Over the past 10 years, there has been a growing consciousness in industry towards the importance of effective Supply Chain Management (SCM). The term supply chain has become a standard part of the business vocabulary. There are as many definitions for the term as articles or books on the topic, but the general idea is integration. Excellent performance can be achieved by taking an integrated view of all the activities required to convert raw materials into finished goods. To archive that kind of performance, companies are now focusing on the logistics activities. Logistics activities have gained increasing strategic importance for most companies. Fixed costs of production have increased, consumer demands have become more complex and are harder to predict, both in time and place (Hoek, 1998a). Technology is rapidly changing and product life cycles have shortened while product range has increased (Gattorna and Walters 1996).
Companies are now faced with the challenge of producing an increasingly large variety of products in a responsive manner while keeping materials and inventory to a minimum. Inventories are required to buffer the uncertainties and inefficiencies. Therefore, inventory has become a crucial part of supply chain management. The manufacturing world is facing the challenge of delivering what the customers want, when they want, while meeting the financial need to keep inventory levels down. In order to stay survive in the market, business strategies must be consider and fully implement. The most effectiveness strategy in today era will be using postponement strategy.
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Postponement refer to the extent that parts of manufacturing and logistics operations can be delayed until customer commitments are known and the uncertainty associated with operations can be reduced or eliminated' (Pagh and Cooper, 1998). Postponement is essentially a type of network configuration that aims to reduce risk by making Trade-offs between flexibility and costs. On one hand postponement has the potential to increase a companies' flexibility to respond to changes in demand from different markets, improve responsiveness to orders and reduce investment in inventory (Lee et al, 1993). At the same time, the strategy can make a product more expensive to produce since economies of scale may be sacrificed for a more fragmented system of production (Waller et al, 2000). Transport costs can also rise since products may be shipped on demand and in smaller quantities.
Postponement is also known as delayed differentiation, is an "adaptive supply chain strategy that enables companies to dramatically reduce inventory while improving customer service" (Muzumdar et al., 2003). The concept is to delay the point of commitment of work-in-process inventory into a final product and, thereby, gain control of efficient asset utilization in a uncertain environment.
Nowadays, consumers are demanding higher levels of customization, yet are not willing to pay extra or wait longer. Product modification is a common challenge for firms for providing customized products. Postponement can be used to cope with this challenge as component commonality is one of the most popular supply chain strategies to tackle the challenges such as difficulties in estimating demand, controlling inventory, and providing high service levels for customers.
Postponement can be achieved by postponing the configuration of generic components into a wide variety of end products. In postponement a product is processed till it remains generic and the customization is delayed until demand is realized. A generic product offers more flexibility when demand is uncertain since it can be transformed into any final product. Instead of keeping high finished goods inventory or suffer stock outs which can result in lost sales or interrupt plant production schedules, the customization of the product can be delayed until customer orders arrive.
Postponement concept of delaying the point of product differentiation has been found to be an effective strategy in product variety. Postponement delays product differentiation at a point closer to the customer. This involves designing and developing generic products that can be customized once the actual demand is known. It also involves the implementation of precise inventory approach to position inventory farther away from the customer while satisfying the service levels and reducing the inventory costs. Postponement lessens the forecasting horizon and thereby solves the uncertainty of end product demand (Whang and Lee, 1998). Also better inventory performance can be achieved by redesigning a product or its supply chain. In postponement strategy, there are four major types of Postponement Strategies which are purchasing postponement, manufacturing postponement, Logistics postponement and Time postponement.
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Purchasing Postponement refer to no materials is purchase until the customer orders had arrived. This means purchaser will only start to order upon receive the orders. This is very effective as it can prevent ordering excess quantities as well as keeping the inventory low. The concept for purchasing Postponement is to order the right products with the right quantities at the right time in the right place. By using this concept, not only we can archive low inventory stocks, but also it helps to improve supplier relationship and reduce those excess costs as well.
Purchasing Postponement also can be considered as the one the most crucial part in the postponement flow. The reason is that if the beginning it was not implemented correctly, the rest of the flow would be disrupted and therefore, caused wrong modification of parts that going to deliver to customers.
Many manufacturers and retailers today are turning to postponement or delayed differentiation strategy to strike the right balance. By holding inventory in a less finished state - that is, postponing final product assembly until actual customer demand is known - companies can more quickly respond to market opportunities and offer greater customization options. However, postponement can require the fundamental redesign of a company's decade-old manufacturing processes. It also calls for a high degree of collaboration and visibility across the supply chain.
Global and local market demand is difficult to forecast in times of economic uncertainty. It is even more challenging when you add the competitive pressures of globalization / localization, shorter product cycles, mass customization and outsourcing.
To manage inventory effectively, companies not only must anticipate demand, but also when it will taper off. Not having sufficient inventory early in the product cycle can cost market share. Products at the end of life cycle lose value quickly and risk obsolescence, which can lead to large inventory write-offs. Moreover, with customer demand increasing for product specification, companies must produce several versions of each model.
Time postponement refers to the situation where distribution or actual delivery of a product is delayed until customer demand is known. This can allow inventory to be reduced significantly since it reduces the need to maintain large stocks at distribution centers.
The features of logistic postponement are to maintain a full-line of anticipatory inventory at one or a few strategic locations. This means to postpone changes in inventory location downstream in the supply chain to the latest possible point. Finally the concept was applied to distribution processes, using the risk pooling concept by stocking differentiated products at the strategically central warehouses that balance between inventory cost and response time (Bowersox and Closs, 1996). This strategy requires cooperation between the two major actors of supply chain: distributors and retailers (van Hoek et al., 1999). In this strategy, manufacturing is based on speculation, and logistics is based on postponement.
