Postponement

clench St laygy Materials Management End Term bewilder (Term IV) Date 15th September 2009 Submitted To Submitted By Prof. Vivek Kumar Namrata Agarwal(81031) Prof. Kaushik Paul Neha Gupta(81034) Contents Chapter 14 Introduction4 1. 1 What is appreciation? 4 1. 2 A specialised instance5 1. 3 Postponement in operation7 Chapter 29 Literature Review9 Chapter 314 When is Postponement Appropriate? 14 3. 1 The Postponement/ scheme (P/S) Matrix14 3. 2 be & Benefits of Postponement15 3. 2. 1 to a great extent than(prenominal)(prenominal) pastiche15 3. 2. 2 stock-taking decrement18 3. 2. 3 Better compute accuracy19 . 2. 4 Inventory legal injury decrement20 3. 2. 5 Logistics comprise reduction22 3. 2. 6 Improved guest att lay impinge on levels22 3. 2. 7 Increased w ar increase greet23 3. 2. 8 Increased manufacturing live23 Chapter 424 cock hobo dress Studies24 4. 1 Automobile Manufacturing GM24 4. 2 Aircraft Manufacturing Embraer26 4. 3 Clinical Equipments Dade Behrin g29 4. 4 Sports Goods Manufacturing Reebok32 4. 5 Xilinx34 Chapter 536 Conclusion36 Chapter 638 Future of grasp38 6. 1 Services and recess38 References40 Chapter 1 Introduction Over the past convictions 2 decades, logistics activities pick out sort outed increasing strategic importance for most companies. indomit fitted be of yieldion seduce increase, consumer subscribe tos railing last much heterogeneous and be harder to predict, both in prison term and place. Technology is rapidly ever-changing and harvest- measureion life wheel arounds have curtlyened while ingathering plod has increased. Now more than ever, companies atomic derive 18 faced with the ch wholeenge of producing an increasingly broad medley of yields in a responsive manner while retention materials and stock-take to a minimum. These issues represent signifi ground admitt take exceptions for companies producing and selling in a innovation of international grocery stores.Not only(pren ominal) does contract vary from sylvan to coun ca usance, just autorefours need to be altered for variant markets in retainer of disparitys in row, culture and topical anaesthetic anesthetic trites. Increasingly, companies ar using a dodging hunchn as deferment or mass customization to break node returns and minimize the put on the lines associated with making disparate crossroads in contrasting countries. This opus presents a cloth for understanding delay and how it good deal be implemented. Also, with the t odditying of successful case studies strength savings as tumefy ch completelyenges in murder give be spotlighted. . 1 What is Postponement? The term cartridge holder lag refers to delayed ratiocination-making round a yield. It is beneficial to delay commitment to harvest-feast-specific characteristics as late as possible in format to avoid a mismatch surrounded by topical anaestheticises and stock-taking on hand. The length of delay is specific to a point of intersection but the publicplace strategic pauperization is to arrive at interrupt information about node ask by wait to customize a product for a destinyicular market or guest. At the top of wait a regularise staff or broadcast starts to acquire guest or market specific characteristics. interpret 1-1 translates the spectrum of opportunities for waiting that ext quits from procurement to scattering. The rase of detention commode occur as early as the construct phase and as late as encase and distribution. Postponement at the manufacturing stage has arguably the most potential for follow savings in store due to restangerment pooling. some divergent arrests of contraryiation sack up occur in the aggregation, labeling, box, or distribution phases. round postponement finish pull down occur afterwards the point of sales raset in the form of service rearings. pic sort 1-1 Possible points of dissimilariation in the c ede train Postponement en suitables visualizeers to net better predictions about end product demand over quantify since the shopworn module is built-to-forecast and the ruined product is built to a better forecast or even built-to- gild. lee(prenominal) and Whang 20 observe that shorter the magazine horizon over which predictions be pull, the more accurate the forecast. The improvements argon better end product forecasts and the magnate to react dissolutely to demand signals by holding un faultless goods in ancestry a delay nett throng or customization.Postponement in any case creates opportunities to dismount blood line comprises due to risk pooling because goods are kept in un completed or component form and female genital organ be use to assemble more than one type of sinless goods. The monetary re hold dear of an un blameless good is less because it is non committed to graceful a finished product and deficiencys the added order gained in final thron g. 1. 2 A specific simulation Consider a habitual case of postponement involving a desist food restaurant. Burger King started a trend with the have it your way marketing jingle as a way of advertise the measure of getting a customized organize fastThis scheme ensured the customer that each order would be made privately at the time of purchase not taken from a batch of pre-made products. In a restaurant, ingredients are ordered in aggregate because it is not bangn what the final customer orders will be. Ingredients that are common to all sandwiches, alike(p) screw and lettuce, are ordered ground on a total forecast of sales for each type of sandwich. Having a bun and lettuce ready and waiting for final assembly is the platform for the sandwich. The rest of the ingredients, like give up, meat, and pickles, are components that are specific to each end product.If more of one type of sandwich is ordered or less of another, the total number of buns is not affected by this deviation in demand, however, the heart and soul of cheese would be. It is actually much less bellly to throw out a piece of cheese and use the platform for another order than to throw out an commodious-cut sandwich. At Burger King, inventory is distinguishd at the aggregate level. There are quaternity choices of meat and three distinct types of bun. In addition to buns and meat, at that place is the choice of cheese, bacon, lettuce, tomato, pickles and onion.In total Burger King flowerpot elevate 768 different sandwiches as show in Table 1. 1. They know that it is salutely to try and predict mortal customers preferences so they aggregate orders into common platforms which consist of a bun, patty (chicken, beef, fish, or veggie) and lettuce, simplification the options from 768 to 128. at one time common components are paired together in a platform, the number of options strangles dramatically because smorgasbord is determined by multiplying the number of options t ogether. Once the platform is undertake by a customer the rest of the sandwich is made-to-order. Component enumerate of Options Patty 4 Buns 3 Cheese 2 Bacon 2 Lettuce 2 Tomato 2 Onion 2 Pickle 2 Total Combinations 768 Table 1. 1 Sandwich options at Burger KingThis example illustrates how postponement through platform cast and stocking individual components instead of finished goods is able to mitigate the risk associated with producing a wide figure of products. This belief can be applied to more than just food. Examples of products which can hit from postponement take consumer appliances, cable machinemobiles, apparel, and even airplanes. These products have one or more of the following characteristics superior distributor point of forecast perplexity, modularity, and broad(prenominal) inventory carrying cost. 1. 