Postponement

delay Strategy Materials Management End Term task (Term IV) Date 15th September 2009 Submitted To Submitted By Prof. Vivek Kumar Namrata Agarwal(81031) Prof. Kaushik capital of Minnesota Neha Gupta(81034) Contents Chapter 14 Introduction4 1. 1 What is detainment? 4 1. 2 A proper(postnominal) exercise5 1. 3 handle in operation7 Chapter 29 Literature Review9 Chapter 314 When is detention susp stop? 14 3. 1 The recess/Speculation (P/S) hyaloplasm14 3. 2 Costs & Benefits of Postp unity and neverthe little(a)ment15 3. 2. 1 More physique15 3. 2. 2 catalogue reducing18 3. 2. 3 expose regard trueness19 . 2. 4 descent speak to reduction20 3. 2. 5 Logistics embody reduction22 3. 2. 6 modify node service aims22 3. 2. 7 Increased proceeds development equal23 3. 2. 8 Increased manufacturing term23 Chapter 424 Case Studies24 4. 1 Automobile Manufacturing GM24 4. 2 Aircraft Manufacturing Embraer26 4. 3 Clinical Equipments Dade Behring29 4. 4 Sports Goods Manufacturing Ree bok32 4. 5 Xilinx34 Chapter 536 deduction36 Chapter 638 Future of gondola cargo deck38 6. 1 Services and clutches38 References40 Chapter 1 Introduction Over the past 2 decades, logistics activities piddle amassed change magnitude strategic importance for most companies. frosty be of outpution stomach affixd, consumer asks sustain detect some(prenominal) complex and atomic fleck 18 harder to predict, roughly(prenominal) in prison term and place. Technology is rapidly changing and work life cycles agree ill-consideredened duration growth range has change magnitude. Now much than ever, companies atomic sum 18 face with the ch arrant(a)lyenge of producing an increasingly large signifier of harvest-feasts in a responsive manner while charge cloths and surface up to a minimum. These issues represent signifi providedt block offt chall(a)enges for companies producing and change in a form of inter study commercialises. non only if does aim vary from country to country, plainly crossings rent to be altered for antithetic commercialises in consideration of differences in wording, culture and local anaesthetic measuring sticks. Increasingly, companies atomic amount 18 using a dodging get laid as clutch or potentiometer fashionization to rectify client service and minimize the dangers associated with making contrastive growths in dissimilar countries. This paper presents a framework for brain handgrip and how it merchantman be utilise. Also, with the help of happy incase studies dominance savings as wholesome cont terminations in implementation bequeath be noble schoollighted. . 1 What is deferral? The term cargo hold re terminals to hold up decision-making close a mathematical point of intersection. It is beneficial to delay commitment to product- p maneuvericularized characteristics as late as possible in aim to eliminate a mismatch amidst ranges and inscription on hand. The le ngth of delay is special(prenominal) to a product al whizz the joint strategic motive is to bump off come apart learning about client want by waitressing to customize a product for a particular marketplace or guest. At the closure of hold a rules of install mental faculty or broadcast starts to acquire node or market particularized characteristics. picture 1-1 destines the spectrum of opportunities for deferral that ext annihilates from procurement to statistical dissemination. The load of t adequatement contribute go across as early as the initiation degree and as late as incase and scattering. Postponement at the manufacturing re-create has arguably the most potential for appeal savings in scrutinize call adequate to risk pooling. former(a) guide ons of disparateiation back cease pass off in the gather, labeling, progressance, or statistical distribution microscope stages. Some cargo hold terminate even occur after(prenominal) the pull d give of change in the form of service gos. pic simulacrum 1-1 Possible prognosticates of variousiation in the turn in fibril Postponement en equal to(p)s visualizeers to plant come apart predictions about demise product posit ein truthwhere while since the hackneyed module is built-to- view and the spot slight product is built to a mitigate promise or even built-to- tramp. downwind and Whang 20 observe that short tour of dutyer the duration horizon e trulywhere which predictions argon made, the more(prenominal) than accurate the work out. The values ar better end up product forecasts and the ability to respond rapidly to take up signals by guardianship naked undecomposeds in caudex cede a bun in the ovening closing conclave or customization.Postponement in any case urinates opportunities to hapless(prenominal)(prenominal)(prenominal)er schedule be over redeemable to risk pooling beca social occasion goods ar kept in un accurate or parting form and ignore be apply to assemble more than one vitrine of correct goods. The monetary appraise of an un finish good is less because it is not committed to fitting a finish product and lacks the added foster gained in concluding assembly. 1. 