Supply Chain Management and Outsourcing, Postponement decisions

MBA(PT) VI Sem
School of Management Studies CUSAT, Kochi !! " mail#s$s$s$%&gmail'com

Abstract: Supply Chain Management (SCM) and Outsourcing have been widely recognized as important tools to enhance organizational performance. Each has their own ey characteristics! procedures and processes! advantages and disadvantages! and has been viewed in various ways by many parties. "s both are commonly implemented in separation of each other! this paper attempts to discuss the possible lin s between SCM and outsourcing. #he views on SCM and outsourcing are respectively elaborated! followed by discussions on possible relationship and the study conducted. #he concept of postponement and its applicability to supply chain management wor s best under specific demand! product! and production preconditions. #he postponement strategy aims at delaying some supply chain activities until customer demand is revealed in order to maintain both low system wide cost and fast response.

Key Words: Supply Chain Management! Outsourcing! Organisational performance! postponement decision etc

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Supply chain management has been defined as the $design! planning! e%ecution! control! and monitoring of supply chain activities with the ob&ective of creating net value! building a competitive infrastructure! leveraging worldwide logistics! synchronizing supply with demand and measuring performance globally Outsourcing and Supply Chain Management (SCM) have both been recognized as alternative strategies to gain higher competitive advantage! other than to achieve greater organizational performance. Outsourcing contracts secured with Service 'evel "greement (S'") is an instrument to ensure that an organization(s needs from the outsourced functions are satisfactorily met by the service provider. )t allows organization to use the e%pertise from outside of the company for its own benefits. SCM! as strategy is practiced also to satisfy organizations( needs. )n comparison to outsourcing! it could have a bigger impact! thus signify a higher degree of direct involvement and effort from internal parts of an organization! as well as from its e%ternal parties. #his is further to the need of a more comple% and complicated arrangements prior to its implementation. *ostponement is one of the supply chain strategies now gaining momentum. +y pushing the point of product differentiation closer to the customer! postponement can improve customer service levels! reduce inventory costs! and increase top,line revenue. #he postponement strategy aims at delaying some supply chain activities until customer demand is revealed in order to maintain both low system wide cost and fast response. " supply chain strategy! generally spea ing! aims at either ensuring immediate product availability or promising a short response time to a customer order. #he latter strategy is referred to as postponement because decisions about the transportation of products or the transformation of product form in one of the supply chain processes (purchasing! manufacturing or distribution) are postponed until an order is received. #he delayed decisions not only can enhance customer satisfaction! but also can avoid stoc ing unwanted products. #ogether with the strategy that focuses on immediate product availability! a range of supply chain strategies are available for decision,ma ers to meet their divergent needs.

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Supply Chain is a networ of various organizations involved both through upstream and downstream lin ages in different inds of activities and processes or otherwise Supply chain is the system of suppliers! manufacturers! transportation! distributors! and vendors that e%ists to transform raw materials to final products and supply those products to customers. #hat portion of the supply chain which comes after the manufacturing process is sometimes nown as the distribution networ . Meanwhile! summed up the many definitions of SCM by various authors and researchers as -the tas of integrating organizational units along a SC and coordinating materials! information and financial flows in order to fulfill (ultimate) customer demands with the aim of improving competitiveness of the supply chain as a whole. #hus! in the end produce value whether in the form of products or services to end user

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" supply chain is a networ of facilities and distribution options that performs the functions of procurement of materials! transformation of these materials into intermediate and finished products! and the distribution of these finished products to customers. Supply chains e%ist in both service and manufacturing organizations! although the comple%ity of the chain may vary greatly from industry to industry and firm to firm. " simple supply chain is made up of several elements that are lin ed by the movement of products along it. #hey are as follows. Customer / #he customer starts the chain of events when they decide to purchase a product. #he customer contacts the sales department of the company! which enters the sales order for a specific 0uantity to be delivered on a specific date. )f the product has to be manufactured! the sales order will include a re0uirement that needs to be fulfilled.