3 Postponement in operation Operational postponement can be applied in one of twain ways manufacturing and assembly postponement and logistic pos tponement.Manufacturing and assembly postponement involves the engineering of a product as a module or platform which can take on several different features thitherby increasing the variety of end products. The point of postponement can occur as early as the design phase. The talk impairment product is stored in inventory and gestates customization. The value added through assembly or manufacturing may be performed at a polish facility or at a warehouse just before farawaye. Manufacturing and assembly postponement involve decisions made while the product is in toil. Engineers desire to design a product as a module or platform which can accept different attachments or features in order to transform the popance and or turn to increase product variety.This fantasy was referred to as a vanilla box by Swaminathan and Tayur 42 because the generic wine wine platform is one without any customized value and is on that pointfore the common denominator among a family of differe nt products. Logistical postponement takes into account all other types of postponement involving logistical decisions like packaging, labeling, and distribution. case and labeling postponement traditionally applies to down in the mouth consumer goods products like razors, batteries, take disks, film, and snack foods. Large retailers like Wal-Mart and Target require different compliances of packages to overwhelm their customer demand and shelf space capacity and to differentiate trade good products. Gillette is rise known for their packaging postponement operations.In 1996, Gillette unconquerable to outsource the packaging of their health and beauty items to Sonoco. Bulk quantities of products are sent to Sonoco to await final packaging. Once orders are received appropriate packaging configurations are assembled and shipped to retailers. Manufacturers spend a significant aggregate of capital and stab arduous to satisfy the variant in demand for different configurations for their retailers. However, companies like Gillette, that boil down on their core competency, innovating and manufacturing razors and razor blades, aim the risk onto their packaging supplier. Sonoco submits the risk of forecasting for the different retailers which allows Gillette to find to an aggregate forecast.The get aheads for Gillette included a reduction in order fulfillment time from 6 hebdomads to one, a 15 portion decrease in packaging inventory, a 10 pct improvement in inventory accuracy, and a 15 percentageage reduction in packaging costs. Not only does this fork over Gillette from mismatching demand and configurations, it allows them to snap on engineering, design, and manufacturing of new(a) products instead of packaging. Gillette avoided plant expansion, has a foc utilize factory workforce and is winning favor with retailers by being so responsive. another(prenominal) example of logistical postponement is the postponement of decisions made about the prod uct during its distribution consort time (from finished product to customer delivery). Whirlpool, a popular manufacturing business of household appliances, provides a good example. Customers of Whirlpool include retailers like Sears and Home Depot.Holding inventory of large appliances such as refrigerators and washing machines at local stores is costly because of the gamey product value and the space taken up in a back repositing room. For this reason Whirlpool will send finished goods to a cardinal distribution center and ship directly to the home in one case a customer order is placed. This method saves the retailer in inventory cost and eliminates additional transportation cost by bypassing the retailer. In addition, it issues the risk that is subjective in sending a dedicated number of products to individual stores and having to slant orders mingled with retailers. Chapter 2 Literature Review Sources date the idea of postponement as far back as the 1920s and the first u se of postponement as a manufacturing system as early as the 1950s.Early mention of postponement suggested that costs due to risk and un receivedty were a blend of variety and that an efficient considers of producing a product is to postpone changes in form and identity to the a la mode(p) point in the marketing flow and postpone changes in inventory location to the a la mode(p) point in time. In 1965, Louis Bucklin recognized that little had been do in the area of postponement despite its tremendous potential for cost savings. He narrowd total cost as the sum of inventory holding cost and delivery cost, both of which are a function of delivery time. He argued that a speculative inventory will appear at each point in a distribution dividing line whenever its costs are less than the net savings to both vendee and seller from postponement.In other words, postponement is not cost force-outive when there is sufficient information about demand to produce finished goods in mass an d store them in inventory. For some products it bring outs finger to postpone the close operation by introducing a coat cost and increasing the delivery time because the product is not readily on tap(predicate) from stock. Zinn and Bowersox 50 classified postponement into five distinct types labeling, packaging, assembly, manufacturing, and time. Labeling postponement assumes that products are standardized until they receive a label distinguishing them by brand. Packaging postponement is beat out suited for products in which variation is determined by package size.Paint, chemicals, medicine, razors, and umpteen food items sold in bulk are good candidates for packaging postponement. Assembly postponement is applied to products in which variety is human footd on cosmetic features like cars, iPods, t-shirts, and printers. Hewlett-Packard (HP) provides an excellent example of assembly postponement. Printers intentional for different worldwide markets are inherently the same p roduct except for country specific power tag on modules, power cord plugs, and instruction manuals. HP put ons both types of printers in Vancouver a US version and a generic version that is customized once it reaches a distribution center in Europe, Asia, or the Pacific based on country specific orders. angiotensin converting enzyme attain is decreased transportation cost because printers are shipped in bulk and are considered vanilla until they receive the value-added accessories like language manual and power add together. Manufacturing postponement occurs when parts are shipped to the finishing center from more than one supplier. It has the greatest potential for cost savings in inventory because the value of the product increases through the addition of each successive component. Manufacturing postponement usually progenys in spirited(prenominal) output signal costs. The increase is due to the capital cost of electrical switch machinery amongst different types of vari ety and shipping them to different finishing facilities. clock time postponement occurs when finished products are shipped to centralized warehouses closer to the customer than the manufacturing location. The motivation is to increase customer service levels by decreasing customer lead time and to respond promptly to orders by placing inventories closer to the customer without committing to an individual order. Postponement Type Potentially Interested Firms Labeling Several brand call lofty unit value products full(prenominal) product sales fluctuations Packaging Variability in package size towering unit value products gamey product sales fluctuations Assembly Selling products with several versions High ledger incurred by packaging High unit value products High product sales fluctuations Manufacturing High proportion of ubiquitous material High unit value products High product sales fluctuations Time High unit value products Large number of distribution warehouses Table 2. 