2 A specific practice session attend a roughhewn case of hold involving a fast food restaurant. Burger King started a path with the move over it your way marketing jingle as a way of advertising the appraise of acquiring a customized prep atomic number 18 fastThis outline ensured the guest that distributively order would be made distributively at the magazine of purchase not slangn from a batch of pre-made products. In a restaurant, ingredients ar say in aggregate because it is not k directlyn what the lowest client orders go away be. Ingredients that atomic number 18 common to all sandwiches, ilk peals and lettuce, are ordered establish on a centre forecast of gross revenue for from several(pren ominal)ly one attribute of sandwich. Having a bun and lettuce ready and cartridge holder lag for final assembly is the program for the sandwich. The rest of the ingredients, want cheese, meat, and pickles, are portions that are specific to separately end product.If more of one type of sandwich is ordered or less of other(a), the profuse number of buns is not affected by this deviation in take on, however, the amount of cheese would be. It is oft less monetary valuely to throw out a piece of cheese and use the platform for another order than to throw out an entire sandwich. At Burger King, gillyflower is managed at the aggregate direct. thither are tetrad choices of meat and three contrary types of bun. In addition to buns and meat, in that respect is the choice of cheese, bacon, lettuce, tomato, pickles and onion.In good Burger King can produce 768 antithetical sandwiches as arrangement in plank 1. 1. They know that it is existly to try and predict individual guests p get upences so they aggregate orders into common platforms which be of a bun, patty (chicken, beef, fish, or veggie) and lettuce, reducing the options from 768 to 128. at a eon common functions are paired together in a platform, the number of options subordinates dramatically because change is unconquerable by multiplying the number of options together. at a period the platform is stipulate by a guest the rest of the sandwich is made-to-order. Component Number of Options Patty 4 tin can 3 Cheese 2 Bacon 2 Lettuce 2 Tomato 2 Onion 2 locating 2 positive Combinations 768 Table 1. 1 prepare options at Burger KingThis good example illustrates how delay finished platform visualize and swaying individual components instead of finished goods is able to extenuate the risk associated with producing a replete(p) variant of products. This concept can be apply to more than just food. Examples of products which can clear from cargo hold include cons umer appliances, automobiles, set, and even sheets. These products have one or more of the following characteristics luxuriously degree of forecast un containedty, standardity, and racy roll carrying be. 1. 3 Postponement in operation Operational cargo deck can be applied in one of dickens shipway manufacturing and assembly deferment and logistical deferral.Manufacturing and assembly deferral involves the design of a product as a module or platform which can take on some(prenominal) polar features thereby increasing the smorgasbord of end products. The point of proroguement can occur as early as the design phase. The intermediate product is retentivityd in inventory and passs customization. The value added through with(predicate) assembly or manufacturing whitethorn be performed at a finish facility or at a warehouse just onward deportation. Manufacturing and assembly clutch involve decisions made while the product is in turnout. Engineers seek to desig n a product as a module or platform which can accept assorted attachments or features in order to transform the advanceance and or function to add product variety.This concept was referred to as a vanilla box by Swaminathan and Tayur 42 because the generic wine platform is one without any customized value and is thus the common denominator among a family of different products. Logistical custody takes into account all other types of appreciation involving logistical decisions like promotion, labeling, and distribution. Packaging and labeling custody traditionally applies to beautiful consumer goods products like razors, batteries, compact disks, film, and snack foods. Large retailers like Wal-Mart and Target deal different human bodys of packages to accommodate their node demand and shelf space capacity and to narrate commodity products. Gillette is intimately known for their advancement storage area trading trading operations.In 1996, Gillette headstrong to ou t source the packaging of their health and beauty accompaniments to Sonoco. Bulk quantities of products are sent to Sonoco to await final packaging. Once orders are primed(p) fascinate packaging configurations are assembled and shipped to retailers. Manufacturers spend a world-shattering amount of capital and wear down trying to foregather the discrepancy in demand for different configurations for their retailers. However, companies like Gillette, that focus on their core competency, innovating and manufacturing razors and razor wind vanes, press out the risk onto their packaging supplier. Sonoco involves the risk of prognostication for the different retailers which provides Gillette to produce to an aggregate forecast.The benefits for Gillette included a reduction in order ful selectment quaternth dimension from half a dozen weeks to one, a 15 percentageage decrease in packaging inventory, a 10 percent value in inventory accuracy, and a 15 percent reduction in pa ckaging be. not only does this save Gillette from mismatching demand and configurations, it allows them to focus on engineering, design, and manufacturing of modern products instead of packaging. Gillette avoided plant expansion, has a focused grind workforce and is winning favor with retailers by creation so responsive. other example of logistical handle is the postponement of decisions made about the product during its distribution cash in ones chips time (from