Planning , #he re0uirement triggered by the customer(s sales order will be combined with other orders. #he planning department will create a production plan to produce the products to fulfill the customer(s orders. Purchasing , #he purchasing department receives a list of raw materials and services re0uired by the production department to complete the customer(s orders. #he purchasing department sends purchase orders to selected suppliers to deliver the necessary manufacturing site on the re0uire date. !n.entory , #he raw materials are received from the suppliers! chec ed for 0uality and accuracy and moved into the warehouse. #he supplier will then send an invoice to the company for the items they delivered. #he raw materials are stored until the production department re0uires them. Production , +ased on a production plan! the raw materials are moved inventory to the production area. #he finished products ordered by the customer are manufactured using the raw materials purchased from suppliers. "fter the items have been completed and tested! they are stored bac in the warehouse prior to delivery to the customer. #ransportation , 1hen the finished product arrives in the warehouse! the shipping department determines the most efficient method to ship the products so that they are delivered on or before the date specified by the customer. 1hen the goods are received by the customer! the company will send an invoice for the delivered products.

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Supply chain management is a set of approaches utilized to efficiently integrate suppliers! manufacturers! warehouses! and stores! so that merchandise is produced and distributed at the right 0uantities! to the right locations! and at the right time! in order to minimize system wide costs while satisfying service level re0uirements. #he ey elements of SC and its management from these definitions are therefore the upstream parties! the downstream parties and the integration of all the organizations involved! together with the internal function of an organization itself. #he upstream parties! has been described by 2andfield and 3ichols (4555) consists of an organization(s functions! processes and networ of suppliers while the downstream function on the other hand concerns the distribution channels! processes and functions where the product passes through to the end customer. 1here e%ternal downstream and upstream functions are concerned! the managers involved in each upstream and downstream supplier and functions are responsible in ma ing sure that the deliveries of products and services are done as scheduled to their destinations. )f there are cases where delays are inevitable! the managers are to ensure that the impact of the delays to the SC and the value it carries will be minimal. Meanwhile! where organizational units belong to one single enterprise! the hierarchical coordination is possible and prevailing. 1hile managers in a SC involving e%ternal organizations have to deal with the people outside of its own company! in this situation mutual understanding have to be reached between the managers of departments inside the company itself. #he term SCM has been used to describe the planning and control of materials and information flows as well as logistics activities not only internally within a company! but also e%ternally between companies. 6ue to the increasing number of players and forces! a SC may develop into a supply networ which will re0uire a more comple% and complicated management system. #o ensure that the supply chain is operating as efficient as possible and generating the highest level of customer satisfaction at the lowest cost! companies have adopted Supply Chain Management processes and associated technology. SCM has threelevels of activities that different parts of the company will focus on. strategic! tactical and operational. Strategic: "t this level company management will be loo ing to high level strategic decisions concerning the whole organization! such as the size and location of manufacturing sites! partnerships with suppliers! products to be manufactured and sales.

#actical: #actical decisions focus on adopting measures that will produce cost benefits such as using industry best practices! developing a purchasing strategy with favored suppliers! wor ing with logistics companies to develop cost effect transportation and developing warehouse strategies to reduce the cost of storing inventory. Operational: 6ecisions at this level are made each day in businesses that affect how the products move along the supply chain. Operational decisions involve ma ing schedule changes to production! purchasing agreements with suppliers! ta ing orders from customers and moving products in the warehouse.