1 Potential Utilization of Postponements The final out educe of their research is a framework which serves to assist managers in determining what type of postponement is best for a given product or scrape up out mountain drawing string structure. Table 2. 1 shows a list of the postponement types and the firms which would bring in from implementing each type of postponement.Swaminathan and Lee 42 go get ahead and identify the factors which influence the costs and benefits of postponement as market factors, accomplish factors, and product factors. Market factors refer to characteristics of demand and un surety. touch on factors refer to characteristics of operating policy deep down the firm as well as the external sum up range of a function, such as managerial body forth and the location of and relationship with suppliers. Product factors refer to the design and characteristics of an individual product such as integral versus modular and inventory carrying cost. They in like manner highlight enablers of postponement such as procedure standardization, wreak resequencing ( planing the assembly member to move value-added processes closer to the customer), and component standardization.Redesigning products with these characteristics makes postponement possible and reduces the risk to the manufacturing business by eliminating redundant processes and designing products to be modular and component interfaces to have standard ports for easy assembly. Alvin Lehnerd and Marc Meyer 21 offer a comminuted look at the benefit of engineering products to be platforms for a family of different products. The authors define twain price which are the basis for postponement. Product platform a even out of common components, modules, or parts from which a stream of derivative products can be efficiently created or launched Product family a set of products that make out common technology and address a related set of market ap plications These are both sentiments that Black and Decker (BD) considered when they started to redesign their line of power in additionls.In the 1970s BD replaced customized parts with standardized components, interfaces, and connections in order to pool the part inventory and save on component inventory costs. Components included common screws, gears, and the motors which powered 122 different power tools. At a cost of $17 zillion over three years, BD was able to fully integrate its append chain, reduce scrap rate from cardinal percent to one percent, reduce failure rate from 11 percent to less than five percent, and reduce the selling price by half while still maintaining a 50 percent margin. BD was as well able to reduce the number of suppliers and push its competition out of the market. This is one of the first cases of postponement using product platform design.Product platforms are likewise common in self-propelled and aircraft design. Lee, Billington, and Carter 20 d iscuss Hewlett-Packards strategy when it created a bingle platform for its DeskJet asset, Deskwriter, Deskwriter Appletalk, and the DeskJet d series. A major source of discrepancy for HP was the final shipping destination. HP ships its DeskJet Plus printers to northwesterly America, Europe, Asia, and the South Pacific. Each one requires a different power supply module and language manual. Under the DC-localization initiative printers are shipped from the manufacturing center in Vancouver and arrive at a local distribution center (DC) without language manuals or power supply modules.The DC supplies the remaining country specific features and packages the printers for final sale. This allows HP to pool the risk of stocking inventory by destination. Taking the process a step further, HP realized that Vancouver was close enough to the US where it could act as the local DC and hence two different types of printers are produced US and non-US versions. This example illustrates how pos tponement is utilize in binary ways for a individual product. The designers at HP had to create a printer with a generic power supply port which is a form of assembly/production postponement. The local DCs had the job of assembling a final product issue with instruction manual, power supply, and the appropriate packaging material.Robert Stahl and Thomas Wallace 47 propose a framework for implementing postponement by classifying products according to two factors product complexity the number of product varieties, and speed the time from customer order to delivery. This results in four levels of differentiation as shown in underframe 2. 1. pic word form 2. 1 Complexity vs. Speed Matrix 47 Companies in each of the four quadrants have different challenges when adopting a postponement strategy. For example, a federation in quadrant B produces a product that has very little variety but takes a long time to produce and deliver to the customer. Wallace and Stahl suggest that a c onnection in this quadrant focus on speed by reducing the lead time from suppliers and expedite the delivery to the customer.They can sue this by implementing lean manufacturing initiatives, improving the work flow, and reexamining the location of their suppliers in terms of keep to the customer. This dilemma illustrates the trade-off between cost and service level. One way to take receipts of distant suppliers and still achieve fast delivery is to decouple the production process and hold inventory of intermediate product locally. Chapter 3 When is Postponement Appropriate? Postponement has the potential to dismay the total delivered cost of a product. However, postponement does come with its own costs to implement and maintain. The benefits outweigh the costs when postponement is implemented correctly for the powerful type of product.For products with certain characteristics postponement allows companies to offer more variety, improve forecast accuracy, reduce inventories, and improve customer service levels. With these benefits come the costs of implementation and manufacturing. 3. 1 The Postponement/Speculation (P/S) Matrix Pagh and Cooper (1998) substantial a simple but very powerful conceptual framework to show the range of postponement strategies that could be adopted by companies. Four generic strategies were identified full guesswork, logistics postponement, manufacturing postponement and full postponement. These were presented in the form of a matrix as shown in token 3. Logistics Speculation Postponement Manufacturing Speculation The full speculation strategy The logistics postponement strategy low production and distribution costs low production costs high customer service and high inventory low/ long suit customer service and inventory costs costs high distribution costs Postponement The manufacturing postponement strategy The full postponement strategy low distribution costs low inventory costs and customer servic e medium to high production costs, medium/high production costs inventory costs and customer servicehigh distribution costs Figure 3. 1 The P/S Matrix (Source Pagh & Cooper, 1998)The strategy of full speculation represents a send off reliance on forecasting, where all differentiating manufacturing operations are performed prior to the product being moved to different markets (push based system). The strategy of full postponement represents the highest level of delay in the supply chain (pull based system). As shown by Figure 3. 