In an era of globalisation and fierce competition, the introduction of products with shorter and shorter life cycle and the heightened expectations of customers have forced companies to invest in and focus attention on their supply chain. Companies must be able to configure and utilize worldwide resources to keep up with the competition. It involves sourcing products from most appropriate manufacturing facility, keep balance between inventory, transportation and manufacturing cost and match supply and demand under uncertainty (Simchi-Levi, Kaminsky & Simchi-Levi 2003). With the significant increases in different products, coupled with demands for higher throughput and reduced inventory, postponement will be one of the strategies used by the companies. The aim of this essay is to examine into the link between postponement and warehousing. The purpose of this essay is to discuss how a warehouse may play a role in postponement. This essay will begin by understanding the concept of postponement, the need and usage of postponement and types of postponements with different postponement activities and its lead time and cycle time restrictions. It will then look into the topics of inventory and warehousing such as the roles of the warehouses and the distribution methodologies. It will conclude by linking the use of warehouses in the practice of the postponement strategies.
Concept of postponement
Postponement is first implemented in manufacturing processes to reduce cost of inventory and improve service level within the company while the product variety increases. The concept of postponement is to delay the change in form, identity and place to the latest possible point until customer commitments have been obtained (Battezzati & Coletta 2008). It is by exploiting the commonality between items and by designing the production and distribution process so as to delay the point of differentiation (Tayur, Ganeshan & Magazine 1999). Postponement is closely intertwined with modularization where products in a certain product family are designed where all of them consist of different standardized units. With modularization, combination of different standardized sub-components allows the producing of different end products (Dekkers 2009). The 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 (Hoek 1997). Anderson (2004) wrote that postponement is a mass customization technique that is applicable for certain products that can have their variety postponed until just before shipping. Hoek (1997) illustrated a list of methods for achieving mass customization:
Create products and services that are customizable by customers (involving design function)
Modularize components to customize finished products and services (involving the manufacturing, distribution, marketing function and the product design).
Provide quick response throughout the value chain (involving the design, manufacturing, distribution and marketing function).
Customize services around standard products or services (involving the distribution and marketing function).
Provide point of delivery customization (involving the marketing function).
The need and usage for postponement
Hoek (1997) stated that the application of postponement strategies is increasing in the practice of international business. Final processing or manufacturing activities are moving either upstream from national operations or downstream from global production plants. The biological products’ life cycle of product is the concern in respect to inventory risks and this is in contrast with electronics industries where short product life cycles in the market are a key driver of postponement. Postponement reduces the uncertainty and risks coupled with product variety. In additional, it saves costs and adds values to the supply chain by eliminating obsolete inventory and making the product to customer’s specification more easily (Baluch 2006). The accelerating need for simultaneous product differentiation, rapid delivery, regional product variation and competitive cost levels are also the factors that led to the usage of postponement strategy (Hoek 1997).
Types of postponements
Bowersox and Closs (cited in Hoek 1997) stated that there are three generic types of postponement: form, time and place postponement. Form postponement refers to the postponement of final manufacturing or processing activities; time postponement refers to the delaying of the forward movement of goods until customer orders have been received; place postponement refers to the positioning of inventories upstream in centralized manufacturing or distribution operations to postpone the forward or downstream movement of goods. With the combination of time and place postponement, it is referred to as logistics postponement. An example is whereby in centralized European distribution structures where goods are stored at a limited number of central locations and shipped to customers on the basis of actual orders.
Depending on the type of final manufacturing operation, the type of product and market, Cooper (cited in Hoek 1997) specified four possible final manufacturing structures in postponement: unicentric manufacturing, bundled manufacturing, deferred assembly, deferred packaging. In unicentric manufacturing, the final stage of manufacturing is delayed until the point of consumption (Tayur, Ganeshan & Magazine 1999). This type of postponement is used through integrated manufacturing in a global manufacturing plant, distribution to order, for global brands with standard formulation and peripherals for example CPUs. In bundled manufacturing, it is forecast-driven where final manufacturing in a continental plant, for products with a global brand, standard peripherals and different formulation, for example TVs. In deferred assembly, it is order-driven where final manufacturing or processing in the international distribution channel, for products with a global brand and different formulation and peripherals. Lastly on deferred packaging, it refers to packaging and configuring shipments in a local warehouse, for products with a global brand, standard formulation and different peripherals (Hoek 1997).
