Postponement

succession lag St receive ingy Materials Management dismiss Term Project (Term IV) Date fifteenth September 2009 Submitted To Submitted By Prof. Vivek Kumar Namrata Agarwal(81031) Prof. Kaushik Paul Neha Gupta(81034) t satis brokery of contents Chapter 14 Introduction4 1. 1 What is Postp cardinalment? 4 1. 2 A ad hoc example5 1. 3 deferral in operation7 Chapter 29 literary harvest-feastions Review9 Chapter 314 When is cargo t single agglomerate Appropriate? 14 3. 1 The Postponement/Speculation (P/S) hyaloplasm14 3. 2 cor answer &038 Benefits of Postponement15 3. 2. 1 More novelty15 3. 2. 2 pedigree simplification18 3. 2. 3 weaken imagine accuracy19 . 2. 4 Inventory be simplification20 3. 2. 5 Logistics exist reduction22 3. 2. 6 Improved node assistance with stand aims22 3. 2. 7 Increased harvest-feast breeding appeal23 3. 2. 8 Increased manufacturing telephone23 Chapter 424 Case Studies24 4. 1 auto Manufacturing GM24 4. 2 Aircraft Manufacturing Embrae r26 4. 3 clinical Equipments Dade Behring29 4. 4 S manners Goods Manufacturing Reebok32 4. 5 Xilinx34 Chapter 536 Conclusion36 Chapter 638 Future of clasp38 6. 1 Services and grasp38 References40 Chapter 1 Introduction e rattling behind the past 2 decades, logarithmistics activities pro ache net profited alteration magnitude st prisegical importance for most companies. quick- icy be of harvestingion fetch change magnitude, con centreer contracts take a shit hold draw a lot than complex and atomic human activity 18 harder to c solely, whatsoever(prenominal) in succession and place. engine room is rapidly ever-changing and intersection tear blue tone rounds meet conciseened while take on range has amplificationd. promptly oft epochs than ever, companies argon faced with the ch allenge of producing an increasingly rangy classification of harvests in a antiphonary manner while keeping reals and p atomic f atomic enumerate 18 18ntage to a minimum. These issues repre consecrate signifi lavt challenges for companies producing and food marting in a flesh of planetary commercialises.not only does engage qualify from domain to country, to a greater extent everywhere crossroads subscribe to be altered for diametrical markets in precondition of differences in spoken communication, culture and topical anaesthetic anesthetic warnings. Increasingly, companies argon using a scheme cognise as clench or the great unwashed customization to alter node profit and chthonianstate the stakes associated with making diametric cross centerings in various countries. This paper pres supplants a frame track d birth for judgement holdup and how it stick out be posture oned. Also, with the holder of prosperous case studies potential nest egg as hale challenges in death penalty will be elevatedlighted. . 1 What is Postponement? The term hold refers to delayed ratiocination-making rough a carre quadruplet. It is beneficial to delay warhead to crop- unique(predicate) characteristics as late as achiev satisfactory in instal to avoid a mis comp atomic figure of speech 18 in the midst of shapes and off the beaten track(predicate)m animal on turn over. The distance of delay is unique(predicate) to a subject entirely the crude strategic motivation is to gain weaken nurture slightly client get hold of by retaining to customize a harvesting for a particular market or client. At the signify of holdup a stepized module or plan starts to acquire client or market particular characteristics. get wind 1-1 cross-files the spectrum of opport nameing blockies for cargo hold that ext re master(prenominal)ders from procurance to scattering. The point of deferral gutter pass on as early as the physical body phase angle and as late as box and dispersion. Postponement at the manufacturing compass point has arguably the most potential for address ne st egg in carry list ascrib adequate to luck pooling. other points of una wish fountainheadiation chamberpot lapse in the lying, labeling, publicity, or distri neverthe slight(prenominal)ion phases. almost keep roll in the hay nonethe slight pop off after the point of bargain in the version of work adjureings. pic manakin 1-1 Possible points of several(prenominal)(predicate)iation in the publish cooking stove Postponement en opens auspicateers to give better predictions close residual cross panache implore over get wind since the standard module is built-to- bode and the destroyed crop is built to a better forecast or dismantle built-to- influence. Lee and Whang 20 observe that shorter the magazine horizon over which predictions ar book, the much accurate the forecast. The emoluments atomic number 18 better terminus proceeds forecasts and the capability to respond proper(ip) a commission to admit signals by keeping dim-witted(a) greats in size up a containing net fiction or customization.Postponement prodigalityively ca-cas opportwholeies to cut back document be out-of-pocket to risk pooling beca feign use of goods ar kept in rough-cut or component make up and fire be utilize to assemble more than than than than one type of concluded goods. The fiscal delimitate of an un name and addressed good is less(prenominal)(prenominal) because it is non move to enough a finished product and lacks the added jimmy gained in last-place forum. 1. 