1, the decision about which strategy to use is essentially a tradeoff between different levels of customer service and inventory, production and distribution costs. 3. 2 Costs & Benefits of Postponement The question arises, when is the postponement strategy appropriate and when it is not? Where should a play along position itself on the P/S matrix?In order to determine the most appropriate level of postponement that should be practiced, the benefits and the related costs must be weighed accurately. 3. 2. 1 More variety Having variety allows for a closer match between customer preferences and offered products leading to increased sales and (some time) increased prices. The build-to-order strategy pioneered by dell shows how manufacturing a product according to customer specifications is one way to offer a large variety in a cost effective way. dell offers enough options for their place 4600C desktop to build over degree Celsius million different computers using combinations of the components listed in Table 3. 1. Parts Options Intel Pentium 4 5 Operating Systems 5 Productivity computer computer software program 6 Memory 8 Hard Drive 4 Floppy/Storage Device 4 CD/DVD Drive 6 CD/DVD Software 4 Storage Devices and Media 2 Keyboards 3 Mouse 4 varan 9 Total Combinations 100million Table 3. 1 Component List and Options for Dell 4600C Just like Burger King, Dell does not stock each of the 100 million varieties. inst ead, they wait for customers to place an order before they build a machine. They have perfected this strategy so well that they are able to shape demand and produce popular combinations to forecast. Dell can offer discounts on combinations that are popular because of economies of scale and can carefully pull ahead customers to choose components that are in-stock using discounts. This strategy allows them to offer a quick turnaround and ensures that customers will not have to wait more than a workweek for a new product.Figure 3-2 shows a system high-energy hand-build measuring different factors that affect the number of product variety oblations. There are seven twines in the figure. The reinforcing gyrates (denoted by a official arrow) show factors which increase the growth of product variety. The equilibrize loops (denoted by a cast out arrow) show factors which inhibit the growth of variety. pic Figure 3-2 Systems dynamic loop showing product variety proliferation Loop o ne is a reinforcing loop that shows how variety grows because of the need to satisfy individual customers necessitate. The more customers see that their needs can be met, the greater their satisfaction in finding a unique product. This can force their expectations to be greater which narrows down markets even further.Loop two is a balancing loop that shows how a company reacts when it has captured most or all of the market, suppressing the need for innovation and redundancy product variety. Loop three is a reinforcing loop that shows what happens when there are multiple firms competing for market share. As a companys customer base increases it resides to innovate and offer more variety as a agonistic advantage. Loop four is a reinforcing loop that shows the effect of technology on product variety. Loop five is a balancing loop that suggests that customers will become saturated with information and buy the product which offers them the best value given their search costs (time an d information processing). As the number of choices keeps growing, negative aspects of having a multitude of options begin to appear the negatives escalate until we become overloaded 38. When too much variety exists, companies must tradeoff between offering variety and holding inventory. Loop six is a balancing loop which shows how high variety is traditionally associated with higher unit costs. When the unit cost increases, the customers willingness to pay for that variety goes down unless the extra cost adds value to the customer, which is the goal of customization. Similarly, in loop seven, as production lead time increases, customer service levels drop and customers are less willing to wait for variety without some compensation in terms of added value.Loops six and seven are opportunities where postponement can change the direction of the loops from balancing to reinforcing negating the traditional trade-off that exists between higher costs and variety with poorer levels of se rvice. Postponement allows for more variety through standardization and holding intermediate product inventory and better customer service though relocating final assembly closer to the customer. 3. 2. 2 Inventory reduction Reduction in inventory under a located level of service is another benefit of postponement. When companies increase variety they increase the number of SKUs they must maintain which translates into higher inventory costs. Each SKU is subject to different forecasts and therefore require different levels of gum elastic stock. safeguard stock airplane pilots against sudden increases in demand.Holding safety stock ensures better customer service but is also costly because of inventory holding costs. In a reading of the effect of product variety on production-inventory systems, Benjaafar and Kim 8 found that inventory levels increased linearly with variety. They also found that cost was most sensitive to demand division, capacity constraints, and set-up costs ( take for granted a fixed cost to switch the production line between products). This highlights the risk associated with having too much variety for products, especially those with high demand variability. Companies can mitigate this risk by standardizing parts, holding more work in process (WIP) inventory, and postponing customization. 3. 2. 3 Better forecast accuracyDelaying the final customization of a product until more information is available allows forecasters to make better predictions of finished product demand. In order to delay customization, however, it is necessary to define what features or components make a product unique. Figure 3-3 shows how postponement reduces the variability of end product demand and saves on total inventory cost. pic Figure 3-3 Demand accuracy of postponed and non-postponed operations over time Using Figure 3-3, suppose that coffee physiognomys come in five different glossarys. The demand for each color is an independent random variable normal ly distributed with mean ? i and standard deviation ? i where i = 1 5 for each of the different colorize and ? i = ? ij and ? i = ? ij for all i and j.Total demand for prints is N( i, v i2). The standard deviation for the demand of feature mugs, v i2 , is less than the sum of the standard deviations of the individual demand, v i2, which explains wherefore aggregate forecasts are less vapourific. Additionally, forecasts generally improve over time therefore, ? i,T ? i,t where T t and ? i,t is the standard deviation in demand of mug i at time t. In this example, assume information about demand gained in the period up until time L/2 reduced the standard deviation of demand for each individual mug by half. Also, assume that at time L/2 the finishing time is equal to the customers willingness to wait.The producer is then pressure to start movie the mugs at time L/2 to meet the customer demand on time. The variability of demand for mug color is more accurate at this point than it was at the start of the manufacturing process. It makes sense, then, to produce i or 5? uncolored mugs at time postal code and then paint them at time L/2 assuming there are no additional switching costs incurred in this two-stage model. 3. 2. 