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Successful SCM re0uires a change from managing individual functions to integrating activities into ey supply chain processes. "n e%ample scenario. the purchasing department places orders as re0uirements become nown. #he mar eting department! responding to customer demand! communicates with several distributors and retailers as it attempts to determine ways to satisfy this demand. )nformation shared between supply chain partners can only be fully leveraged through process integration. Supply chain business process integration involves collaborative wor between buyers and suppliers! &oint product development! common systems and shared information. "ccording to 'ambert and Cooper (7888)! operating an integrated supply chain re0uires a continuous information flow. 2owever! in many companies! management has reached the conclusion that optimizing the product flows cannot be accomplished without implementing a process approach to the business. #he ey supply chain processes stated by 'ambert (7889) are.. 1. Customer ser.ice management process Customer :elationship Management concerns the relationship between the organization and its customers. Customer service is the source of customer information. )t also provides the customer with real,time information on scheduling and product availability through interfaces with the company;s production and distribution operations. Successful organizations use the following steps to build customer relationships. determine mutually satisfying goals for organization and customers! establish and maintain customer rapport! produce positive feelings in the organization and the customers. '. Procurement process Strategic plans are drawn up with suppliers to support the manufacturing flow management process and the development of new products. )n firms where operations e%tend globally! sourcing should be managed on a global basis. #he desired outcome is a win,win relationship where both parties benefit! and a reduction in time re0uired for the design cycle and product development. "ctivities related to obtaining products and materials from outside suppliers involve resource planning! supply sourcing! negotiation! order placement! inbound transportation! storage! handling and 0uality assurance many of which include the responsibility to coordinate with suppliers on matters of scheduling! supply continuity! hedging! and research into new sources or programs. /. Product de.elopment and commerciali2ation 2ere! customers and suppliers must be integrated into the product development process in order to reduce time to mar et. "s product life cycles shorten! the appropriate products must be developed and successfully launched with ever,shorter time,schedules to remain competitive. "ccording to 'ambert and Cooper (7888)! managers of the product development and commercialization process must. coordinate with customer relationship management to identify customer,articulated needs! Select materials and suppliers in con&unction with procurement! and develop production technology in manufacturing flow to manufacture and integrate into the best supply chain flow for the product<mar et combination.

0. Manu3acturing 3lo4 management process #he manufacturing process produces and supplies products to the distribution channels based on past forecasts. Manufacturing processes must be fle%ible to respond to mar et changes and must accommodate mass customization. Orders are processes operating on a &ust,in,time (=)#) basis in minimum lot sizes. "lso! changes in the manufacturing flow process lead to shorter cycle times! meaning improved responsiveness and efficiency in meeting customer demand. "ctivities related to planning! scheduling and supporting manufacturing operations! such as wor ,in, process storage! handling! transportation! and time phasing of components! inventory at manufacturing sites and ma%imum fle%ibility in the coordination of geographic and final assemblies postponement of physical distribution operations. 5. Physical distribution #his concerns movement of a finished product<service to customers. )n physical distribution! the customer is the final destination of a mar eting channel! and the availability of the product<service is a vital part of each channel participant;s mar eting effort. )t is also through the physical distribution process that the time and space of customer service become an integral part of mar eting! thus it lin s a mar eting channel with its customers (e.g.! lin s manufacturers! wholesalers! retailers). 6. Outsourcing7partnerships #his is not &ust outsourcing the procurement of materials and components! but also outsourcing of services that traditionally have been provided in,house. #he logic of this trend is that the company will increasingly focus on those activities in the value chain where it has a distinctive advantage! and outsource everything else. #his movement has been particularly evident in logistics where the provision of transport! warehousing and inventory control is increasingly subcontracted to specialists or logistics partners. "lso! managing and controlling this networ of partners and suppliers re0uires a blend of both central and local involvement. 2ence! strategic decisions need to be ta en centrally! with the monitoring and control of supplier performance and day,to,day liaison with logistics partners being best managed at a local level. 8. Per3ormance measurement E%perts found a strong relationship from the largest arcs of supplier and customer integration to mar et share and profitability. #a ing advantage of supplier capabilities and emphasizing a long,term supply chain perspective in customer relationships can both be correlated with firm performance. "s logistics competency becomes a more critical factor in creating and maintaining competitive advantage! logistics measurement becomes increasingly important because the difference between profitable and unprofitable operations becomes narrower. "ccording to e%perts! internal measures are generally collected and analyzed by the firm including Cost! Customer Service! *roductivity measures! "sset measurement! and >uality.

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#o implement SCM is not an easy tas . #he managers who decided to do so will most li ely to face at least these challenges as been categorized into several categories (2andfield and 3ichols! 4555) i.e. information systems! inventory management! and in establishing trust between SC members. )n the implementation of information systems! problems occur when appropriate information is not available to the people who need it. Sometimes! the information is available but the SC members are reluctant to share it due to the lac of trust and the fear that the information will be revealed to competitors. ?or inventory management! although it has been shown to be improving! the need for e%pediting late shipments never seems to disappear entirely. #here are always delays in shipments for various reasons@ slowdown because of customs crossing international boarders! adverse weather patterns! poor communication and even simple human error are always inevitable. ?inally! establishing trust between parties in SC which is believed to be the most challenging tas of all. 'egal e%perts may produce a huge 0uantity of contractual agreements which in the end is useless when parties inevitably have a conflict. Conflict management! especially in inter,organisational relationship is becoming more difficult to manage everyday. 2aving bro en the bond of trust! it will become even more