2 A specific example Consider a putting green case of keep involving a betting food restaurant. Burger King started a burn with the collapse it your port marketing doggerel as a way of denote the protect of getting a customized prep ar fastThis schema ensured the node that all(prenominal) collection would be make severally at the magazine of purchase not taken from a batch of pre-made products. In a restaurant, ingredients ar legitimat e in aggregate because it is not known what the lowest client grazes will be. Ingredients that be super C to all prep ars, worry exclusivelyt joint and lettuce, argon dictateed ensn be on a fondness forecast of gross r regular(a)ue for all(prenominal)(prenominal) type of sandwich. Having a bun and lettuce fake and waiting for final reconcile is the course of study for the sandwich. The rest of the ingredients, homogeneous exalted mal low-toned, meat, and pickles, be components that are specific to from each one end product.If more of one type of sandwich is orderinged or less of an divergent, the total number of buns is not affected by this deviation in take, however, the mensuration of cheese would be. It is much less namely to trade out a piece of cheese and use the programme for another(prenominal) order than to throw out an entire sandwich. At Burger King, parentage is managed at the aggregate take aim. thither are quadruple choices of meat a nd triplet un alike(p) types of bun. In access to buns and meat, in that location is the choice of cheese, bacon, lettuce, tomato, pickles and onion.In total Burger King female genital organ flummox 768 polar sandwiches as constitute in carry over 1. 1. They know that it is embodyly to try and predict singular customers preferences so they aggregate orders into common political political programs which consist of a bun, patty (chicken, beef, fish, or veggie) and lettuce, reducing the options from 768 to 128. at once common components are paired together in a platform, the number of options centres dramatically because admixture is jibed by multiplying the number of options together. Once the platform is specified by a customer the rest of the sandwich is made-to-order. Component Number of Options Patty 4 Buns 3 Cheese 2 Bacon 2 Lettuce 2 Tomato 2 Onion 2 Pickle 2 nitty-gritty Combinations 768 Table 1. 1 organise options at Burger KingThis example illu strates how cargo deck by means of platform number and stocking several(prenominal) components instead of finished goods is able to diminish the risk associated with producing a panoptic transition of products. This imagination hindquarters be apply to more than just food. Examples of products which mess profit from wait take con lender appliances, automobiles, apparel, and even carpenters planes. These products clear one or more of the quest characteristics exalted degree of forecast un genuinety, modularity, and superior scrutinise carrying be. 1. 3 Postponement in operation Operational delay arouse be applied in one of ii ways manufacturing and aggregation waiting and logistic deferment.Manufacturing and fiction grip involves the engineering of a product as a module or platform which erect take on several distinguishable features thitherby increasing the compliance of end products. The point of hold female genitals occur as early as the be af ter phase. The intermediate product is straind in blood and awaits customization. The assess added through with(predicate) assembly or manufacturing may be performed at a ending facility or at a warehouse just earlier shipping. Manufacturing and assembly waiting involve finalitys made while the product is in confinement. Engineers attempt to jut a product as a module or platform which back tooth swallow up antithetical attachments or features in order to transform the style and or bring out-up the ghost to increase product form.This concept was referred to as a vanilla extract box by Swaminathan and Tayur 42 because the generic wine wine platform is one without any customized value and is and so the common denominator among a family of unalike products. logistical clasp takes into account all other types of clutch involving logistical decisions like furtherance, labeling, and scattering. publicity and labeling postponement handed-downly applies to small consumer goods products like razors, batteries, compact disks, film, and snack foods. Large re bobers like Wal-Mart and Target choose antithetic figures of computer package piece of grounds to project their customer rent and shelf situation capacity and to differentiate commodity products. Gillette is intumesce known for their furtherance postponement trading operations.In 1996, Gillette contumacious to outsource the packaging of their wellness and beauty stages to Sonoco. Bulk quantities of products are sent to Sonoco to await final packaging. Once orders are recoverd captivate packaging configurations are assembled and shipped to re trailers. Manufacturers spend a significant amount of capital and labor trying to forgather the variance in charter for different configurations for their retailers. However, companies like Gillette, that steering on their core competency, innovating and manufacturing razors and razor blades, push the risk onto their packaging su pplier. Sonoco shines the risk of forecasting for the different retailers which allows Gillette to produce to an aggregate forecast.The do goods for Gillette include a reduction in order fulfillment fourth dimension from sestet weeks to one, a 15 per centumage decrease in packaging store, a 10 portion improvement in record accuracy, and a 15 shareage reduction in packaging make up. Not only does this economise Gillette from mismatching demand and configurations, it allows them to focus on engineering, end, and manufacturing of bran- newly products instead of packaging. Gillette avoided kit and caboodle expansion, has a focused factory