Postponement strategy: what are the key drivers and design elements
Through this blog, I would like to share critical drivers and few design principles for a right postponement strategy and urge each one of you to give comments, share your opinion and point of view.
As most of us know, postponement is one of the strategic initiatives adopted by companies to build an AGILE supply chain. There are various ways in which companies adopt postponement in supply chain. More prominently, it can either be a Manufacturing postponement that aims at delaying the differentiation in product offerings to customers or a Location postponement where goods are customized either at factory or a DC based on physical proximity to customer locations. Ultimately, it's about postponing some value-adding supply chain activities until a customer order is received.
Why do companies resort to this strategy? What's so special about it and what are its pros and cons? Please read on and do let me know your experience - really look forward to read your comments ...
Few well know drivers for adopting postponement are:
• As SKU proliferation has increased manifold, it is extremely difficult for planners to accurately predict forecast numbers.
• Customers are very demanding and there is high competition with low switching cost. Companies are forced to have low response time (lead time) to fulfill customer orders.
• High product variety and competition leads to high customization.
• Increase in total inventory, high obsolescence is one of the big contributors to company's bottom line. Reduction of inventory in the system without affecting Customer service levels is one of the prime focus areas for companies.
Looking at the drivers and such conflicting trade-offs, it becomes very clear why postponement is a great strategy that has done wonders for companies. We are familiar of great companies which have been pioneers of postponement implemented in varied degree of maturity levels. Sony, Toyota, Dell, Ikea, Xilinx, HP and Asian Paints are great success stories.
But designing a postponement strategy involves various aspects - not every product or supply chain needs postponement. Some of the characteristics of ideal candidates for postponement are products with:
• Short life cycles
• High variety / options to customers
• High value profile
• Standardized components and modular design
It is important for companies to carefully evaluate its product portfolio and pick right products based on the above criteria (it is not an exhaustive list, of course).
There are typically 3 design elements for implementing an effective postponement strategy (I suggest supply chain practitioners to go through APICS research work published on postponement - it has lot of great insights):
a) Picking the right candidate and right level in product hierarchy for postponement: build a check list of criteria as mentioned above.
b) Work on products and manufacturing process: induce standardization, modularization in products and components. Improve master data. Redesign manufacturing processes and increase collaboration with external partners.
c) Identify an appropriate stage in value chain that decides the customer decoupling point.