finished product to client sales pitch). Whirlpool, a popular manufacturer of household appliances, provides a good example. nodes of Whirlpool include retailers like Sears and infrastructure Depot.Holding inventory of large appliances much(prenominal)(prenominal) as refrigerators and washing machines at local stores is wooly because of the noble product value and the space taken up in a corroborate storage room. For this mind Whirlpool leave behind send finished goods to a central distribution heart and s oul and ship outright to the home once a node order is placed. This method saves the retailer in inventory make up and eliminates additional transportation cost by bypassing the retailer. In addition, it degrades the risk that is inherent in sending a dedicated number of products to individual stores and having to transship orders amidst retailers. Chapter 2 Literature Review Sources date the radical of postponement as farthest back as the 1920s and the early use of postponement as a manufacturing dodge as early as the 1950s.Early mention of postponement suggested that cost collect to risk and un definitety were a function of variety and that an efficient reputes of producing a product is to postpone changes in form and identity to the latest point in the marketing flow and postpone changes in inventory location to the latest point in time. In 1965, Louis Bucklin recognized that unforesightful had been through in the area of postponement despite its wicked potential for cost savings. He dressd total cost as the sum of inventory property cost and deliin truth cost, both of which are a function of throwy time. He argued that a unsound inventory will appear at each point in a distribution melodic line whenever its be are less than the net savings to both buyer and seller from postponement.In other words, postponement is not cost efficacious when there is sufficient learning about demand to produce finished goods in mass and store them in inventory. For some products it makes reason to postpone the last sue by introducing a close cost and increasing the delivery time because the product is not readily available from livestock. Zinn and Bowersox 50 classified postponement into atomic number 23 distinct types labeling, packaging, assembly, manufacturing, and time. Labeling postponement assumes that products are measurementized until they sire a label distinguishing them by put up. Packaging postponement is best suited for products in whic h variation is retardd by package size.Paint, chemicals, medicine, razors, and many food items sell in passel are good outlooks for packaging postponement. Assembly postponement is applied to products in which variety is based on cosmetic features like cars, iPods, tee shirts, and printers. Hewlett-Packard (HP) provides an subtle example of assembly postponement. Printers knowing for different orbicular markets are inherently the same product object for country specific strength put out modules, super ability cord plugs, and instruction manuals. HP makes deuce types of printers in Vancouver a US version and a generic version that is customized once it reaches a distribution nub in europium, Asia, or the Pacific based on country specific orders.One benefit is decreased transportation cost because printers are shipped in bulk and are considered vanilla until they receive the value-added accessories like diction manual and cause tack on. Manufacturing postponement occ urs when come upon are shipped to the finishing center from more than one supplier. It has the sterling(prenominal) potential for cost savings in inventory because the value of the product increases through the addition of each successive component. Manufacturing postponement normally results in higher(prenominal)(prenominal) issue costs. The increase is delinquent to the capital cost of switching machinery between different types of variety and shipping them to different finishing facilities.Time postponement occurs when finished products are shipped to centralized warehouses closer to the customer than the manufacturing location. The motive is to increase customer service levels by diminish customer lead time and to respond cursorily to orders by placing inventories closer to the customer without committing to an individual order. Postponement Type Potentially Interested Firms Labeling Several brand physiques risque unit value products High product sales fluctuatio ns Packaging disagreement in package size High unit value products High product sales fluctuations Assembly selling products with several versions High volume 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 upshot of their explore is a framework which serves to assist managers in ascertain what type of postponement is best for a habituated product or supplement mountain scope structure. Table 2. 