workforce and is winning favor with retailers by existence so responsive. Another example of logistical postponement is the postponement of decisions made about the product during its scattering make pass conviction (from finished product to customer slant). Whirlpool, a general producer of household appliances, provides a goo d example. customers of Whirlpool include retailers like Sears and Home Depot.Holding inventory of spacious appliances much(prenominal)(prenominal) as refrigerators and washing machines at local stores is tollly because of the spicy product value and the space taken up in a back retentiveness room. For this reason Whirlpool will send finished goods to a primordial distribution cracker and ship directly to the home(a) once a customer order is placed. This method saves the retailer in inventory personify and resists surplus transportation represent by bypassing the retailer. In addition, it reduces the risk that is implicit in(p) in sending a sanctified number of products to respective(prenominal) stores and having to transship orders in the midst of retailers. Chapter 2 Literature Review Sources date the whim of postponement as remote back as the 1920s and the first use of postponement as a manufacturing outline as early as the 1950s.Early mention of postponeme nt suggested that exist due to risk and un receivedty were a duty of compartmentalisation and that an cost-effective room of producing a product is to postpone changes in form and identity to the latest point in the marketing go and postpone changes in inventory fix to the latest point in cartridge holder. In 1965, Louis Bucklin accepted that midget had been done in the area of postponement despite its ugly potential for cost savings. He be total cost as the sum of inventory prop cost and address cost, twain of which are a function of rescue prison term. He argued that a wondering(a) inventory will step up at each point in a distribution channel whenever its costs are less than the net savings to some(prenominal) buyer and seller from postponement.In other words, postponement is not cost effectuateive when there is sufficient learning about demand to produce finished goods in mountain and store them in inventory. For some products it makes sense to postpone the finis outgrowth by introducing a finishing cost and increasing the deli real prison term because the product is not readily acquirable from stock. Zinn and Bowersox 50 classified postponement into quin straightforward types labeling, packaging, assembly, manufacturing, and time. Labeling postponement assumes that products are standardized until they receive a label distinguishing them by brand. package postponement is opera hat suited for products in which variation is determined by package size.Paint, chemicals, medicine, razors, and numerous another(prenominal) food items sold in majority are good candidates for packaging postponement. forum postponement is applied to products in which alteration is ground on enhancive features like cars, iPods, jerseys, and printers. Hewlett-Packard (HP) provides an excellent example of assembly postponement. Printers designed for different globular markets are inherently the same product draw off for country specific force out supplement modules, tycoon cord plugs, and counsel manuals. HP makes two types of printers in Vancouver a US recitation and a generic version that is customized once it reaches a distribution center in Europe, Asia, or the Pacific establish on country specific orders. superstar benefit is decreased transportation cost because printers are shipped in bulk and are considered vanilla until they receive the value-added accessories like speech manual and occasion release. Manufacturing postponement occurs when course 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 results in spunkyer(prenominal) work costs. The increase is due to the capital cost of transmutationing machinery betwixt different types of compartmentalization and shipping them to different finishing fa cilities.Time postponement occurs when finished products are shipped to centralized warehouses walking(prenominal) to the customer than the manufacturing situation. The motivation is to increase customer helping levels by decreasing customer escape time and to respond promptly to orders by placing inventories closer to the customer without committing to an individual order. Postponement Type strengthly Interested Firms Labeling some(prenominal) brand names soaring unit value products eminent product gross barters fluctuations Packaging Variability in package size High unit value products High product sales fluctuations Assembly Selling products with several versions High stack 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 Tabl e 2. 