There are essentially two benefits for companies that use postponement strategy 😁 The first includes reducing, and or better managing, a portion of the company’s labour costs for each unit manufactured, assembled or sold 🔥 The second includes measuring the company’s costs of retaining semi-finished goods relative to the gross profit generated on final sales. Ultimately, the strategy works when the costs of holding semi-finished goods aren’t so high that it impacts gross profit on sales. A successful order fulfillment strategy requires healthy gross profit margins, as semi-finished goods are frequently held by the company for prolonged periods.
In manufacturing processes, the first time that postponement is used to decrease production costs is when it’s necessary. cost of inventory and improve service level within the company As the variety of products increases. It is a delay in the actual change of form, identity, and location until commitments from customers are obtained. This is done by leveraging the similarities between products and designing the manufacturing and distribution processes so that differentiation can be delayed. Modularization is closely linked to postponement. Products in one product family consist of different units. The modularization process allows you to combine different standard sub-components and produce different products. Form, function and place of the product are altered and is in contra with the push systems in which goods are manufactured entirely in anticipation of future customer orders and stored downstream without customer’s formulated specifications. Matthew I. Huaian in China, 10 November 2020
ImageThe postponement strategy relies on two fundamental principles of demand forecasting: imageThe forecast accuracy decreases as the time horizon increases. It is more difficult to forecast demand for a longer time frame than it actually will. This funnel effect is illustrated in the figure. As time moves further into the future, forecast errors grow. Forecasts of demand for product groups are more reliable than those for specific products. So it’s easier to project the overall demand for LCD TVs rather than for individual models, brands, sizes, resolutions, colour, or ratios. For their latest revision, a nice one goes to Teodoro Queen of Xingning in China.
This strategy was adopted by Dell long ago. They are arguably the first to adopt it and have reshaped the PC market from one that is “make-to stock” to one that is “make-to order”. Dave Blanchard writes for IndustryWeek: “In the 1990s computer manufacturer Dell Inc. Its ‘direct model, which changed from a make to stock philosophy to make to order, made Dell the epitome of supply chain efficiency. The company was able to keep inventory in stock for as little as three days, which is a significant improvement on its previous cycle times. And other industries, particularly the consumer-packaged-goods field, were quick to notice Dell’s success and began shifting their own supply chains toward the direct model.” This was revised by Omolola Keys December 11, 20,21.