difficult to repair. )n conclusion! SCM has been seen as a new era! other than a tool to enhance performance and to gain higher competitive advantage. #he significance of its implementation is increasing everyday. )f the trend of competition against other SC or networ should stay and proceed instead of amongst companies! it should also in the end become vital for every company(s means of survival. #he application of SCM however re0uires higher degree of commitment among the participants. Andoubtedly! to involve in SC collaboration will mean to put rather a lot of company(s valuables at sta es. " company deciding to get involve in it should ma e ade0uate preparation! including analysis on various aspects to ensure the company(s readiness to be engaged in such demanding relationship.

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Outsourcing or sub,servicing often refers to the process of contracting to a third,party. 1hile outsourcing may be viewed as a component to the growing division of labor encompassing all societies! the term did not enter the English,spea ing le%icon until the 45B8s. Since the 45B8s! transnational corporations have increased subcontracting across national boundaries. )n the Anited States! outsourcing is a popular political issue. " precise definition of outsourcing has yet to be agreed upon. #hus! the term is used inconsistently. 2owever! outsourcing is often viewed as involving the contracting out of a business function , commonly one previously performed in,house , to an e%ternal provider. )n this sense! two organizations may enter a contractual agreement involving an e%change of services and payments. Of recent concern is the ability of businesses to outsource to suppliers outside the nation! sometimes referred to as offshoring or offshore outsourcing (which are odd terms because doing business with another country does not mean you have to go offshore) )n addition! several related terms have emerged to grasp various aspects of the comple% relationship between economic organizations or networ s! such as nearshoring! multisourcing and strategic outsourcing. "lmost any conceivable business practice can be outsourced for any number of stated reasons. #he implications of outsourcing ob&ectively and sub&ectively vary across time and space. Outsourcing is defined as the contracting of one or more of a company(s business processes to an outside service provider to help increase shareholder value! by primarily reducing operating cost and focusing on core competencies. C)O defines outsourcing as an arrangement in which one company provides services for another company that could also be or usually have been provided in,house. "utomatic data processing )nc. ("6*) defines outsourcing as the contracting out of a company(s non, core! non,revenue,producing activities to specialists. )t differs from contracting in that outsourcing is a strategic management tool that involves the restructuring of an organization around what it does bestCits core competencies.

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4. :educe costs. " company may emphasize cost savings for a variety of reasons! such as being in a poor financial position! or because of a goal to increase profits. :educing costs by using a supplier is possible! but not in all situations. " supplier has clearly lower costs! if it can centralize the wor of several companies at one location! such as central truc maintenance facilities or a data processing centre. )t can also lower costs if materials or supplies can be bought at lower costs by using volume purchasing. 7. ?ocus on core functions. " company typically has a small number of functions that are ey to its survival while other functions or activities are re0uired to be done but are non,core. )t may want to focus all of its energies on those functions and distribute all other functions among a group of suppliers who are capable of performing them well enough that the company management will not have to be bothered with any of the details associated with running them. #he company may even want to outsource those functions that are core functions at the moment! but which are e%pected to become less important in the near future due to changes in the nature of the business. D. "c0uire new s ills. " company may find that its in,house s ill set is inade0uate for a given function. #his is the most common reason and is used for outsourcing those functions that re0uire high s ill levels! such as engineering and computer services.