4 Inventory cost reduction The add together of variety also affects inventory levels and hence, cost. The appropriate inventory level for a case-by-case SKU during a period of time consists of stocking the expected demand plus safety stock.Safety stock acts as a buffer to avoid stock-outs. Holding more safety stock improves customer service levels, but it comes at a cost. There are umteen formulas and practices for determining safety stock, however, this simple fixed safety factor approach assumes demand is normally distributed and is commonly used to determine the appropriate level of safety stock, ssi , given a certain level of customer service, ssi = k ? i (3. 1) In equation 3. 1 k is the safety stock factor which is based on a given level of service desired by the producer and _i is the standard deviation of the errors of forecasts over a given period of time.The amount of inventory, hi , to have at the beginning of an order cycle for a hotshot SKU is given by hi = ? i + ssi (3. 2) Assuming that all colors of mugs have the same mean, ? , and standard deviation, ? , of forecast errors, total inventory, H, is a function of the number of varieties, n, H = n(? + ss) (3. 3) Without postponement, inventory cost increases exponentially, not linearly, withn. However, as mentioned above, if orders are aggregated and produced in unfinished form, the total overall variation decreases. For example, assume each mug has the same mean forecast, ? i = 50 and standard deviation or forecast error, ? i = 2 for all i.The company wants to maintain a customer service level of 98 percent which equates to a safety factor of k = 2. 05. A comparison of the amount of inventory required to satisfy the variability in demand at the beginn ing of the production cycle with and without postponement as variety increases is shown in Figure 3-4. pic Figure 3-4 FGI under postponed and non-postponed operations Not only is the amount of inventory less under postponement, the cost to hold a single SKU is also lower because the product is unfinished. There is still the cost of stocking components for the finishing process (paint) but it is less expensive to keep the mug in an uncommitted state and hold the paint in component form. 3. 2. 5 Logistics cost reductionThe above mentioned case of postponement illustrates delayed customization involving painting the exterior of a pre-produced standardized good, a coffee mug. Many examples of postponement exist where points of differentiation occur as early as the design phase and as late as product labeling and packaging. A modular product design offers more opportunities for outsourcing non-core processes, like packaging and distribution, to third parties. This can happen both onshore and offshore depending on the location and distance of the end customer. In either case, the bring into beingr can save silver by shipping products in bulk instead of in case form which usually adds extra w octad and volume. 3. 2. 6 Improved customer service levelsCustomer service levels are defined in terms of lead time how long it takes an order to arrive, and item fill rate how often orders are filled from inventory on hand. Providing customers with orders quickly can be the result of improvements in manufacturing processes or by repositioning inventory closer to the customer. Customer willingness to wait is a differentiate factor when assessing a product for postponement and determining the location of the postponement point indoors the supply chain. If customers are willing to wait a long time for a product then there is no benefit from expediting orders or sourcing components or processes closer to the customer even if they can be through with(p) cheaper overseas.On t he other hand, if customers are only willing to wait, for example, one week, then the supply chain must be structured so that the finishing lead time and delivery time is less than or equal to one week. This breakpoint between initial and finishing lead times is called the decoupling point and separates production into two stages. The length of time for the first stage is not visible to the customer and therefore all options for achieving lower manufacturing costs can be exhausted. The mho stage of the supply chain (from intermediate product to delivery) must be structured in a way that offers the customer the highest level of service without sacrificing cost. 3. 2. 7 Increased product discoverment cost Another cost of postponement is the cost of design.If a product does not already have a modular design but meets all of the necessary market characteristics then it is worth researching the cost of redesigning the product for postponement. The benefit of a modular design is the fle xibility it creates for other products inwardly a family. However, there is a balance between too much modularity and its effect on product variety. The risk of too much modularity is a lack of differentiation between products. In addition, the cost to switch manufacturing operations between varieties is sometimes responsible for reducing economies of scale that could otherwise result. In terms of cost, product redesign can take engineers months translating into increased research and development costs. 3. 2. 8 Increased manufacturing costThere is a considerable amount of financial investment and commitment required to reconstruct the supply chain to support postponement. Manufacturing cost per unit may increase due to a restructuring of the production process into two or more stages. There should be dedicated areas for postponed activities in a warehouse and easy access to warhead docks. If all manufacturing is not done in-house (which is more apparent than not) implementation m ay require additional facilities to support final assembly and distribution. This also requires more labor at a higher skill level to complete kitting, final assembly, and packaging as opposed to the lower skilled labor required for loading, storing, and sorting. Chapter 4 Case StudiesThe following case studies give detailed information about several companies that have adopted postponement in some capacity. It is worth understanding the motivations and risks that they incurred in order to understand how companies can determine whether their product is a candidate for postponement. Each case provides circumstance on the company and product that is postponed, a description of the supply chain before and after postponement was adopted, the decoupling point between intermediate product and finished good, costs and benefits, and discusses how the supply chain is structured to take advantage of offshore manufacturing and local final assembly. 4. 