement.
In the unit guide chapter 1: Warehousing and its Role in the Logistics Chain, warehousing plays an integral part of every logistics system in that it plays a vital role in providing a desired level of customer service at the lowest possible total cost. The warehousing activity is the link between the producer and the customer, and is increasingly playing a critical role in the function of Third Party Logistics (3PLs). Warehousing is defines as that a component of a firm's logistics chain that stores products like raw material, parts, goods-in-process and finished goods at and between point-of-origin and point-of-consumption, and provides information to management on the status, condition, and disposition of items being stored. Understandingly, warehousing can be understood as a temporary storage of goods before their use.
Rising customer expectations coupled with companies less willing to hold finished goods inventory lead industry and market leaders struggling to find ways to improve efficiency while remaining agile enough to respond to changes in the global marketplace. Postponement is one innovative response to this challenge (The Adaptive Supply Chain: Postponement for Profitability 2003, p. 1). Originally, postponement was introduced as visionary to reduce the risk and uncertainty cost tied to the differentiation (form, place and time) of goods. In the later years, postponement has further developed in the supply chain framework to find an optimal balance in the upstream and downstream activities (Yang & Burns 2003, pp. 2076-2078).
As stated by APICS dictionary, postponement is defines as a product design strategy that shifts product differentiation closer to the consumer by postponing identity changes, such as assembly or packaging, to the last possible supply chain location. Also, it refers to a strategy targets at delaying some supply chain activities until customers demand is visible so as to support both low system wide cost and fast response (Wan 2006). There are four types of postponement, namely purchasing, manufacturing, place and time. As a warehouse plays a role in postponement, it allows manufacturer's to delay the customization of products and therefore increases the company's flexibility to respond to changes in the mix of demands from different market segments (Van Hoek 1999, p. 1). Postponement moves differentiation nearer to the time of purchase when demand is more easily predictable, thus resulting in savings. This reduces risk and uncertainty cost.
A fundamental way in which logistics can add value to its activities is by creating postponement. Economically, postponement represents the value or usefulness which an item or services has in satisfying a want or need. In purchasing postponement, postponement is applies in delay purchasing of some expensive and fragile materials. GM Motors introduces on-line purchasing through the use of Internet in which customers log on and make purchases that offered 99 percent guarantee on the projected delivery date. For this reason, cars were in modular subassemblies stored in the warehouse waiting for customization (Rietze 2006, pp. 43-46).
In manufacturing postponement, products are stored in semi-finished configurations and customized immediately in production facilities when there is a demand (Wan 2006). Form utility forms the goods and services, or positioning it in the proper formation ready for the customer to use. Honda of American Manufacturing creates form utility when it converses parts and raw materials into a car. Throughout the conversion process, parts and raw materials are stored in the warehouse in semi-finished configurations and assembled later into cars in the production facilities (Lambert, Stock & Ellram 1998, p. 11).
In place postponement, products are placed in semi-finished configurations and customized immediately in production facilities when there is a demand. If a product is in transits, warehouse or in another store, place utility is not created for customers who need it. (Lambert, Stock & Ellram 1998, p. 11). Hewlett Packard delays the final assembling of the DeskJet printer and produced the final product at its distribution center. Thus, it creates a positive effect in risk pooling, minimizes response time to customer order and inventory cost. At this point, positive effect is created by delaying the differentiation task downstream in the final assembling by keeping the products in the warehouse. (Enarsson 2006, p. 178).
In time postponement, finish products are stored in central location and distributed immediately to customers. At this point, value is added in having an item when needed. This could happen within the organization, as ensuring all materials and parts are available for manufacturing so that production line needs not to shut down. Benetton, an Italian clothing retailer, postpones the dying of the garment till after the sweater was completely knotted. Benetton delivered the knotted garment to the distribution center before it was scheduled for dyeing. This led to variance reduction and allowed quick response to customers order (Enarsson 2006, p. 177).
Asian Paints, an Indian paint manufacturer, postpones the colour of paint to the retailer/customer level. Rather than holding a wide variety of premixed colours, retailers began to stock paint in a neutral colour, and customize the final colour upon specific customer orders. This dramatically reduced the retailers' number of necessary stock keeping units (SKU's) (Pagh & Cooper 1998, p. 17).
At Wings & Legs, a Netherlands poultry processor, several customer and consumer specific product variants are produced. The end-consumer has the choice between several volume-variants at the retail outlet. Since each retail company has its own specific labeled and packed poultry products, the packaging and labeling process has to be done at the storage facility when the order is made. In the packaging process, a specific number of chicken legs are combined into one package and later at the retailer order demand; the label process is done (Van Dijk, Van der Vorst & Beulens 2000).
Stevensons Dyers, one of the largest dedicated garments dyeing facility in Europe, dyes the garment after the garment is produced in its ecru form (natural color of the yarn). Manufacturing a garment in ecru effectively postpones the decision to commit to certain colors and this allows the production run longer and easier to control. There is no yarn change or adjustment to accommodate the dye related yarn properties. Stevenson invested in additional finishing process that includes dyeing, label, press, and examines, packaging and dispatch that were facilitated at the distribution centers. This postponement avoided mismatch and effectively avoids the trade-off by holding ecru inventory and assigning responsive capacity to the dye and finishing process (Stratton & Warburton 2004, pp. 19-21).