9. "c0uire better management. " company may find that an in,house function is not performing as e%pected not because of any problem with the staff but because of inade0uate management support or capability. )t can be very hard to obtain 0uality management! so outsourcing a function to a supplier &ust to gain access to the supplier(s better management can be a viable option. E. "ssist a fast growth situation. )f a company is rapidly ac0uiring mar et share! the management team will be stretched to its limit! building the company up so that it can handle the vastly increased volume of business. )n such situations! the management team will desperately need additional help in running the company. " supplier can step in and ta e over the function so that the management team can focus its attention on a smaller number of core activities. F. "void labour problems. )f a company is constantly bogged down by labour problems which start affecting its productivity and performance! outsourcing becomes a viable option. Companies can in such cases use suppliers infrastructure! manpower and facilities for production and concentrate on mar eting or getting business. G. ?ocus on strategy. " company(s managers typically spend the bul of each day handling the detailed operations of their functional areasCthe tactical aspects of the &ob. +y outsourcing a function while retaining the core management team! a company can give the tactical part of each manager(s &ob to supplier! which allows the management team to spend far more time in such strategy related issues as mar et positioning! new product development! ac0uisitions! and long,term financing issues. B. "void ma&or investments. " company may find that it has a function that is not as efficient as it could be! due to lac of investment in the function. )f the company eeps the function in,house! it will eventually have to ma e a ma&or investment in the function in order to modernize it. Outsourcing this function can avoid any ma&or investments. ?or e%ample! by outsourcing transportation activity! the company that owns an ageing transportation fleet can sell the fleet to a supplier! who then can provide an upgraded fleet to the company as part of its service. 5. 2andle overflow situations. " company may find that there are times of the day or year when a function is overloaded for reasons that are beyond its control. )n these situations it may be cost effective to retain a supplier to whom the e%cess wor will be shunted when the in, house staff is unable to eep up with demand.. 48. )mprove fle%ibility. #his is similar to using outsourcing to handle overflow situations! e%cept that the supplier gets the entire function! not &ust the overflow business. 1hen a function e%periences e%tremely large swings in the volume of wor it handles! it may be easier to eliminate the fi%ed cost of an internal staff and move the function to a supplier who will only be paid for the actual wor done. 44. Enhance credibility. " small company can use outsourcing as a mar eting tool. )t can tell potential customers the names of its suppliers! implying that since its functions are being maintained by such well, nown suppliers! the company(s customers can be assured of a high degree of 0uality service. )n these instances! the company will want to hire the best nown suppliers! since it wants to draw off of their prestige. "lso! for ey functions! the company may even want to team up Hwith a supplier to ma e &oint presentations to company customers! since having the suppliers staff present gives the company additional credibility. 47. Maintain old functions. " company may find that its in,house staff is unable to maintain its e%isting functions! while transitioning to new technology or to a new location. Outsourcing is a good solution here! for it allows the company to focus its efforts on implementing new initiatives while the supplier maintains e%isting day,to,day functions. #his reason is most common in computer services! where suppliers are hired to maintain old -legacy( systems while the in,house staff wor s on transitions to an entirely new computer system.

4D. )mprove performance. " company may find that it has a function that has bloated costs or inade0uate performance. #o sha e up the function! company management can put the function out to bid and include the internal function(s staff in the bidding process. #he internal staff can then submit a bid alongside outside suppliers that commits it to specific service levels and costs. )f the bid proves to be competitive! management can eep the function in,house! but hold the functions staff to the specific cost and performance levels noted in its bid. "s long as suppliers are told upfront that the internal staff will be bidding and that the selection will be a fair process! they should not have a problem with this type of competition. #his approach can be used for any functional area. 49. +egin a strategic initiative. " company(s management may declare complete company reorganization and outsourcing can be used to put an e%clamation point on its determination to really change the current situation. +y ma ing such a significant move at the start of the reorganization! employees will now that management is serious about the changes and will be more li ely to assist in ma ing the transition to the new company structure.

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Outsourcing logistics has been a favorite with companies since several years. )t is only recently that companies have started thin ing about outsourcing other aspects of SCM. 6espite the wide acceptance of outsourcing logistics functions! a variety of organizational concerns inhibit the outsourcing of logistics processes! including. 4. ?ear of losing control. Companies are hesitant to hand over important logistics processes to a third party. "s the third party might also be managing the logistics processes of competitors! companies are afraid that trade secrets might be misused! mismanaged! or lostCor in the worst case! pass through the third,party provider into the hands of competitors. 7. 'ac of confidence. Compounding the fear of loss of control is the lac of confidence companies feel about the ability of third,party providers to meet their needs. D. 'ac of outsourcing education. Many companies are familiar with outsourcing! in terms of the )# and business, process enhancements that logistics service providers can offer. 2owever! they lac a thorough understanding of the e%perience of managing the outsourcing service provider throughout the life of the relationship. 9. Management philosophy and tradition. Many companies simply resist change. #hey may re&ect the concept of outsourcing logistics activities due to a perceived potential negative effect on their business model and operations. )n addition! these companies may have had poor outsourcing relationships in the past and may be less inclined to initiate new outsourcing contracts.