1 Automobile Manufacturing GM The auto in dustry is a prime candidate for postponement for many reasons.First, a car is defined as a modular system of components. This creates hazard for commonality by producing a platform and adding modular subassemblies customized according to the make and model and ultimately the end user of the fomite. Second, individually customized vehicles have high forecast variability. As this case points out there are far too many varieties to accurately forecast each combination and there is typically disagreement on the forecast deep down the different divisions of a company. Third, cars depreciate as soon as they are driven off the lot. New models come out each year which new features, technologies and capabilities. Lastly, high inventory holding cost.It is much riskier to hold a finished vehicle on the showroom floor than to have a partly finished good waiting for final customization because of the high forecast variability for end products and high product obsolescence cost. General Motor s (GM) offers a unique look into customization during manufacturing and after the point of sale. By 2004, GM produced 68 different models in North America. There were over 200 facilities constituting 52 percent of their revenues. There were over 600 million combinations when all the different component variations and customer specific preferences (color, upcountry options) were considered. Forecasting was extremely difficult, considering these many combinations.Different divisions within GM used different methods of forecasting which further complicated the problem and led to excess inventory on the field. Searching for a way to create variety and mass customize beyond the idea of platforms, GM looked at software configuration, cheer, and aesthetic features as a different way to use postponement. From a software standpoint, each of the systems within a vehicle can also be considered a unique central processing unit (CPU) made up of several electronic control units (ECUs). These in clude safety systems, engine, and transmittal controls. In the 1990s there were only one or two ECUs in a vehicle.Now there are as many as 30-35 per vehicle because software is adequate increasingly essential in automobiles for voice recognition, global positioning systems, and entertainment. Before postponement, GM experienced the set up of product variety proliferation and high inventory costs of stocking ECUs for individual models. The ECUs came to GM in finished form with all of the software pre-loaded. Suppliers charged GM a premium for custom software installation which not only raised the price but also created problems with repair and alimentation. GM decided that they would assume the responsibility for software configuration and postpone the installation until the latest possible point in the assembly process. In order to light upon this, GM had to redesign both the assembly process and the ECU ironware.In the mid-1990s GM achieved the capability to install custom so ftware for individual orders towards the end of the vehicle assembly process. The ECU now comes from suppliers to GM in a generic form. The hardware is a common platform which can receive customized software in just 81 seconds. GM dealers also had to acquire the capability for barefaced programming for individual cars at the point of sale as well as after-market upgrades. After realizing that software could be postponed, GM looked at other systems that could be delayed until purchase. They recognized the emergence of the follower market for vehicles as another way to differentiate and increase revenues.Entertainment systems have become far more sophisticated over the years and offer recognize differential options on a vehicle. Because of the plug-and-play capability, entertainment systems can be uploaded into the vehicle at the dealer. Another key differentiator is the wheel set. Dealers are very involved in putting specialized wheels on a car to make it more desirable. Through t he use of the internet, GM introduced an on-line get website. Customers can log on to GMbuypower. com and point and click their way to the car of their dreams. GM offers a 99 percent guarantee that they will deliver the vehicle within one daylight of the project delivery day to a dealer close to the customer.By 2004, about 18 percent of the cars in assembly at GM were custom made and 82 percent were made-to-stock for dealers and showrooms. The goal is to move to 60-80 percent custom orders but the shift is happening in different markets at different rates. GM is experiencing the benefits of postponement through delayed software configuration and customization. In a study to estimate the benefits of postponement, GM, along with MIT and Stanford University, developed a cost model which projected inventory cost savings to be 10-15 percent. otherwise benefits included maintenance cost savings due to the highly communized ECU hardware and having GM software engineers solve repair issu es instead of sending parts back to suppliers.GMs main goal, however, is to create a more supple supply chain that can handle higher throughput and is more responsive to warm demand. 4. 2 Aircraft Manufacturing Embraer The commercial aircraft production at Embraer provides an example of production and assembly postponement in the airline industry. The motivation for postponement was to focus on optimizing cash flow by creating a flexible supply chain that can provide the right airplane to the right airline company. In other words, the goal is to give customers the ability to change their decision regarding customizable features, or to cancel an order completely, by designing the aircraft to accept these changes as late in production as possible.In response to the changing kinetics within the aircraft industry Embraer differentiates its new family of regional jets based on the number of seats. The new family of regional jets, the Embraer 170, 175, xcl and 195, focuses on a high de gree of parts commonality as all four jets have on the dot the same cockpit and fly-by-wire systems. Embraer decided to implement postponement in order to make its supply chain more flexible and able to respond quickly to changes in demand. This was evident when a customer, US Air, had to cancel an order for six ERJ 170 aircraft because of financial constraints in October 2004. With the majority of the production complete it was too costly to go back and change any of the customized features and reconfigure it for another airline.Embraer developed a strategy for postponing as much of the high value features, like engine type, software, radar devices, and interior specifications as possible. Not only did it save on costs, the flexibility to change order specifications became an attractive alternative to living out of an order or having to pay for costly reconfigurations. The current supply chain at Embraer is structured to allow for two postponement points end-to-end the productio n cycle as illustrated in Figure 4. 1. The first point occurs roughly one year before delivery to the customer where the platform is differentiated based on product family (170 versus 190 family of aircraft).Six to eight months later it will assume the configurations, engine, software and hardware which distinguish it as a 170 versus a 175 or 190 versus a 195 aircraft. After this point the customer specific features such as position arrangements, galley configurations, and tail art are added. pic Figure 4. 1 deal time break down of value added components and features Embraer still builds-to-order because of the high cost to hold a finished airplane in inventory. The white tail concept (analogous to a vanilla box) allows the production processes to begin and slope in parallel with some of the steps that usually take a long time to complete such as certification for safety, avionics, and entertainment systems.Total lead time for production is usually 24-36 months because of the lon g lead time for suppliers. Production begins 12 months before delivery and the order is considered 90 percent frozen or unchanging. However, some customers change their mind within the final month of production. Embraer is committed to developing the idea of postponement further within the company. Any flexibility that can be gained through delaying the customization makes Embraer jets more attractive to a customer facing the uncertainties of the aircraft industry. Engine, avionics, interior and galley layout are some of the hardest subassemblies to change and also have the highest value.The white tail concept allows Embraer to have flexible production in its new family of 170/190 aircraft. They do hold some inventory of semi-finished aircraft that await orders from larger companies in the corporate jet market because the orders are more predictable. Embraer represents a company that is practicing postponement and is not seeing huge savings in inventory. Instead they redesigned thei r process to accommodate the addition of components based on value to the customer and degree of customization. Better service levels and customer satisfaction give Embraer a competitive advantage in a very competitive market. 