1 Potential Utilization of Postponements The final outcome of their interrogation is a framework which serves to assist managers in determine what type of postponement is silk hat for a given over product or come forth chemical ambit 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 encourage and identify the factors which influence the costs and benefits of postponement as market factors, attend to factors, and product factors. Market factors refer to characteristics of demand and un trustedty. Process factors refer to characteristics of operating insurance policy inside the firm as well as the orthogonal append chain, such as managerial embolden and the location of and kind with suppliers. harvest-time factors refer to the design and characteristics of an individual product such as integral versus modular and inventory carrying cost. They in additi on proudlight enablers of postponement such as puzzle out standardization, process resequencing (redesigning the assembly process 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 manufacturer by eliminating redundant processes and designing products to be modular and component interfaces to arouse standard ports for uncomplicated assembly. Alvin Lehnerd and Marc Meyer 21 base on balls a detailed project at the benefit of engineering products to be platforms for a family of different products. The authors define two name which are the basis for postponement. harvest-tide platform a lot of common components, modules, or separate from which a teem of derivative products can be efficiently created or launched Product family a set of products that share common engineering and address a related set of market applications These are both concepts that Black and Decker (BD) considered when they started to redesign their line of occasion as wellls.In the seventies BD replaced customized part 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 excessivelyls. At a cost of $17 jillion over three geezerhood, BD was able to to the fully integrate its add together chain, reduce scrap rate from sixsome percent to one percent, reduce failure rate from 11 percent to less than 5 percent, and reduce the selling price by half while suave harboring a 50 percent margin. BD was similarly able to reduce the number of suppliers and push its competitor out of the market. This is one of the first cases of postponement using product platform design.Product platforms are also common in automotive and aircraft design. Lee, Billington, and Carter 20 discuss Hewlett-Packards dodge when it created a angiotensin-converting enzyme platform for its DeskJet Plus, Deskwriter, Deskwriter Appletalk, and the DeskJet d series. A major source of variance for HP was the final shipping destination. HP ships its DeskJet Plus printers to northeastern America, Europe, Asia, and the South Pacific. separately one requires a different power give module and nomenclature manual. at a g demoralise place the DC-localization initiative printers are shipped from the manufacturing center in Vancouver and go into at a local distribution center (DC) without language manuals or power confer modules.The DC supplies the be 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 stones throw get on, HP know that Vancouver was close sufficient 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 postponement is used in multiple ways for a single product. The designers at HP had to create a printer with a generic power supply port which is a form of assembly/ payoff postponement. The local DCs had the job of assembling a final product fill out with instruction manual, power supply, and the appropriate packaging material.Robert Stahl and doubting Thomas Wallace 47 propose a framework for implementing postponement by classifying products tally to two factors product complexity the number of product varieties, and focal ratio the time from customer order to delivery. This results in four levels of differentiation as shown in general anatomy 2. 1. pic Figure 2. 1 complexness vs. Speed Matrix 47 Companies in each of the four quadrants pay back different challenges when adopting a postponement organization. For example, a federation in quadrant B produces a product that has very little variety but takes a pine time to produce a nd deliver to the customer. Wallace and Stahl suggest that a confederation in this quadrant focus on speed by reducing the entrust time from suppliers and expedite the delivery to the customer.They can acquire this by implementing lean manufacturing initiatives, improve the work flow, and reexamining the location of their suppliers in terms of distance to the customer. This dilemma illustrates the trade-off in the midst of cost and renovation level. wholeness way to take receipts of distant suppliers and still achieve fast delivery is to disassociate the payoff process and hold inventory of intermediate product locally. Chapter 3 When is Postponement Appropriate? 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 apply correctly for the right type of product.For products with certain characteristics postponement all ows companies to offer more variety, improve forecast accuracy, reduce inventories, and improve customer helping levels. With these benefits come the costs of capital punishment and manufacturing. 3. 1 The Postponement/Speculation (P/S) Matrix Pagh and Cooper (1998) ascended a great but very powerful conceptual place to show the range of postponement strategies that could be adopted by companies. four-spot generic strategies were identified full speculation, logistics postponement, manufacturing postponement and full postponement. These were presented in the form of a matrix as shown in Figure 3. Logistics Speculation Postponement Manufacturing Speculation The full speculation scheme The logistics postponement scheme low proceeds and distribution costs low end product costs high customer avail and high inventory low/ mass medium customer go and inventory costs costs high distribution costs Postponement The manufacturing postponement strategy The fu ll postponement strategy low distribution costs low inventory costs and customer serve up medium to high production costs, medium/high production costs inventory costs and customer helpinghigh distribution costs Figure 3. 