Considering Product Postponement in SAP APO

What This Article Covers

  • Product Postponement in PPDS
  • Product Postponement in EWM Valued Added Services
  • Product Postponement in SNC
  • Greatest Industry Opportunity for Postponement

product-postponementIntroduction

The concept of product postponement is a powerful one regarding providing companies with the maximum flexibility to service customer needs at the lowest cost. Broadly stated, product postponement is the deferment of actions that make restrict a product’s market, until a demand had been communicated through the supply chain for that particular item.

  • One of the masters of product postponement is Dell Computer, which for most of its existence primarily used a build to stock system to stay flexible and better manage its inventory. Dell challenged the conventional wisdom at the time that consumers had to be able to get their computer that day.
  • Now Dell’s postponement strategy is copied by most the vendors that allow for the configuration of computers over the web. But has a several good articles on postponement. The quote below is from one of them.

Postponement allows a company to be flexible in developing different versions of the product as needed, to meet changing customer needs, and to differentiate a product or to modify a demand function. For example, Benetton’s innovative postponement strategy allows product customization to be economically maximized. In the clothing industry, traditionally the yarn is first dyed and then knitted into garments, which is a lengthy process; Benetton first knits garments using bleached yarn and postpones dyeing until a latter step of production.17 Before postponement was used, there were always too many garments in colors customers did not want, whereas colors in demand were always sold out. The new strategy allows Benetton to be extremely responsive to rapid changes in customer demand for different colors in clothing. It also permits higher customer service levels. Benetton’s market-oriented supply chain management is illustrated through the ability to adapt internal processes to create superior customer value based on information about customer demand generated at the store level. – http://findarticles.com/p/articles/mi_qa3705/is_200001/ai_n8889247/pg_3/?tag=content;col1

Here are some areas within SAP SCM where postponement is expressed:

Product Postponement in PPDS

Build to order – schedules production in response to an actual order. Orders can come from CRM, SD or GATP – becomes Capable to Promise when GATP is connected to PPDS covered in this link.

Product Postponement in EWM Valued Added Services

Value added services, which include things like light assembly, allow companies to keep products in a less configured state, closer to the final demand — and to set the last item from subcomponents, and to even perform packaging in the warehouse. The results in less inventory needing to be maintained for a given demand, and for less obsolete inventory to be build up.

Product Postponement in SNC

Although not explicitly stated as product¬†postponement, SNC can allow suppliers to postpone the shipment of material — and therefore the manufacture of the material, until it is required by their customers. This is enabled through supplier collaboration in SNC by the mere fact that SNC allows the provider to know their customer’s inventory levels.

Greatest Industry Opportunity for Postponement

This is incredibly obvious, but I thought I would bring it up.

The industry taking the least advantage of product postponement is the automotive industry. The very fact that the car industry in the US spent so much time, effort and resources attempting to move towards JIT inventory management, without once addressing the easiest area of automotive inventory to address. That is the inventory sitting on lots due to a lack of postponement, demonstrates how completely restricted the thinking is in this industry. As with computers when Dell changed the industry, the concept again is that the consumer must be able to drive away in a car that day, is a false paradigm.

A future car company — someone young and flexible like Tesla in California, will develop the build to order car company. This company will have a few test models at a small retail outlet to test drive but will carry no inventory at the dealer. This car company will have a much lower inventory cost structure than the rest of the industry which follows an antiquated distribution model and will be able to adjust production flexibly to meet demand. Of course first, off, this company must stay away from creating an old dealer network in the first place. Dealers are a powerful lobby and have made it illegal to buy a new car from anyone but a dealer. In California, they attempted to pass legislation making it illegal for anyone but a dealer to work on a car.

For more on how dealers hold back, the automotive industry sees this link.

References

I cover topics like product postponement and related issues such as make to order, make to stock and replenishment triggers in systems in the following book.

Replenishment Trigger Book

Replenishment Triggers

Getting the Terminology Right

The terms make to order and make to stock roll quickly off of people’s tongues regardless of their knowledge of other supply chain conditions. Many executives speak about “moving to make to order environment.” For most companies, this simply is not realistic. And many businesses that say they do make to order/configure to order/engineer to order are doing assemble to order planning.

The Universality of The Manufacturing Environment Type

These terms are specific types of manufacturing environments. They are embedded in almost all supply planning applications ranging from the most basic ERP to the most sophisticated advanced planning system. However, each manufacturing environment leads to some implications, implications that are most often not completely understood.

Getting Clear on Requirements Strategies

Requirements strategies are what control what drives the replenishment of supply in systems. In most cases, the need strategies control whether the forecast or the sales order triggers replenishment.

This book cuts down the amount of time that is required for people in companies to understand the relationship between manufacturing environments (the business) and requirements strategies (the technology setting in the supply planning application).

By reading this book you will learn:

  • What are the major manufacturing environments and what determines which manufacturing environment a company follows?
  • How do the different manufacturing environments impact how inventory is carried?
  • How are the various production environments configured in software?
  • What is mass customization, and how accurate is useful is this concept in real life?
  • What is the interaction between variant configuration and the manufacturing environment and the bill of materials?

Chapters

Chapter 1: Introduction
Chapter 2: The Different Manufacturing Environments
Chapter 3: Triggering Replenishment
Chapter 4: Requirements Strategies
Chapter 5: The Make to Order Illusion
Chapter 6: The Limitations to the Concept of Mass Customization
Chapter 7: Forecast Consumption
Chapter 8: Variant Configuration in SAP ERP
Chapter 9: Conclusion

Software Ratings: Production Planning

Software Ratings

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