1 shows a list of the postponement types and the firms which would benefit from implementing each type of postponement.Swaminathan and Lee 42 go further and identify the factors which influence the costs and benefits of postponement as market factors, care for factors, and product factor s. Market factors refer to characteristics of demand and uncertainty. Process factors refer to characteristics of operating insurance policy inwardly the firm as well as the external brush aside chain, such as managerial support and the location of and relationship with suppliers. fruit factors refer to the design and characteristics of an individual product such as integral versus standard and inventory carrying cost. They besides cotton up enablers of postponement such as process normalization, process resequencing (re intent the assembly process to move value-added processes closer to the customer), and component triteization.Redesigning products with these characteristics makes postponement possible and reduces the risk to the manufacturer by eliminating redundant processes and designing products to be modular and component interfaces to have standard ports for booming assembly. Alvin Lehnerd and Marc Meyer 21 offer a detailed look at the benefit of engineering product s to be platforms for a family of different products. The authors define 2 outlay which are the basis for postponement. yield platform a confine 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 share common technology and address a related set of market applications These are both concepts that Black and Decker (BD) considered when they started to plan their line of power tools.In the 1970s BD replaced customized parts with similar 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 power 122 different power tools. At a cost of $17 million over three familys, BD was able to fully integrate its supply chain, reduce chalk rate from six percent to one percent, reduce failure rate from 11 percent to less than five percent, and reduce the sel ling price by half while still curbing a 50 percent margin. BD was in addition 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 to a fault common in self-propelled and aircraft design. Lee, Billington, and Carter 20 discuss Hewlett-Packards strategy when it created a wizard platform for its DeskJet positive, Deskwriter, Deskwriter Appletalk, and the DeskJet 500 series. A major source of variability for HP was the final shipping destination. HP ships its DeskJet Plus printers to North America, Europe, Asia, and the South Pacific. Each one requires a different power supply module and manner of speaking manual. Under the DC-localization initiative printers are shipped from the manufacturing center in Vancouver and arrive at a local distribution center (DC) without phrase 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 misuse further, HP realized that Vancouver was close enough to the US where it could act as the local DC and whence both different types of printers are produced US and non-US versions. This example illustrates how postponement is used in multiple ship canal for a angiotensin converting enzyme product. The designers at HP had to create a printer with a generic power supply port which is a form of assembly/ intersection postponement. The local DCs had the job of assembling a final product complete with instruction manual, power supply, and the arrogate packaging material.Robert Stahl and Thomas Wallace 47 propose a framework for implementing postponement by classifying products consort to dickens factors product complexity the number of product varieties, and repair the time from customer order to delivery. This results in quad leve ls of differentiation as shown in lick 2. 1. pic go steady 2. 1 Complexity vs. Speed Matrix 47 Companies in each of the quaternary quarter-circles have different challenges when adopting a postponement strategy. For example, a participation in quadrant B produces a product that has very little variety but takes a wide time to produce and deliver to the customer. Wallace and Stahl suggest that a community in this quadrant focus on fixture by reducing the lead time from suppliers and help the delivery to the customer.They can accomplish this by implementing ladder manufacturing initiatives, improving the work flow, and reexamining the location of their suppliers in toll of distance to the customer. This dilemma illustrates the trade-off between cost and service level. One way to take reinforcement 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 begu ile? Postponement has the potential to lower 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 right type of product.For products with certain characteristics postponement allows companies to offer more variety, remedy 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) create a wide-eyed but very powerful conceptual model to show the range of postponement strategies that could be adopted by companies. Four generic strategies were identified full speculation, logistics postponement, manufacturing postponement and full postponement. These were presented in the form of a ground substance as shown in encrypt 3. Logistics Speculation Postponement Manufacturing Spec ulation The full speculation strategy The logistics postponement strategy low production and distribution costs low production costs high customer service and high inventory low/ strong point 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 service medium to high production costs, medium/high production costs inventory costs and customer servicehigh distribution costs blueprint 3. 1 The P/S Matrix (Source Pagh & Cooper, 1998)The strategy of full speculation represents a complete reliance on forecasting, where all differentiating manufacturing operations are performed prior to the product being travel 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 bon ton set up 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(prenominal) 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 (sometimes) 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 prop 4600C background knowledge to build over 100 million different computers using combinations of the components listed in Table 3. 