4. 3 Clinical Equipments Dade BehringDade Behring (DB) is an industry leader in clinical diagnostic equipment and reagents. Their customers include over 25,000 hospitals and reference laboratories which require instruments that analyze human fluids such as blood and urine. They have global operations in more than 34 countries and currently deliver products in six main areas interpersonal chemistry, Immunochemistry, Hemostasis, Plasma Protein, Microbiology, and infective Disease Diagnostics. DB diagnostic instruments are high value with a retail price ranging from $20,000 to over $200,000. Demand forecasting is a challenge due to long buying cycles ranging anywhere from six months to two years. Forecasts are generally compiled from sales representatives predict ions.Because of the high cost of the products, the decision making process and financial constraints of the customers, it is or so difficult to know when products will be ordered. Additionally, instruments were designed/ configured to local country power requirements which exasperated the forecasting impact. As a result, DB was plagued with less than optimum service levels for some instruments and higher than planned inventories for others. All of these conditions were catalysts for a postponement strategy, which became even more primary(prenominal) as a result of an industry-wide European directive. The first postponement strategy involved designing flexible power capability into the symmetry Chemistry/Immunochemistry analyzers that Dade Behring designed and produced.Originally Dimension was offered in either a 110 V or 220 V power versions. To optimally manage inventories of these instruments, DB collaborated with an external supplier to replace the power supply module with a u niversal power supply. During the redesign phase engineers were able to develop the universal module at a lower cost because of pass on technology which was previously unavailable. The cost to produce the universal module was actually less expensive than supplying two different versions. Then, a second postponement strategy was put into place due to the European IVDD initiative. In 1998, the In Vitro Diagnostics Directive (IVDD) was ublished as the third of three European directives which required medical and diagnostic equipment to come packaged with local language manuals and labeling. The regulation gave 17 countries the right to specify the national language that would come available with each instrument for which they contracted. In total 12 different language manuals were eventually required. The instrument manuals are approximately 350 pages in length and therefore it did not make sense to create a single manual with all 12 languages included nor package 12 different manuals with each instrument. DB initiated the switch to language specific packaging in the industry through the postponement of packaging materials at distribution centers and flexible language capability within the operating software.This is a straight forward-moving process accomplished by marrying a language specific accessory box to the instrument during the shipment process. Shortly after achieving successful packaging operations, DB initiated another postponement strategy in their Chemistry product line. This next strategy was to redesign the product so that it could be configured-to-order at the end of the assembly process. There are currently four variations of the Dimension Chemistry/Immunochemistry Analyzer Series. Dimension is offered as RxL Max underlying and RxL Max HM (heterogeneous model), or as an Xpand Plus Basic and Xpand Plus HM. Through a carefully designed manufacturing process, Dade Behring is able to manufacture a specific model as soon as that specific model is s hipped to fill a customer order.This strategy involved the redesign of the manufacturing process so that the analyzer could be configured-to-order at the end of the assembly process. This meant that all of the commonalities between the two different variations of each model would be unite into an intermediate product that would be produced to a forecast, stored as intermediate inventory, and configured-to-order once an order was received. The redesign phase took a police squad of engineers six months to make changes and train workers on the assembly line. The supply chain as shown in Figure 4. 2 became vastly more efficient and service levels increased dramatically. pic Figure 4. 2 Dade Behring supply chainCustomer service levels better and inventory was significantly reduced by eliminating the need to store high value finished goods. Inventory across the supply chain was reduced through a 50 percent reduction in buffer or safety stock. Service levels went from oscillating between 70-100 percent to greater than 98 percent. Once DB was able to improve service time to customers they started looking at their distribution centers and found opportunities to improve distribution strategies, given the improved flow of instruments through the manufacturing process. Because the opportunity cost of a disconnected sale in this industry is very high, distribution centers would store finished goods as a way to mitigate the risk of instrument shipment delays.However, when service levels improved, DB found that they could eliminate 50 percent of their global buffer inventory by eliminating the stocking of instruments in distribution centers in Asia and Canada, and reducing inventory levels in Latin America. Their primary instrument warehouses in the US and Europe service their global instrument distribution needs. The make-to-order and inventory heed strategy provides DB with a decisive advantage in the industry. This is a classic example of the benefits of the successfu l implementation of postponement. Because of this success, DB was able to continue developing postponement in other lines of instruments. Today, more than 85 percent of instrument production at DB involves some form of postponement compared to less than five percent five years ago.By redesigning the Dimension instruments to be easily adaptable for configuration, DB realized that the product could also be easily de-configured back to the intermediate stage to support the alternate market for instruments. 4. 4 Sports Goods Manufacturing Reebok As a licensed supplier for the NBA and NHL and dogma supplier for the NFL, Reebok knows the difficulties that come with satisfying the demand of a very funfair weather crowd. When team ups do well more team apparel is demanded. The demand for a thespian specific jersey is inherently more volatile than for a given team. Meeting customer requirements within a short period of time is a major challenge in the sporting goods industry. Sales of t -shirts and jerseys are not too predictable because Reebok does not know which teams will be hot at the beginning of the season.Demand for jerseys averages 30,000 per week or 1. 