Zinn and Bowersox (cited in Hoek 1997) presented in another fashion that focus on the activities. Five types of postponements are listed: labelling postponement, packaging postponement, assembly postponement, manufacturing postponement and time postponement.
According to Hoek (1997), labelling and packaging postponement is related to the level of postponement in deferred packaging, both impacting the place and form of the finished product. For assembly and manufacturing postponement, it is in related to bundled manufacturing and deferred assembly where both impacting the form and place of the finished product and also its function. The distinction between assembly and manufacturing postponement is the use of various sourcing locations and the resulting converging stream of goods. Manufacturing postponement operation is obligated to have a complete job-shop layout in manufacturing postponement which contrasts to assembly postponement systems where products are sourced mainly from one source, only some peripherals or additives may be sourced locally. And lastly on time postponement, it is related to the level of postponement in unicentric manufacturing, in which the place of the finished goods in the supply chain is impacted.
Examples of postponements strategies
Robeson, Copacino and Howe (1994) have shared some examples of different postponement strategies used by various companies. Benetton have used manufacturing postponement or bundled manufacturing where the fabrics are dyed after the completion of the stitching processes, in which they are more able to react quickly and ship products of greater variety. Dell Computers is one of the examples where its standardised sub-components are kept standing by and the product is assembled upon order as part of the assembly postponement or deferred assembly structures. Hewlett Packard is another company that uses the packaging postponement strategy or deferred packaging where it handles the multilingual requirements of its customers through packaging postponement by including an instruction manual relevant to the language of the customer at the point of sales. An example for labelling postponement is for companies in food industries. Labelling is postponed until food marketing companies buy and brand it at different times during the year according to product and market conditions. Labelling postponement minimizes the risk of inaccurate forecasts on inventory and economizes on canning production during a busy season.
Lead time and cycle time restrictions in postponement
The evolution of a product’s variety, volume and weight throughout the process influences the extent to which it is possible to save transportation and inventory carrying costs by postponing variety, volume and/or weight increase. Short lead times may not require anticipation if final manufacturing can be performed within short cycle times. Manufacturing postponement is possible only when required lead times allow for a number of days’ additional lead time on top of transportation times. Products or activities can be performed with short lead times or cycle time for assembly postponement. Similarly on packaging and labelling postponement, it is more focused on rapid lead times. However, because of cycle time restrictions on form postponement, very short lead times is impossible and may also require very localized distribution channels at the extreme positioning inventories very close to customers in local depots (Hoek 1997).
Inventory and warehousing
According to Baker (2007), inventory cost took up 13 percent of the total logistics costs while warehousing accounted for a further 24 percent in the survey of logistics costs in Europe. Being significant in cost terms, warehousing play an important role in modern supply chain for better customer service. Product availability is being a key service metric and warehousing is being critical to the success of failure of many supply chains. Waters (cited in Baker 2007) indicated that increasing globalisation has led to longer supply lead-times which conventional inventory control theory resulted in greater levels of inventory to provide the same service levels. With the addition of more distant supply lines, there is a possibility of increasing variation in supply lead-time and increased the amount of safety stocks. Another factor is the transport economies of long distance movements where cost economies are be achieved by despatching in larger quantities with full container loads that increased cycle stocks.
