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Postponement, Funny Name, Big Value

Wed, 02/10/2010 - 9:06am
Jason Vaughn, UPS

Advantages of a Postponement strategy in your supply chain

Jason-UPSIf you casually mention postponement to your spouse, you will probably be accused of trying to get out of your “honey do” list. If you mention postponement to an inventory planner, you might see a nervous breakdown. If you mention it to a controller, you might get a high five. If you mention it to a sales person, you will either get blank stares or a hug for making their customers so happy. The bottom line is that in a survey by APICS (http://www.apics.org/Resources/WhitePaper/Postponement%20White%20Paper.pdf) 91% of the people who implemented a postponement strategy reported increased customer satisfaction and decreased inventory costs as the most important benefits to their organization.

UPS LogoSo what is Postponement? There are some really long definitions posted in cyberspace. Heck, Thomas Friedman even discussed it in “The World is Flat”. However, to summarize, Postponement is the process of last minute configuration, assembly or differentiation of a product at a point after manufacturing and before delivery to your customers. Implementing this process can drive lower transportation costs through bulk packaging and multi-modal utilization. Increased order fill rates and decreased lead times can be driven by customizing the products closer to the customer.

Picture a scenario where there are two customers. One has demanded your product be packaged in recycled corrugate with bamboo inserts to drive a “green” supply chain, and the other customer has requested the exact same product be packaged with an additional car charger. Now those orders can be satisfied without different manufacturing requests.

In a postponement strategy, the product can be manufactured on the same line in Asia. Then shipped via airfreight in bulk packaging (lower transportation costs, because you are no longer shipping empty space inside your pretty boxes). When the product arrives in Dallas, it is packaged to the appropriate specification and assembled using the specific bill of materials, one with a car charger, one without. The product is then delivered to the customers, one in Tulsa and one in New Orleans. Because this product is already in the states, the order lead time is lower and the fill rates are higher because manufacturing planning is simplified.

Many people simply don’t understand the strategy, or they believe the implementation will be too complex. The respondents in the APICS survey reported that 45% had outsourced at least one component of this supply chain and another 38% sought strategic advice. Leveraging a 3PL that offers integrated transportation and logistics services can help design, execute and implement Postponement as an effective tool in your supply chain toolbox. Despite the funny name, this strategy can drive big value to your organization.

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