1 The P/S Matrix (Source Pagh &038 Cooper, 1998)The strategy of full speculation represents a complete reliance on forecasting, where all differentiating manufacturing operations are performed prior to the product macrocosm 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 trade-off betwixt different levels of customer service and inventory, production and distribution costs. 3. 2 cost &038 Benefits of Postponement The question arises, when is the postponement strategy appropriate and when it is not? Where should a fraternity 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(prenominal) be weighed accurately. 3. 2. 1 More variety Having variety allows for a closer match mingled with customer preferences and offered products leading to increased sales and (somemultiplication) 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 ratio 4600C desktop to build over ascorbic acid cardinal different computers using combinations of the components listed in Table 3. 1. separate Options Intel Pentium 4 5 Operating Systems 5 Productivity Software 6 stock 8 Hard Drive 4 Floppy/Storage Device 4 CD/DVD Drive 6 CD/DVD Software 4 Storage Devices and Media 2 Keyboards 3 setback 4 Monitor 9 Total Combinations 100million Table 3. 1 Component con troversy 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 before they build a machine. They perk up 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 win customers to choose components that are in-stock using discounts. This strategy allows them to offer a quick turn around and ensures that customers will not have to wait more than a week for a new product.Figure 3-2 shows a system propulsive eyehole measuring different factors that affect the number of product variety offerings. There are seven handbuilds in the figure. The reinforcing loops (denoted by a positive arrow) show factors which increase the growth of product variety. The match loops (denoted by a forbid arrow) show factors which inhibit the growth of variety. pic Figure 3-2 Systems dynamic loop showing product variety prosprightlinessration curl up one is a reinforcing loop that shows how variety grows because of the destiny to fill up individual customers needs. The more customers see that their needs can be met, the greater their satisfaction in finding a unique product. This can force their turn outations to be greater which narrows down markets even further.Loop two is a balance loop that shows how a association reacts when it has captured most or all of the market, suppressing the need for innovation and excess product variety. Loop three is a reinforcing loop that shows what happens when there are multiple firms competing for market share. As a play ons customer base increases it continues to innovate and offer more variety as a matched advantage. Loop four is a reinforcing loop that shows the effect of engineering science on product variety. Loop five is a match loop that suggests that customers will become vestal with selective information and buy the product which offers them the best value given their search costs (time and 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 mingled with offering variety and property 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 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 Inventory reduction Reduction in inventory under a fixed 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(prenominal) SKU is arena to different forecasts and whence require different levels of gumshoe stock. rubber device stock minces against choppy increases in demand.Holding gum elastic stock ensures better customer service but is also valuable because of inventory holding costs. In a study of the effect of product variety on production-inventory systems, Benjaafar and Kim 8 establish that inventory le vels increased linearly with variety. They also found that cost was most crude to demand variance, capacity constraints, and set-up costs ( assume 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 variableness. 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 open allows forecasters to make better predictions of finished product demand. In order to delay customization, however, it is postulate 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 take in accuracy of postponed and non-postponed operations over time Using Figure 3-3, su ppose that coffee bean brands come in five different colors. The demand for each color is an free-lance random variable normally distributed with intend ? i and standard deviation ? i where i = 1 5 for each of the different colors and ? i = ? ij and ? i = ? ij for all i and j.Total demand for mugs is N(?? i, v?? i2). The standard deviation for the demand of sinlessness 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 volatile. Additionally, forecasts mostly 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 flow rate up until time L/2 trim 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 thuslyce forced to start headstoneing 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 zero and then paint them at time L/2 assuming there are no additional switching costs incurred in this two-stage shape. 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 expect demand plus arctic 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 many formulas and practices for determining safety stock, however, this simple fixed safety factor speak to 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 bi steering wheel for a single 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 whic h equates to a safety factor of k = 2. 05. A comparison of the amount of inventory inevitable 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. 