Main role of warehouses
According to Frazelle (2002), there have been with all the initiatives in e-commerce, supply chain integration, efficient consumer response, quick response and just-in-time delivery, the supply chain connecting manufacturing with end consumers can never be so well coordinated that eliminate the need of warehousing. The role and mission of warehouse operations are changing and will continue to change dramatically in the modern supply chains. Warehouses play several vital roles such as:
Raw material and component warehouse: For holding raw materials at or near to point of induction into a manufacturing or assembly process
Work-in-process warehouse: For holding partially completed assemblies and products at various points along an assembly or production line
Finished good warehouse: For holding inventory to balance and buffer the variation between production schedules and demand
Distribution warehouse and distribution centres: For accumulating and consolidating products from various points of manufacture within a single firm, or from several firms, for combined shipment to common customers.
Fulfilling warehouses and fulfilling centres: For receiving, picking and shipping small orders for individual consumers
Local warehouses: For distributing in the field in order to shorten transportation distance to permit rapid response to customer demand
Value-added services warehouses: For serving as a facility for product customization activities to be executed, such as packaging, labelling, marking, pricing and return processing
Dekkers (2009) added that these raw materials, work in progress and finished goods are stored in the warehouse to feed into production or to satisfy customer needs. The need of carrying inventories is due to the uncertainty in supply, future demand and lead-times that companies are faced with. Carrying inventories is in order to be use as buffer between different demand and supply rates. Also in the situation where suppliers have problems with delivery or qualities of materials, raw materials held in inventory can avoid stock-outs situations. Work in progress inventories are maintained because of the poor maintenance, unreliable working or fast schedule changes. Carrying inventories is also to provide for anticipated changes in demand and supply where there may be a drastic change in price of availability of raw materials or planned market promotion or where business is seasonal.
According to Bask (2001), all manufacturing is executed before the products are distributed to the decentralized distribution system close to customer in a full speculation postponement strategy. Companies can have a more cost-effective production and purchase in producing or purchasing materials in lots. Due to ordering costs, quantity discounts and transportation cost in large lots, economies of scale are achieved as large standardized product lot-sizes can be manufactured and distributed. On the other had, the logistic postponement strategy differs from full speculation strategy with decentralised distribution system by using centralized inventory in which finalized products are distributed to a larger geographic area. Inventories were reduced with the advantage of high in-stock availability. Thereafter, products are transported in large lot-sizes to centralized warehouse, through with increased onward distribution costs compared to the decentralised system.
Other roles of warehouses
According to Baker (2007), the role of warehouses is theorised in many text books that the key warehouse functions are inventory holding and the servicing of customer orders from that inventory. Drucker (cited in Baker 2007) have stated that other roles for warehouses are being seen to be increasing important as they changed from “holding yards” to “switching yards”. Higginson and Bookbinder (cited in Baker 2007) listed of the roles of distribution centres as:
Make/break-bulk consolidation centres for consolidating customer orders together into one delivery to gain transport economies.
Cross-dock centres for satisfying customer orders from another source (e.g. a manufacturing plant) by passing through the distribution centre within a few hours
Transhipment facilities for changing transport mode (e.g. from large line-haul vehicles to smaller delivery vehicles).
Assembly facilities on which the final configuration of the product to individual customer requirements can take place.
Product-fulfilment centres for responding directly to product orders from the final consumer (e.g. as internet fulfilment operations).
Returned goods depots for handling unwanted and damaged goods, as well as goods returning under environmental legislation such as for product recovery and packaging waste.
Miscellaneous roles, such as customer support, installation and repair services.
Baker (2007) commented that a number of the above roles may be associated with some of the concepts, such as agility, production postponement and time compression and are recognised as increasing trends in warehousing in current modern supply chains.
Some business models particularly applicable to fashion and high-technology industries, they are suited to identify consumer trends and rapidly pushing product directly to the market. The use of flexible manufacturing systems, production postponement and the centralisation of inventory are put in place for this cause. With postponement strategies in place, it would be possible to identify the trade-offs between inventory and other supply chain elements, such a purchasing (e.g. bulk discounts on goods at lower unit purchase prices), manufacturing (e.g. lower production costs through less frequent change-over and hence larger batch sizes) and transport (e.g. full container load transport at lower unit transport costs) by utilizing the roles of the warehouse that may include a mix of elements such as inventory holding, order consolidating, cross docking and postponement activities.