POSTPONEMENT

Postponement is a business strategy that maximizes possible benefit and minimizes risk by delaying further investment into a product or service until the last possible moment. Postponement strategy in supply chain refers to the postponing the value addition process to the last step in the supply chain. It is a deliberate action to delay final manufacturing or distribution of a product until receipt of a customer order. This reduces the incidence of wrong manufacturing or incorrect inventory deployment. Postponement strategies and practices serve to reduce the anticipatory risk in a supply chain. It can be fine-tuned or staged so that only the generic parts shared by a firms various end products are warehoused used only once orders come in for whichever products are selling and will reduce inventory pressures throughout the firm. !espite much existing research in the area no one book devoted solely to postponement has been published. The postponement strategy is based on the following two basic principles of demand forecasting.
1. The accuracy of the forecast demand

decreases with an increase in the time horizon. The farther the time window for which the demand is being forecasted the more inaccurate it will be. The figure graphically represents this effect as a funnel" as time extends farther into the future the forecast error grows showing that the forecast demand will have larger and larger variations as time periods progress into the future. #. !emand pro$ections for a product group are generally more accurate than pro$ections for individual products. %or example it is much easier to forecast the total demand for &'! T(s than it is for an individual T( of a specific brand model screen size resolution and color contrast ratio.

)*mardeep +aur *sst. Professor ,I-.

The postponement strategy leverages the above characteristics of demand forecasting. It dictates that the firms should postpone the creation or delivery of the final product as long as possible. %or retailers this takes the shape of postponing the delivery of the final product to its destination while for assemble-to-order manufacturers this means postponing the final assembly of the product. %or manufacturing scenarios like build-to-stock the postponement strategy may drive pushing the packaging or final assembly of the products allowing the manufacturer to personalize configure finished products to customer orders and change the final product mix to suit any changes in demand. The postponement strategy effectively reduces inventory obsolescence and takes out the risk and uncertainty costs associated with having undesirable products but it re/uires an integrated and agile supply chain to ensure that the latest demand forecasts can be fre/uently created and propagated through the supply chain to produce or allocate the right products for their customers. 0hile postponement is conventionally thought of as a supply chain strategies a little thinking will dispel this notion. Postponement is not an absolute choice it is an imperative forced by the type of industry assortment and demand patterns. %or example a postponement strategy for delivering supplies to a trauma center or cereal to a grocery store are $ust not practical choices even though it may allow for delivery of specific medical kits optimal for the type of trauma or the correct size of cereal packages in response to the actual demand. Therefore medical supplies manufacturer cannot select postponement as their supply chain strategy any more than a grocer can postpone delivering their cereal. 1owever in few situations the production and demand patterns may allow postponement to become a business option in which case the supply chain must be designed to support that choice The situations in which postponement may be an explicit choice to be made for a supply chain are limited but may become real options for specific categories of products or sales channels of a company. %or example !ell has mastered the art of postponement for their custom-designed machines for individual consumers. 0hen !ell started this was not necessarily the case in the industry however !ell invented a new business model and leveraged postponement as a business model not as a supply chain strategy 2 though it then designed their supply chain to support this business model.

)*mardeep +aur *sst. Professor ,I-.

Advantages Of Postponement .ensing customer demand is one thing but profitably responding is another especially when you offer a large array of options or highly configurable final products. In certain industries however customers are demanding more options to personalize products to their tastes and needs. 0ith so many products and options a company easily risks having too much non selling inventory and too little of the hottest selling models available mirroring the perils of the high fashion industry. 0hile fashion apparel or footwear isn3t really capable of being configured into the desired style in store several other types of products--computers mobile phones and medical devices for example--can be at a very late stage or even built-to-order. There are challenges in product and option proliferation. 0ith so many variations of final product configuration a company3s product design and supply chain strategy becomes critical to profitability. 0hat demand-driven companies don3t want to do is forecast a number for each configuration make them push them into the market and then hope they sell. !esigning products for postponement and performing late-stage product completion as close to demand as possible is vital for profitability. 'ompanies must put the right products into the hands of the right customer at the right time for the right cost. !esigning products for postponement is key and it means engineering products to be a set of core components sometimes called platforms where the options or configurations can be easily plugged together at a later time. In many cases the options for final configuration might involve loading or enabling specific software or firmware options. %or example a product like a popular mobile phone might have more than # 455 variations a customer can select as part of the phone and service. 1owever if designed right those variations can be assembled and configured from $ust #55 different components and software options. * company needs only to forecast make and move the right amounts of those #55 different

)*mardeep +aur *sst. Professor ,I-.

components and then using late-stage product completion build $ust enough of the # 455 various options as customers demand them. * few of the benefits with this model include" --6inimize wrong inventory expedited shipping costs and obsolete and markdown products. --The use of low-cost country manufacturing of components becomes more effective. --6ore options are available to customers without increasing costs. In certain cases outsourcing late-stage product completion makes a lot of sense especially if the products are sold distributed and fulfilled globally. *side from the general benefits of postponement mentioned above companies that are outsourcing the product completion function find the following to be true" ,lobal markets are reached faster with fewer assets and capital. 7icher customer insights are gained for new products. There is the ability to focus on innovation and product design for supply. There is time to concentrate on high intellectual property items and not mundane execution tactics. *s the relationship between the 896 :8riginal 9/uipment 6anufacturer;and the service provider matures with the provider showing proven performance in /uality and efficiency a level of trust develops. 'ompanies report that when a strong trust-based relationship is in place they gain results better together than as separate interacting entities. %or example service provider staff members interact directly with their peers at the 896 as part of a team in IT product development logistics and the like. It is best to capitalize on product completion if you can. <ot all companies are able to take advantage of postponement strategies and late-stage product completion :food manufacturers for example;. %or companies that are seeing customer demand proliferate products and options we

)*mardeep +aur *sst. Professor ,I-.

do see the leading companies using postponement strategies and late-stage product completion to respond to the demand more profitably.

)*mardeep +aur *sst. Professor ,I-.