Topics: Inventory, Manufacturing, Costs Pages: 36 (11494 words) Published: March 23, 2010
Postponement Strategy

Materials Management

End Term Project

(Term –IV)

Date: 15th September 2009

Submitted To: Submitted By:

Prof. Vivek Kumar Namrata Agarwal(81031)

Prof. Kaushik Paul Neha Gupta(81034)

Chapter 14
1.1 What is Postponement?4
1.2 A specific example5
1.3 Postponement in operation7
Chapter 29
Literature Review9
Chapter 314
When is Postponement Appropriate?14
3.1 The Postponement/Speculation (P/S) Matrix14
3.2 Costs & Benefits of Postponement15
3.2.1 More variety15
3.2.2 Inventory reduction18
3.2.3 Better forecast accuracy19
3.2.4 Inventory cost reduction20
3.2.5 Logistics cost reduction22
3.2.6 Improved customer service levels22
3.2.7 Increased product development cost23
3.2.8 Increased manufacturing cost23
Chapter 424
Case Studies24
4.1 Automobile Manufacturing: GM24
4.2 Aircraft Manufacturing: Embraer26
4.3 Clinical Equipments: Dade Behring29
4.4 Sports Goods Manufacturing: Reebok32
4.5 Xilinx34
Chapter 536
Chapter 638
Future of postponement38
6.1 Services and postponement38

Chapter 1


Over the past 2 decades, 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. Technology is rapidly changing and product life cycles have shortened while product range has increased. Now more than ever, companies are faced with the challenge of producing an increasingly large variety of products in a responsive manner while keeping materials and inventory to a minimum.

These issues represent significant challenges for companies producing and selling in a variety of international markets. Not only does demand vary from country to country, but products need to be altered for different markets in consideration of differences in language, culture and local standards.

Increasingly, companies are using a strategy known as postponement or mass customization to improve customer service and minimize the risks associated with making different products in different countries. This paper presents a framework for understanding postponement and how it can be implemented. Also, with the help of successful case studies potential savings as well challenges in implementation will be highlighted.

1.1 What is Postponement?

The term postponement refers to delayed decision-making about a product. It is beneficial to delay commitment to product-specific characteristics as late as possible in order to avoid a mismatch between orders and inventory on hand. The length of delay is specific to a product but the common strategic motivation is to gain better information about customer demand by waiting to customize a product for a particular market or customer. At the point of postponement a standardized module or platform starts to acquire customer or market specific characteristics.

Figure 1-1 shows the spectrum of opportunities for postponement that extends from procurement to distribution. The point of postponement can occur as early as the design phase and as late as packaging and distribution. Postponement at the manufacturing stage has arguably the most potential for cost savings in inventory due to risk pooling. Other points of differentiation can occur in the assembly, labeling, packaging, or distribution phases. Some postponement can even occur after the point of sale in the form of service offerings. [pic]

Figure 1-1: Possible points of differentiation in the supply chain

Postponement enables forecasters to make better predictions about end product demand over time since the standard module is built-to-forecast and the finished product is built to a better forecast...

References: [4] Agrawal, M., Kumaresh, T. V. and Mercer, G. A. (2001) ‘The false promise of mass customization’, The McKinsey Quarterly, Number 3 pp. 62-71
[5] February 2005
[6] Wroe Alderson. Marketing Behavior and Executive Action. Richard D. Irwin, Inc, 1957.
[7] David M. Anderson. Outsourcing; the reality for cost reduction, 2005.
[8] Saif Benjaafar, Joon-Seok Kim, and N. Vishwanadham. On the effect of product variety in production-inventory systems. Annals of Operations Research, 126:31, 2004.
[12] Lee, H. L. and Tang, C. S. (1997), ‘Modelling the benefits of delayed product differentiation’, Management Science, No 1, pp. 40-53
[13] Jonathan Byrnes
[15] Feitzinger, E. and Lee, H. L. (1997), ‘Mass customization at Hewlett-Packard: The power of postponement’, Harvard Business Review, Jan-Feb 1997, pp. 117 -116.
[21] Alvin P. Lehnerd and Marc H. Meyer. The Power of Product Platforms. The Free Press, NY, 1997.
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[23] Gattorna, J. L. and Walters, D. W. (1996) Managing the Supply Chain, MacMillan, UK.
[24] Hoek, R. I. (1998a), ‘Reconfiguring the supply chain to implement postponed manufacturing’, International Journal of Logistics Management, Vol. 9, Iss. 1; pp. 95-111
[25] Bridget McCrea
[26] Hoek, R. I. (1998b), ‘ Reconfiguring logistics systems through postponement strategies’, Journal of Business Logistics, Vol. 19, Iss. 1; pg. 33-56
[27] Burns N
[30] Radstaak, B. G. and Ketelaar, M. H. (1998), ‘ Worldwide logistics : the future of supply chain services’ Hastings, P. (ed) Holland International Distribution Council.
[31] Waller, M. A, Dabholkar, P. A. and Gentry, J. J. (2000) ‘Postponement, product customization, and market-oriented supply chain management’, Journal of Business Logistics, Vol. 21, Iss. 2; pp. 133-27
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[34] Janus D. Paugh and Martha C. Cooper. Supply chain postponement and speculation strategies: How to choose the right strategy. Journal of Business Logistics, 19(2):21, 1998.
[35] Joseph Pine. Mass Customization: The New Frontier in Business Competition. Harvard Business School Press, 1993.
[36] Joseph Pine and James Gilmore. The Experience Economy. Harvard Business School Press, 1999.
[38] Barry Schwartz. The Paradox of Choice. Harper Collins, 2004.
[41] Edward Silver, David F. Pyke, and Rein Peterson. Inventory Management and Production Planning and Scheduling. New York: Wiley, 1998.
[43] Johnson, E. M. and Anderson, E (2000), ‘Postponement strategies for channel derivatives’
International Journal of Logistics Management, Vol
[44] Fisher, M. L. (1997) ‘What is the right supply chain for your product’, Harvard Business Review, March – April, pp. 105-116.
[45] Karen Tung and Karl Ulrich. Fundamentals of product modularity. Master’s thesis, 1991.
[47] Thomas F. Wallace and Robert A. Stahl. Building to Customer Demand. T.F. Wallace and Company, 2005.
[48] Drew Winter and David Zoia. Rethinking platform engineering – automobile industry overview. Ward’s Auto World, 2001.
[50] Walter Zinn and Donald J. Bowersox. Planning physical distribution with the principle of postponement. Journal of Business Logistics, 9(2), 1988.
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