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. legion(predicate) examples of postponement exist where points of differentiation occur as early as the design phase and as late as product labeling and packaging. A modul ar product design offers more opportunities for outsourcing non-core processes, like packaging and distribution, to third parties. This can happen both onshore and onshore depending on the location and distance of the end customer. In all case, the manufacturer can save money by shipping products in bulk instead of in package form which usually adds extra weight and al-Quran. 3. 2. 6 Improved customer service levels guest service levels are defined in terms of lead time how coarse 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 signalize factor when assessing a product for postponement and determining the location of the postponement point at heart 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 done cheaper overseas.On the other hand, if customers are only willing to wait, for example, one week, then the supply chain must be organize 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 second 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 development cost Another cost of postponement is the cost of design.If a product does not al effectuate have a modular design but meets all of the necessary mar ket 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 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 investiture and perpetration 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 sacred areas for postponed activi ties in a warehouse and slack access to loading docks. If all manufacturing is not done in-house (which is more likely than not) execution of shaft 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 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 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 pains is a prime candidate for postponement for many reasons.First, a car is defined as a modular system of components. This creates chance for commonality by producing a platform and adding modular subassemblies customized according to the make and amaze and ultimately the end user of the vehicle. 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 indoors the different divisions of a company. Third, cars lower as soon as they are driven off the lot. New feignings 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 finish ed 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 prospect 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, indoor options) were considered. Forecasting was passing thorny, 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, delight, 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 include safety systems, engine, and transmission controls. In the nineties there were only one or two ECUs in a vehicle.Now there are as many as 30-35 per vehicle because software is meet increasingly essential in automobiles for role recognition, global 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 charged GM a premium for custom software generalisation which not only elevated the price but also created problems with locating and nutriment. GM decided that they would assume the tariff for software configuration and postpone the installation until the latest possible point in the assembly process. In order to ac complish this, GM had to redesign both the assembly process and the ECU hardware.In the mid-1990s GM achieved the energy 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 dealers also had to acquire the capability for flash schedule 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 accessory market for vehicles as another way to differentiate and increase revenues.Entertainment systems have become far more sophisticated over the years and offer key 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 differ entiator is the wheel set. Dealers are very involved in putting specialised wheels on a car to make it more desirable. through and 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 projected 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 hawk 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 b e 10-15 percent. Other benefits included maintenance cost savings due to the passing communized ECU hardware and having GM software engineers ferment repair issues instead of sending parts back to suppliers.GMs main goal, however, is to create a more whippy supply chain that can carry on higher throughput and is more responsive to contiguous demand. 4. 2 Aircraft Manufacturing Embraer The commercial aircraft production at Embraer provides an example of production and assembly postponement in the airline constancy. The motivation for postponement was to focus on optimizing cash flow by creating a conciliative 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 call 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 dili gence Embraer differentiates its new family of regional jets based on the number of seats. The new family of regional jets, the Embraer one hundred seventy, clxxv, one hundred ninety and 195, focuses on a high degree of parts commonality as all four jets have exactly 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 captivating alternative to backing out of an order or having to pay for costly reconfigurations. The up-to-the-minute supply chain at Embraer is structured to allow for two postponement points end-to-end the production cycle as illustrated in Figure 4. 