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#hese can range from pricing issues to nonperformance by a supplier of a ey function. #he person ma ing the outsourcing decision must be aware of these ris s before ma ing the decision to hand over a function to a supplier. +roadly! these ris s can be classified into short,term ris s and long,term ris s. Companies indulging in outsourcing have to guard against both of these ris s. Short,term ris s can include among others operational issues at supplier(s end! while long,term ris s can be nonalignment of company(s goals with supplier s goals in the long term. Supplier(s situation may change in the future! causing problems in the outsourcing relationship. ?or e%ample! the supplier may have financial difficulties! be bought out by a company that does not want to be in the outsourcing business! or undergo a shift in strategy that forces it to provide different services. "lso! the technology needed to service the company(s needs may change over time and the supplier may no longer be able to service that new technology. #hese ris s can be lowered by ensuring that there is a termination clause in the outsourcing contract that allows the company to bac out of the contract if any of the above circumstances

occur. "lso! these ris s are less important if there is a large number of competing suppliers to whom the business can be shifted. "lternatively! the ris is greater if there are few competing suppliers to whom the company(s business can be shifted. Supplier(s inability to grow in the same proportion as the company can be another big ris . +ut this is a long,term ris and can be gauged and understood beforehand.

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)n today(s global arena! companies are ma ing their best attempt at shedding their flab and becoming lean and trim. #his new avatar can ensure a faster response! agility and better ability to handle pressure. #hese companies often find it much more cost effective to outsource rather than build a proprietary infrastructure. #hey believe in having no production facility! no warehouse! no loading doc ! no boardroomC&ust office space! a handful of employees! and a great idea for a product or service and mar eting strength. )n this case! outsourcing SCM can ensure that the entire necessary infrastructure is in place! without actually having to spend on any infrastructure. #his can save a lot of wor ing capital from getting loc ed. Moreover! companies can then focus on core activity of getting the customers and servicing them efficiently. #hrough the use of outsourced services! enterprises can avoid all or some of the costs associated with physical plant! specialized )# systems and e0uipment! telephone lines and bodiesCand best of allCno distractions from the carrying out of their core competencies. Especially young companies or new companies should not waste their time focusing on building these operational infrastructures when their primary business is to create.aud sell products and services Cand not man! aging supply chain activities.

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*ostponement is a business strategy that ma%imizes possible benefit and minimizes ris by delaying further investment into a product or service until the last possible moment. "n e%ample of this strategy is 6ell Computers; build,to,order online store. #he concept of postponement and its applicability to supply chain management wor s best under specific demand! product! and production preconditions. #he postponement strategy aims at delaying some supply chain activities until customer demand is revealed in order to maintain both low system wide cost and fast response. *ostponement is one of the supply chain strategies now gaining momentum. +y pushing the point of product differentiation closer to the customer! postponement can improve customer service levels! reduce inventory costs! and increase top,line revenue. " supply chain strategy! generally spea ing! aims at either ensuring immediate product availability or promising a short response time to a customer order. #he latter strategy is referred to as postponement because decisions about the transportation of products or the transformation of product form in one of the supply chain processes (purchasing! manufacturing or distribution) are postponed until an order is received. #he delayed decisions not only can enhance customer satisfaction! but also can avoid stoc ing unwanted products. #ogether with the strategy that focuses on immediate product availability! a range of supply chain strategies are available for decision,ma ers to meet their divergent needs.