This is carried out by direct distribution of fully finalized products from a centralized inventory to final retailers/customers. All manufacturing operations are inventory initiated, and performed prior to the logistical operations. The logistical operations are purely customer order initiated. The major features of logistic postponement are increased on-time deliveries of complete orders, shorter and more reliable lead-times, reduced inventory costs, faster introduction of new products in the assortment, the anticipatory nature of logistics is reduced or completely eliminated, since products are distributed directly to retailers/customers, the centralization of inventories reduces the amount of stock required to offer high in-stock availability, shipment cost may increase due to smaller shipment sizes and faster modes.
Distributors are responsible of product variety and response time for total market of retailers: decision makers on variety of products and stock localization; owners of stocks at central and peripheral warehouses are responsible on logistics (transport, warehousing and service level). Retailers are responsible of product variety and response time at local market of consumers: direct link with consumers; decision maker on response time to consumer; owner of local stock.
Implementation of Postponement Strategy
Implementing a postponement strategy involves fundamental changes to a company's manufacturing processes and internal operations. Configure-to-order production demands a high degree of collaboration and visibility across the supply chain.
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Traditional manufacturing practices - mass-producing finished products in predetermined, set quantities - are about as straightforward as it gets. In sharp contrast, stopping production at a generic product state, and offering a range of different configurations and options, requires a flexible, just-in-time production model. If poorly implemented across the supply chain, mass customization can result in cost overruns and longer lead times.
Outsourcing adds another layer of complexity. As more of the value chain moves outside of the organization, the company is increasingly reliant on outside suppliers and contract manufacturers. While outsourcing partnerships enable Original Equipment Manufacturers (OEMs) to improve their financial performance and focus on their core competencies, there is a downside in terms of inventory. Incorrect decisions increase procurement costs, and if product doesn't move, the costs are unrecoverable. Therefore, postponement strategies must manage variability in supply, as well as demand, and recognize that cost and risk characteristics will change over time. Postponement Strategies will require a high product variety, modular and standardized product design, flexible manufacturing system, real time information and communication, fast response logistics, strategic supplier relationship in order to be correctly implemented.
A postponement strategy also is dictated by the product lifecycle: not having right inventory early in the lifecycle will mean missing customer service level targets and the opportunity to gain market share. Products at the end of life cycle lose value quickly and risk obsolescence, resulting in costly write-offs. Moreover, if old products are held in a generic state, their components and parts can be "recycled" for next-generation products.By using the four types of Postponement above, it can be extending up to the products had received by the customers. This process will start when the customer had issue a purchase order
Purchaser and Production roles in the Postponement
Once the purchaser receive the purchaser order (3PL ), he or she will then based on the customer requirements and starts to order the required raw materials by using purchasing postponement guideline and informed the suppliers to send some of the raw materials to our partners ( 3PL ). Once the raw materials had arrived, it will deliver straight to the production department. On the other hand, the purchase order will be sent to the designated departments like the warehouse, production and the partner of the organizations. Upon receive the purchase order from the purchaser, production will then start to manufacture the parts. And once it had done, the parts will then send to Warehouse for shipments. On the other hand, production will store some of the fast moving parts to ensure the smooth flow of the production.
Warehouse roles in the Postponement
Upon warehouse receive the purchase order, it will then contact and the partner of the organization for the consolidation for the final assembly of the products. For example, if the customer is from USA, warehouse will contact their 3PL and provide the information and the purchase order to them for the assembly of the products, each of the 3PL has their individual roles for the minor assembly. Warehouse role not just to coordinate with the 3PL but as well as managed all the inventories from the 3PL by using logistics Postponement concept. All the inventories are to be kept in a safety stock level and it cannot be over which will incur extra inventory and that means extra cost incur as well. But the stock level also must not fall below the safety stock level as that means that might cause not enough inventories and will delay the lead times that had request from the customer. This can be very serious as delay of shipments to the customer, customer will lose their trust and eventually customer will then order form the competitors.
Once the parts had receive from the warehouse, it will then using cross-docking as a transportation strategy to deliver the parts as the guideline from Time Postponement concept. In the process, cross docking helps to improve the lead time a lot as Cross-docking is a practice in logistics of unloading materials from an incoming semi-trailer truck and loading these materials directly into outbound trucks or, trailers, with little or no storage in between. This may be done to change type of conveyance, to sort material intended for different destinations. Cross-docking is done by moving cargo from one transport vehicle directly into another, with minimal warehousing.
For inventory, products keeps moving and the high cost of order fulfillment subsystems are minimized. Whatever comes in each day, get processed and ships to the stores by the next day and more often, the same day. Furthermore, the longer products sit in a warehouse, the more there is potential for shrinkage or damage. Cross docking's greatest advantage is labor savings Cross-docking operations may utilize staging areas where inbound materials are sorted, consolidated, and stored until the outbound shipment is complete and ready to ship. The advantages of cross docking also include avoid unnecessary inventory storage and cost, improve product availability, consolidation shipments and increase customer satisfaction.
From all the postponement strategies that had implemented, that will help the organization to stay competitive in the market. In today era, a lot of organizations are switching to use Postponement as a strategy and then modify the strategies to suit their requirement. But the operation process cannot just remain the same as organization need to be flexible and change their strategies to suit the demand in the market, if the process didn't change, the organization will then be out-dated and eventually it will then lost to their competitors and slowly it will then be kick out from the market.