“Putting things off” can have extremely negative connotations. We learn from an early age that procrastination is bad and action is good – as mentioned in my earlier blog in this series, some of us might remember how our mothers were certainly very keen to see less daydreaming and more engagement with chores.
In the corporate context, some equate postponement to wasting time. Yet the deliberate decision to delay activities along the value chain and execute them later on, downstream in the supply chain, can have very powerful benefits. Typically, postponement results in lower costs, a more agile supply chain, or much better customer service.
From my experience of working with companies to plan and implement postponement strategies, it is important to consider four key aspects of strategy design and implementation before embarking on a pilot:
Companies need to consider the scope of their postponement strategy and ensure that proposed postponement activities align correctly with this strategy. Will it encompass purchasing postponement – in other words, will you delay the purchase of expensive or fragile materials? Will your strategy incorporate any manufacturing postponement; will you create products in semi-finished states, to be customized quickly in your production facilities? Or will you focus solely on logistics postponement, with the intention of finishing and customizing products in warehouses, hubs, and other facilities close to the customer?
Some product types are well suited to downstream finishing. Take, for example, highly modular and standardized products that require packaging with different language manuals or leaflets. A first step is to decide which products can be considered in-scope, and whether you will look for a split between high-volume and low-volume product types.
One further consideration is time postponement. Do you intend to keep finished products in central locations and distribute these quickly to customers once orders come in? Which also begs the important question: which customers will be impacted by your postponement strategy?
The next step is to test the viability of postponement for your organization, your products and the supply chain, as well as your manufacturing set-up. This requires a closer look at real-time information and communication on customer demand, stock levels, parts availability, and more. How modular and standardized are your products? How flexible is your manufacturing system – is it possible to delay or decouple manufacturing steps? Do you have in place an agile transportation network that allows you to ship products at a moment’s notice once customization has taken place? How agile are your suppliers; can they provide parts, packaging materials, labels and other items quickly when you need them? Answers to these questions will determine whether your proposed postponement strategy can actually be implemented.
3. OPERATING MODEL
After you have determined the scope and checked the feasibility, you will need to define the right operating model. Will you plan and implement your strategy using in-house resources or will you collaborate with a dependable postponement partner? If you choose to outsource, this may bring benefits such as access to additional warehouses and hubs. Other elements of the operating model are, for example, batch management (how will you manage your standard products and customized products; will you manage them differently?), materials management (how will you procure and manage your packaging, labels, leaflets, and more?), and flexibility of labor allocation (how and where will people work; will you shift some manufacturing to local hubs?).
Operating model decisions are linked to location decisions. You may decide to move production and postponement activities to a different location, but where would this be? You could make use of existing facilities or find new spaces – either way you must ensure these locations offer adequate connectivity and infrastructure, and can represent something of a center of gravity for local suppliers and logistics operators. Of course, there are many other location issues to consider – including the tax and customs environment, ease of doing business, and labor costs. These are covered in my final blog in this this three-part series which will be published in January: Location, location, location. 3 important things about postponement.
DHL Consulting can help you to determine the scope of your postponement strategy by exploring product characteristics, location options, end-customer categories, and more. We can also design the right operating model for your organization and identify the optimum location for your postponement activities. Get in touch today!