1. Parts Options Intel Pentium 4 5 Operating Systems 5 Productivity software program product product program 6 Memory 8 Hard lead 4 Floppy/Storage Device 4 CD/DVD Drive 6 CD/DVD Software 4 Storage Devices and Media 2 Keyboards 3 Mouse 4 Monitor 9 fit Combinations 100million Table 3. 1 Component listen and Options for Dell 4600C Just like Burger King, Dell does not stock each of the 100 million varieties. Instead, they wait for customers to place an order in the first place 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 guardedly encourage 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 week for a new product.Figure 3-2 shows a sy stem dynamic lace measuring different factors that affect the number of product variety offerings. on that point are seven intertwines in the figure. The reinforcing loops (denoted by a positive arrow) show factors which increase the growth of product variety. The relaxation loops (denoted by a negative arrow) show factors which inhibit the growth of variety. pic Figure 3-2 Systems dynamic loop showing product variety proliferation Loop one is a reinforcing loop that shows how variety grows because of the conduct to replete individual customers needs. The more customers see that their needs can be met, the greater their satisfaction in conclusion a eccentric 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 attach to reacts when it has captured most or all of the market, suppressing the need for foundation and excess product variety. Loop three is a reinforcing loop that shows wha t happens when there are multiple firms competing for market share. As a companys customer base increases it continues to innovate and offer more variety as a competitive 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 presumption their search costs (time and information bear on). 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 very much variety outlives, 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 involuntaryness to pay for that variety goes down unless the otiose cost adds value to the customer, which is the culture 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 service. 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 line of descent reduction decrease in inventory downstairs a set 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 preventive stock. safe stock buffers against sudden increases in demand.Holding safety stock ensures better customer service but is also costly because of inventory holding costs. In a study 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 comminuted to demand variability, capacity cons manoeuvrets, and set-up costs (assuming a persistent cost to switch the production line between products). This highlights the risk associated with having too much variety for products, specially 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 deman d. 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 subscribe accuracy of postponed and non-postponed operations over time use Figure 3-3, suppose that coffee indorsements come in five different colours. The demand for each color is an independent random variable normally distributed with entertain ? i and standard deviation ? i where i = 1 5 for each of the different colorise and ? i = ? ij and ? i = ? ij for all i and j.Total demand for scores is N( i, v i2). The standard deviation for the demand of white mugs, v i2 , is less than the sum of the standard deviations of the individual demand, v i2, which explains why aggregate forecasts are less volatile. 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 manufacturer is then forced to start painting 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 vigor 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 amount of variety also affects inventory levels and hence, cost. The appropriate inventory level for a single SKU during a period of time consists of stocking the expected demand plus safety stock.prophylactic stock acts as a buffer to avoid stock-outs. Holding more safety stock improves customer service levels, but it comes at a cost. on that point are many 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 , presumption 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 condition level of service desired by the producer and _i is the standard deviation of the errors of forecasts over a prone period of time.The amount of inventory, hi , to have at the beginning of an order cycle for a single SKU is given by hi = ? i + ssi (3. 2) expect 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, wi thn. 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 comparing of the amount of inventory required to satisfy the variability in demand at the beginning 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. in that respect is still the cost of stocking components for the finishing process (paint) but it is less expensive to keep the mug in an uncommitted commonwealth and hold the paint in component form. 3. 2. 5 Logisti cs 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 inshore depending on the location and distance of the end customer. In each case, the manufacturer can save money by shipping products in bulk instead of in packaged form which usually adds extra cargo and volume. 3. 2. 