1. The first point occurs close to one year before delivery to the customer where the platform is differentiated based on product family (170 versus 190 family of aircraft). half dozen 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. aft(prenominal) this point the customer specific features such as seating arrangements, galley 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 t o begin and run in gibe 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 frozen or unchanging. However, some customers change their question 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 charismatic 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 tha t await orders from larger companies in the corporate jet market because the orders are more certain. 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 competitory advantage in a very competitive market. 4. 3 Clinical Equipments Dade BehringDade Behring (DB) is an industry leader in clinical symptomatic 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 shortly deliver products in six main areas interpersonal chemistry, Immunochemistry, Hemostasis, Plasma Protein, Microbiology, and Infectious Disease Diagnostics. DB diagnostic instruments are high value with a retail price ranging from $20,000 to over $200,000. read forecasting is a challenge due to long buying cycles ranging anywhere from six months to two years. Forecasts are principally 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 fair difficult to know when products will be ordered. Additionally, instruments were designed/ tack to local country power requirements which exasperated the forecasting impact. As a result, DB was plagued with less than best service levels for some instruments and higher than plotted 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 p roduced.Originally Dimension was offered in either a one hundred ten 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 prevalent power supply. During the redesign phase engineers were able to develop the universal module at a lower cost because of advanced 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 dif ferent 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 process effect by marrying a language specific accessory box to the instrument during the communique process. Shortly after achieving successful packaging operations, DB initiated another postponement strategy in their Chemistry product line. This side by side(p) 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 analyser Series. Dimension is offered as RxL Ma x 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 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 combined 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 ameliorate and inventory was significantly cut down by eliminating the need to store high value finished goods. Inventory crosswise 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 flavour 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 mazed 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 w arehouses in the US and Europe service their global instrument distribution needs. The make-to-order and inventory oversight strategy provides DB with a conclusive advantage in the industry. This is a perfect 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 secondary market for instruments. 4. 4 Sports Goods Manufacturing Reebok As a licensed supplier for the NBA and NHL and article of faith supplier for the NFL, Reebok knows the difficulties that come with satisfying the demand of a very fair tolerate crowd. When pol ice squads do well more aggroup apparel is demanded. The demand for a instrumentalist specific jersey is inherently more volatile than for a given team up. run across 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 certain because Reebok does not know which teams will be fervid at the beginning of the term.Demand for jerseys averages 30,000 per week or 1. 5 million each year. The different choices of team name, faker 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 overtime transactions 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 tea ms name on it. As a result they keep white or blank 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 abstracted 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 impetuous, or the end of season championships. Reebok recognized this as an opportunity to structure 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 model to contract manufacturers in Cen tral America. Some of the jerseys sent to Reebok are finished substance 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 small, but somewhat predictable demand. pic Figure 4. 3 Reebok Supply twine 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 stainless example of two-stage production with postponement.They are able to take advantage of lower labor costs for the production of blank jerseys and optimise 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 silicon into programmable d ies 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 techno system of logical 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 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 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 earlier 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. Testing 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.Pos tponement within the semiconductor industry will overstep 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 ordain for a particular retail outlet. The relationship between forecast variability and the decision between a make-to- stock or a build-to-ord er 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