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#he concept of postponement lies in organizing the production and distribution of products in such a way that the customization of these products is made as close to the point when the demand is nown as possible. *ostponement belongs to a set of levers used in inventory management to attac the variability of demand and supply. #his set of levers can be divided into proactive and reactive. *roactive levers directly attac the causes of variability@ reactive levers help to cope with its conse0uences. #ogether with substitution! specialization! and centralization! postponement is a reactive lever. #o reduce the chance of a lost sale! companies have traditionally invested in demand forecasting methods or have boosted inventory levels. +ut! now! companies are recognizing that increasing finished goods inventory can be

inefficient! and forecasting methods are often unreliable. Changes in the global mar et place and advancements in information technology have driven companies to reassess the applicability and feasibility of postponement. #echnological advancements! specifically in supply chain software developed in recent years! have minimized and often eliminated many of the ris s and concerns traditionally associated with the implementation of postponement "dvanced supply chain technology now enables and supports decision ma ing about where to postpone! when to postpone! and how to postpone. )t also enables companies to connect with trading partners 0uic ly and easily! allowing for visibility across the entire supply chain. )n addressing changes to the global mar et place! forward,thin ing managers are finding innovative ways to increase demand for customized goods. One such e%ample is the evolution of warehouses into advanced fulfillment centers to perform customization of goods at a point closer to the consumer. %,C!S!O":MAK!"+ P$OC,SS 1hen developing a postponement strategy! successful companies create cross, functional teams and invest in information technology in order to redesign their business processes. )ncreased visibility in the supply chain! enabled by technology! allows these decision ma ers to determine how changes in one area of the supply chain will affect other areas. #his data also allows decision ma ers to model multiple postponement strategies in order to identify the optimal scenario. !%,A( POS#PO",M,"# CA"%!%A#, 1hile many industries and companies are prime for postponement! there are certain business conditions that position a company for a more successful postponement implementation. *rominent among these are companies that produce a significant variety of products with short product life cycles and which have a supply chain able to support mass customization. :egardless of business conditions! effective postponement implementation still re0uires collaboration! organizational buy,in! concerted effort! and the right information technology bac bone. POS#PO",M,"# COS# *ostponement may increase company costs both directly and indirectly. 6irect cost increases can be caused by product or process redesign. ?or instance! 2* printers for dual volt networ s mentioned above had higher unit cost than printers that were designed for one networ only. )ndirect cost increases can be caused by the changes in the production and distribution processes with the conse0uent impact on the infrastructure and resources (including labor). #his impact is sometimes not limited to the company implementing postponement! but affects the other players in the supply chain. "s we will describe in the chemical company e%ample! postponing the process of dying the plastic by letting the selected customers do it resulted in lower utilization of the company(s dying e0uipment and non, recovery of a portion of the fi%ed cost. #he postponement concept can be compared to an option 4 and the cost associated with it to the e%ercise price. =ust li e it ma es sense to e%ercise only options that are Hin the money!I postponement ma es sense to implement only if the benefits outweigh the associated costs. +ut again! similar to options on financial assets! there is a lot of uncertainty involved with regard to the costs and benefits , e.g. implementing postponement can accelerate the learning process and unloc new options! previously unavailable! such as attracting business from the customers whose demands previously could not have been met. #hat is why we have outlined in the beginning of the note! as a rule of thumb! certain preconditions under which postponement is more li ely to be successfully introduced. Companies that e%perience a radically different picture in their business , demand with little or no uncertainty! low value of short time to mar et! low product proliferation! low inventory values etc. , would obviously gain very little from postponement. ?or instance! if a farmer signs a long term contract to supply all (reducing demand uncertainty) of his or her grain (no SJA proliferation) to a customer at the end of the growing season (no need for unusual speed) then there really is no benefit to postponement. 2owever! the strength of postponement lies in its wide applicability as speed becomes a more important capability. #he fact that postponement finds its use in such different situations as high tech manufacturers and fast food chains is the best proof of this.

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Since postponement often involves a fundamental redesign of decade,old manufacturing processes! its implementation can be challenging. 2owever! this can be accomplished through an incremental implementation strategy. Ensuring proper alignment across the organization! as well as with suppliers and customers! is one of the most significant challenges companies face when implementing postponement.

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Companies that are in industries where it is particularly difficult to match supply with demand can benefit the most from implementing a postponement system. "s mentioned earlier! there are three characteristics that stand out where postponement can have a large effect. demand uncertainty! substantial product proliferation! and importance of a 0uic response relative to the cycle time of producing the product or service. Companies that display any of these characteristics are candidates for performance improvement through postponement. "nd the more of the characteristics companies display! the better candidates they are. #oday! where more and more industries move towards creating mar ets of one and where success is driven not so much by cost or 0uality but by speed! postponement becomes increasingly important.

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