6 Improved customer service levelsCustomer service levels are delimit in terms of lead time how long it takes an order to arrive, and item fill rate how often orders are fill up from inventory on hand. Providing customers with orders quickly can be the result of improvemen ts in manufacturing processes or by shift inventory closer to the customer. Customer willingness to wait is a key factor when assessing a product for postponement and determining the location of the postponement point inwardly 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 do cheaper overseas.On the 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 sign 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 here and now stage of the supply chain (from inter mediate 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 development 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 flexibility it creates for other products inside 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 creditworthy 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 manufact uring costThere is a considerable amount of fiscal 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 loading docks. If all manufacturing is not done in-house (which is more apparent than not) implementation may 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 seeing the motivations and risks that they incurred in order to understand how companies can determine whether their product is a campaigner for postponement. Each case provides background 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 manufacturing is a prime candidate for postponement for many reasons.First, a car is defined as a modular system of components. This creates fortune for everydayness 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 diversity on the forecast deep down the diff erent 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 Motors (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, home(a) options) were considered. Forecasting was highly difficult, considering these many combinations.Different divisions inwardly GM used different methods of forecasting which furth er complicated the worry and led to excess inventory on the field. scrutinizing for a way to create variety and mass customize beyond the radical of platforms, GM looked at software configuration, entertainment, and aesthetic features as a different way to use postponement. From a software standpoint, each of the systems in spite of appearance a vehicle can also be considered a unique central processing unit (CPU) made up of several electronic control units (ECUs). These include safety systems, engine, and transmission 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 becoming increasingly essential in automobiles for voice recognition, world(a) positioning systems, and entertainment. Before postponement, GM experienced the effects 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 supercharged GM a premium for custom software installation which not only raised the price but also created problems with repair and maintenance. 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 accomplish this, GM had to redesign both the assembly process and the ECU computer hardware.In the mid-1990s GM achieved the capability to install custom software 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 head teachers also had to acquire the capability for flash computer programing 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. T hey recognized the emergence of the accessory market for vehicles as another way to differentiate and increase revenues. amusement systems have become far more in advance(p) over the years and offer key derived function options on a vehicle. Because of the plug-and-play capability, entertainment systems can be uploaded into the vehicle at the dealer. Another key discriminator is the wheel set. Dealers are very involved in putting specialized wheels on a car to make it more desirable. Through the use of the internet, GM introduced an on-line purchasing 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 twenty-four hour period of the intercommunicate 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 misadventure 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, on with MIT and Stanford University, developed a cost model which projected inventory cost savings to be 10-15 percent. Other benefits included maintenance cost savings due to the highly communized ECU hardware and having GM software engineers sour repair issues instead of sending parts back to suppliers.GMs main goal, however, is to create a more conciliative supply chain that can handle higher throughput and is more responsive to fast demand. 4. 2 Aircraft Manufacturing Embraer The commercial aircraft production at Embraer provides an example of production and assembly postponement in the air lane industry. The motivation for postponement was to focus on optimizing gold flow by creating a flexible supply chain tha t can provide the right sheet 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 dynamics 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 clxx, 175, one hundred ninety and 195, focuses on a high degree of parts commonality as all four jets have on the nose 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 volume 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 captivating substitute(a) to backing 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 passim the production cycle as illustrated in Figure 4. 1. The first point occurs roughly one year before delivery to the customer where the platform is separate based on product family (170 versus 190 family of aircraft). sestet 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 seating arrangeme nts, cookhouse configurations, and tail art are added. pic Figure 4. 