Postponement Strategy: Towards Greater Operational Efficiency
Shorter product life cycles in the aftermath of globalization have triggered the need for introducing different varieties of products to satiate the demands of a global market. Mass customization as an enabler for business growth benefits from a postponement strategy.
But introducing varieties of products comes with its own associated challenges – notably challenges in forecasting, difficulties in controlling inventory and managing the overhead costs. Innovative companies are adept at exploiting the potential of product and process design. Design integrated with supply chain operations can enable greater control on the introduction of a variety of products.
What is postponement strategy?
As much as 80% of the manufacturing cost of the product is determined by design (Jayashankar Swaminathan, 2003). Proper design of product structure and manufacturing and supply chain process can help delay the point in which the final product design is to be decided so that there is flexibility to handle the changing demand for multiple products. It is also called as “delayed product differentiation” or “late customization”. Postponement became an attractive strategy due to manufacturing agility and a shift away from “make to stock” strategy. The adverse effects of inventory pile-up have become more pronounced over the years.
Examples of Postponement strategy
- Process re-sequencing
In this the sequence of the process is changed so that common components are added in the initial stages of the manufacturing process. Features that lead to product differentiation are added later.
- Process re-sequencing
- Packaging postponement
Products are not packaged into individual packs until final orders are received. Assembly postponement means that assembly operations are performed just before shipping the product to the customer.
Process standardization at HP DeskJet Printer business
Europe, U.S. and the Far East had three distribution centers for the DeskJet Printer business. HP did the manufacturing in U.S. based on demand information from the distribution centers (pull strategy). The power supply module, power cord terminators and manuals needed localization. This was done in the US and as the supply lead time to distribution centers was 30 days, this strategy resulted in building up of inventory at the distribution centers. The product was redesigned so that power supply and manuals could be added later at the distribution centers. This led to lower capital and freight costs for HP.
Zara, vanilla box and process standardization
Zara is known for introducing new products at a rapid rate. 70% of the products have a turnaround time of two-three weeks or less. Designers go to the field to get a feel of changing fashion trends. The designs that are there in the vanilla box (inventory stored in the intermediate form) are then tweaked to create new designs every day.
Benefits of postponement strategy
- Inventory Reduction
- Aids in obtaining greater clarity about demand information
- Better forecasting
Postponement strategies in service environments are worthy of exploration. Postponement strategy in logistics and green supply chain design have been examined (Simao, Goncalves & Rodriguez, 2016) and found to be useful in improving the performance of the supply chain and reducing the environmental impact of transportation.
Postponement strategy enables managing demand uncertainties and benefits mass customization by improving operational efficiency. Product modularity and process design enable the successful implementation of this strategy. Way back in 1980, Michael Porter had highlighted the important role played by suppliers in enhancing business profitability. Intensifying competition and fastidious customers have made supplier integration in supply chain more relevant than before. Recent efforts on measuring the impact of supplier flexibility on the success of postponement strategy (Saghiri & Barnes, 2016) reflect this growing trend.
More articles by Venkatesh Ganapathy:
- Did you know that Disney invented Experiential Retailing?
- Jay Forrester, discoverer of the Bullwhip Effect
- Saghiri, S. S., & Barnes, S. J. (2016). Supplier flexibility and postponement implementation: An empirical analysis. International Journal of Production Economics, 173, 170-183.
- Simão, L. E., Gonçalves, M. B., & Rodriguez, C. M. T. (2016). An approach to assess logistics and ecological supply chain performance using postponement strategies. Ecological Indicators, 63, 398-408.
- Swaminathan, J. M., & Lee, H. L. (2003). Design for postponement.Handbooks in Operations Research and Management Science, 11, 199-226.