The Effect of Postponement of the Productivity of an Organization

Topics: Supply chain management, Inventory, Supply chain Pages: 9 (2920 words) Published: December 3, 2009
Over the past few decades, logistics activities have gained increasing strategic importance for almost every company all over the world. 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 around the world every new day there is a new and advance technology 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 to fulfill the customer demand and satisfy him by reducing the fixed cost. 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. Consider the problems a manufacturer might face when expanding into new overseas markets. Forecasting is difficult now days because the market trend will change after sometime and so the customer demand will also change with the new trend and so the company faces the challenge of satisfying different types of demand while minimizing the risk and also minimizing the fixed cost. 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. First it defines postponement and provides an overview on postponement and its implementation. Then it will discuss different postponement strategies and finally discussed that when postponement is appropriate and when not.

What is Postponement?
Postponement is essentially a type of network configuration that aims to reduce risk. On one hand postponement has the potential to increase a companies’ flexibility to respond to changes in demand from different markets, and to fulfill changing demand of the customer, improve responsiveness to orders and reduce investment in inventory. 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. Transport costs can also rise since products may be shipped on demand and in smaller quantities. Postponement strategy delays some activities in supply chain or in manufacturing process until the customer will not tell what he actually want. Postponement provides two economic benefits to the company, first risk is minimized because the company manufactures the end product as what the customer actually wants, and second the total inventory can be reduced by using inventory of the base product to support multiple customer, the combination of both reduce risk and lower inventory will reduce the total cost. The company’s main focus is to reduce the total cost and satisfying the customer need so by using the postponement strategy the company can fulfill these both things.

Postponement Implementation:-
Postponement can greatly improve the flexibility capabilities of the firms that employ it. However, the basic operations framework implies that there is a link between capabilities and strategy on one hand and capabilities and resources and infrastructure on the other hand. Therefore the companies who implement postponement will need to answer the following questions. ❖ Does the strategy need to be supported by this new flexibility? ❖ Is the flexibility position desirable with regard to the customers and competitors? Then they need to realign their resources and infrastructure to support the flexibility capabilities.

Realignment of processes:-
❖ Order taking – e.g., companies that used to collect customer orders on a monthly basis will need to...
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