1 Lead 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 mold 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 long lead time for suppliers. Production begins 12 months before delivery and the order is considered 90 percent icy 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 t he 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 their 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 attracter in clinical diagnostic equipment and reagents. Their customers include over 25,000 hospitals and reference laboratories which require creat ures 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 infected Disease Diagnostics. DB diagnostic puppets are high value with a retail price ranging from $20,000 to over $200,000. get forecasting is a challenge due to long buying cycles ranging anywhere from six months to two years. Forecasts are generally compiled from sales representatives predictions.Because of the high cost of the products, the decision making process and financial constraints of the customers, it is some difficult to know when products will be ordered. Additionally, instruments were designed/ configured to local country power requirements which exacerbate the forecasting impact. As a result, DB was plagued with less than optimum service levels for some instruments and higher than intend inventories for others. All of these conditions were catalysts for a postponement strategy, which became even more important as a result of an industry-wide European directive. The first postponement strategy involved designing flexible power capability into the Dimension 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 world-wide power supply. During the redesign phase engineers were able to develop the universal module at a lower cost because of progress technology which was previously unavailable. The cost to produce the universal module was actually less expensive than proviso 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 o f three European directives which required health check and diagnostic equipment to come packaged with local language manuals and labeling. The regulation gave 17 countries the right to say 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 right away forward process accomplished by marrying a language specific accessory box to the instrument during the shipment process. Shortly after achieving palmy packaging operations, DB initiated another postponemen t 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 Basic 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 shipped 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 ag group up 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 modify 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 oscillatory 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 lost 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 management strategy provides DB with a deciding(prenominal) advantage in the industry. This is a classic example of the benefits of the successful 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 junior-grade market for instruments. 4. 4 Sports Goods Manufacturing Reebok As a authorize supplier for the NBA and NHL and principle supplier for the NFL, Reebok knows the difficulties that come with meet the demand of a very fair die hard crowd. When teams do well more team apparel is demanded. The demand for a pseudo specific tee shirt 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, impostor 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-screen companies working over time 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 blank space 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 would 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 reconstitute the supply chain to cater to both persistent 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 acidulous and sewing of fabric to contract manufacturers in substitution America. Some of the jerseys sent to Reebok are finished means 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 operates in Indianapolis. The blank 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 gloomy, 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 production 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 li fe 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 silicon into programmable dies which later become interconnected 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 noetic and technological 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 integrate circuit is anywhere from six months to two years. During that time new technology will make alive products obsolete. Having long manufacturing lead times cripples a companys ability to q uickly 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 variety 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.Approximately 20 percent move 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 lacquer and then product sits in inventory at Xilinx a waiting testing. Testing facilities are located in Korea, Taiwan, and Japan. tour 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 variety 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 destined 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 configuration 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, undependability of customer orders, seasonality, trends, promotional activities, or it can be a result of the supply chain itself. Varia