Mobicon Group Limited, a Hong Kong electronics distributor, applies postponement in the supply chain activities to bring about benefits in its operations. In applying time postponement which delays activities until orders are received, Mobicon at this point prepares a buffer of inventory in the upstream while capturing the downstream signal of demand from customers. This postponement allows mass customization of customer's order which includes labeling, packaging in the distribution centers and this facilitates all the flows in the total chain that balance the lead-time and quick response to orders. Mobicon acts as a distribution point and keeps components in stock to serve the different downstream players, like manufacturers. This delay of activities could enable the supply chain to capture the real demand easily so as to eliminate the inaccuracy of demand forecast. Activities are order driven so that obsolescence is minimized (Ng & Chung 2008, pp. 30-32).
Li & Fung, one of the largest exporters in Hong Kong, reported that some buyers have been adapting the practice of time postponement when committing to garment specifications. This is done in the beginning through the order processing where by the order quantity and delivery date are specified. Then, Li & Fung will lock the capacity and materials with long lead time. Due to attributes highly sensitive to market fluctuations such as on fabric, color, size and other considerations are selected for postponement. The distribution center take ownership in the activity associated with labeling & packing. This increases market sales with reduction in overall stock position (Zeng, Tseng & Lu 2006, p. 1).
Now, we will examine in detail how Reebok uses the customer willingness to wait to do time postponement.
Reebok International Limited is a producer of athletic footwear, apparel, and accessories. As a licensed supplier for the National Basketball Association, National Hockey League and primarily supplier for the National Football League, Reebok supplies jackets, shirts, jerseys, and hats customized with team logos and players' numbers emblazoned on the front. Sales of T-shirts and jerseys are not as predictable as it very much dependable on the outcome of the National Football League matches. Furthermore, different choices of team name, player name, colour scheme, and size makes it exceptionally difficult to forecast demand of an individual item during the pre-season. As a result, Reebok keeps white or blank shirts on hand ready for printing. Because of the long lead-time in placing an order to oversea supplier for finished shirts, sales opportunities are missed. Retailers expect lead time to be three to twelve weeks for stable items like finished apparel and customized apparel, and as little as one week for the "hot" demand items. Reebok recognizes this as an opportunity to revamp the supply chain and put in place time postponement based on customer willingness to wait (Rietze 2006, pp. 55-56).
In Figure 1 shown below, Reebok outsources the cutting and sewing of fabric to contract manufacturers in Central America. It takes about 4-8 weeks for the jerseys to be completed and ships to the United States. Some of the jerseys sent to Reebok are finished jersey in which there is a customized team and player name already on the garment. Other jerseys called "team finished" are sent with everything but a player's name. These are sent to a distribution center owns and operates by Reebok. The blank jerseys which arrived in the United States are ready for screen printing and embroidering. They are stored temporary in a distribution centre known as finishing facility. The decision to have a separate facility in the United States is a result of the end customer not willing to wait. Fans expect to find the jersey they are looking for in a store. There is a chance they will be less likely to get one jersey if they have to wait weeks to get it. At a price of $25 for a long-sleeve T-shirt or $250 for an authentic jersey, the cost of lost sales is greater than the cost to ship, unpack, finish and reship a jersey from a local finishing center. Once the outcomes of the matches are known, the jerseys are screen printed and embroidered according to the order demand. Finally, they are ready to be shipped out in one week to the retailer (Rietze 2006, pp. 56-57).
Reebok provides a standard case of postponement based on customer willingness to wait. The fact that an increase in sales will occur within two weeks following an important event means that goods must be available to send to retailers immediately. Reebok has carefully structured its supply chain to handle the different types of items based on customer demand patterns. There are two distinct phases between the time an order is placed and when it arrives at a retail store. Reebok is a classic example of two-stage production with postponement. They are able to take advantage of lower labour costs for the production of blank jerseys and optimize service levels by souring the final assembly in the United States (Rietze 2006, pp. 57-58).
Figure 1: Reebok Supply Chain
To conclude, this essay demonstrates how the various types of postponement provide possibilities to gain delivery of products in a timely and cost effective way by repositioning the standard production and logistics frameworks. In adopting the concept of postponement, organizations have succeeded in increasing the supply chain overall performance. This essay demonstrates that the employment of the various types of postponement has led to increase across and permits operations like labeling and packing. In some cases, it allows light manufacturing and final assembly to be carried out at the point of order confirmation by customers. Also, this essay emphasizes how the various types of postponement adopted by organizations has led to some activities being shifted to the warehouse before assembled into finished goods as demand by customers.
As mentioned in the case study, Reebok added a distribution centre known as finishing facility beside the existing warehouse in order to store and distribute screen printed and embroidered jerseys to end customer not willing to wait for more than one week. In this way, it provides time postponement by making goods available to send to retailers immediately. As a result, Reebok is able to meet customer requirements within a short period of time, increase sales, optimize service levels, creates jobs in the areas of textile and silk-screen printing. With continual customer demands and customers increased rising options, warehouse function in postponement will remain vital.