Product Postponement in SCM

by Shaun Snapp on June 19, 2009


What Is It?

The concept of product posponement is a poweful one in terms of 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 specific item. One of the masters of product postponement is Dell Computer, which for most of its existance primarily used a build to stock system to stay flexible and better manage its inventory. Dell challengedthe conventional wisdom at the time that consumers absolutely 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. Bnet 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 witn in SAP SCM where postponement is expressed:

PPDS

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

http://www.scmfocus.com/sapplanning/2008/01/05/ctp-capable-to-promise/

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 configure the final 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.

SNC

Although not explicitly stated as posponement, SNC can allow suppliers to pospone the shipment of material — and therefore the manufacture of material, until it is actually required by their customers. This is enabled through supplier collaboration in SNC by the simple fact that SNC allows he supplier to know their customer’s inventory levels.

Greatest Industry Opportunity for Postponement

This is extremely obvious. The industry taking the least advantage of product posponement is the automotive industry. The very fact that the automotive 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; 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 adust production flexibly to meed demand. Of course first off, this company must stay away from creating an aniquated 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 see this post.

http://www.scmfocus.com/servicepartsplanning/2009/05/19/automotive-dealers-mostly-useles/


Shaun Snapp

Shaun Snapp is a long time supply chain planning software consultant, author & as well as the Managing Editor at SCM Focus. He focuses on both SAP APO as well as best of breed applications for demand, supply and production planning.

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