5 million each year. The different choices of team name, pretender name, color scheme, and size makes it extremely difficult to predict demand of an individual item during the pre-season. The idea of postponement in this industry is not new. Images of silk- top companies operative overtime minutes after an NCAA basketball championship game, illustrates the idea of postponement. These manufacturers know that it is better to wait until there is certainty about the outcome of a game before producing apparel with the losing teams name on it. As a result they keep white or livid shirts on hand ready for printing.At this point in the supply chain it would not make sense to put in an order for finished shirts from scratch to an overseas manufacturer (even if it costs less to make the shirt). The long lead time w ould mean missing the increase in sales generated within two weeks after a big win. This can be anything from an important mid-season upset, a new player entering the roster, players becoming hot, or the end of season championships. Reebok recognized this as an opportunity to restructure the supply chain to cater to both stable items finished apparel that is produced to a forecast much earlier in the season, and customized apparel. The difference in the lead time for both of these items is significant. Retailers expect lead time to be 3-12 weeks for the stable items and as little as one week for the hot items.Reebok outsource the cutting and sewing of fabric to contract manufacturers in Central America. Some of the jerseys sent to Reebok are finished meaning that there is a customized team and player name already on the garment. Other jerseys, called team finished jerseys are sent with everything but a players name. These go straight to a distribution center that Reebok owns and op erates in Indianapolis. The neat or team finished jerseys help satisfy two different types of demand. The first is for the hot players or players who sign with a team late in the pre-season and the second is for the players who have a small, but somewhat predictable demand. pic Figure 4. 3 Reebok Supply Chain According to Figure 5. the blank jerseys arrive in the US and are ready for screen printing and embroidering. The decision to have a separate facility in the US is a result of the end customers unwillingness to wait. Fans expect to find the jersey they are looking for in a store. There is a chance they will be less likely to want one if they have to wait weeks to get it especially when an NFL team only plays 16 games per season. At a price of $25 for a long-sleeve t-shirt or $250 for an authentic jersey, the cost of lost sales is greater than the cost to ship, unpack, finish and reship a jersey from a local finishing center. Reebok is a classic example of two-stage productio n with postponement.They are able to take advantage of lower labor costs for the production of blank jerseys and optimize service levels by souring the final assembly in the US. This also creates local jobs in the areas of textile and silk-screen printing. 4. 5 Xilinx Xilinx is a semi-conductor manufacturer with headquarters in San Jose, CA. The semi-conductor industry is very volatile due to the wide variety of products and short product life cycle. Semi-conductors manufacturers are supplied to OEMs in the telecom, small electronics, and aerospace industries. However, they have a supply chain of their own which requires assembling and configuring wafers of atomic number 14 into programmable dies which later become integrated circuits.Their position in this multi-echelon supply chain makes forecasting for specific end product demand costly, impractical, and very inaccurate. In addition, semiconductor manufacturing is quickly becoming a commoditized process. Comparative intellectual and technical benefits that leaders in this industry were accustomed to are now becoming less of a competitive advantage. The focus has shifted from intellectual advantage to supply chain efficiency as a means of differentiation. The life cycle for an integrated circuit is anywhere from six months to two years. During that time new technology will make existing products obsolete. Having long manufacturing lead times cripples a companys ability to quickly respond to these changes as well as changes in customer specific orders.Having a generic product and creating a postponement point separating a die with generic qualities and one with a specific logic configuration allow them to respond quickly and offer flexibility to their customers. Xilinx began with a combination of both process and product postponement. Product postponement was implemented by redesigning the dies to a certain range of parameters for the different characteristics. For example, there are four major sources of var iety in an integrated circuit speed, number of logic gates, package types, and voltage. Customers can specify generic capabilities and can customize the chip to their specific specifications after the fabrication stage. The amount of variety makes postponement very beneficial.Xilinx can manufacture 200 different dies that can proliferate into over 4,000 different end product combinations. That makes the ratio of generic dies to end products roughly 120. The manufacturing process is broken up into two stages. Suppose a certain generic die, A, can be configured to take on 20 different configurations, A1, A2, A3, , A20). When a customer requests the specifications, they only need to specify the generic die. Once it is pulled from A inventory, it is customized to a certain degree depending on customer order specifications. This specification can take place at Xilinx for high volume orders or it can be delayed even further so that the point of customization occurs at the customer.Approx imately 20 percent fall into the high volume category and the remaining 80 percent are left for customization at the customer. The final customization is a matter of programming the software within the chip. By eliminating this process from the front end (manufacturing) process, Xilinx cut manufacturing lead time from three months to three weeks. Manufacturing usually takes place in Taiwan or Japan and then product sits in inventory at Xilinx awaiting testing. interrogation facilities are located in Korea, Taiwan, and Japan. While postponement has reduced inventory and helped Xilinx meet customer requirements with more accuracy and on-time deliveries, it is just the beginning.Postponement within the semiconductor industry will extend far beyond customer configuration capabilities. Chapter 5 Conclusion The case studies presented in this paper come from a wide variety of industries. Each company was successful in implementing postponement for similar reasons, but have seen a wide va riety of results. The most common strategic motivation for starting postponement were to improve service level and to reduce inventory holding cost as a result of an increase in product variety. One of the key factors in successful implementation is product modularity. If a product is not inherently modular, a successful postponement strategy requires a redesign of the product or a rethinking of product definition.In the cases of small consumables, the end product is not a razor blade or a disk, but rather a finished configured package fate for a particular retail outlet. The relationship between forecast variability and the decision between a make-to- stock or a build-to-order strategy is also a common factor. Products with stable demand stand to gain little from a postponement strategy because there is little benefit for delaying production when sales are committed. On the other hand, products with high variability gain from postponement because there is no commitment to final co nfiguration until the order is placed. A company should determine the location of variability when deciding to implement postponement.Variability can be caused by product variety, unreliableness of customer orders, seasonality, trends, promotional activities, or it can be a result of the supply chain itself. Varia