There is an ever growing focus on how to shorten lead times, reduce inventory levels and increase free flowing cash in just about every industry. One way to approach making a impact on your supply chain’s performance is to identify and evaluate where critical value added activities are taking place. Each of the value added activities are necessary in order to produce a finished product, however there is a tremendous opportunity to postpone performing the value added activities at different stages until there is a clear demand signal from the market. This strategy is called Postponement, and if executed well can shorten lead times, reduce inventory values, and increase cash flow. Many companies may already unknowingly be executing such strategies, and be doing it well, but it never hurts to take a closer look and refine where needed. Let’s explore how to evaluate if postponement could work for you.
In order to implement an effective postponement strategy, first companies need to visualize the product value chain and identify where postponement could be leveraged. One of the easiest ways to go about this is to value map each stage in the supply chain where the product is touched, moved, or configured. Next, review the value chain in detail and challenge yourself and your team to validate each stage the product goes through, and determine if the stage is necessary, or determine if it could be deferred until a later date. If deferring to a later date, remember that it doesn’t always need to reduce costs, it could reduce the lead time or inventory levels of finished goods which result in increased cash flow.
There are a few common areas in a business that can explore adopting postponement, and surprisingly enough they all do not focus on supply chain.
There are multiple ways that the design of a product can effect or contribute to a strategic postponement strategy. One such effort is the way in which the product is designed for manufacturing (DFM). If an engineering team is taking into account the number of configurations a product will have, the product may potentially go through design changes in order to make it easier for configuration to take place later on in the supply chain. While this may seem like an easy thing to execute it takes a well thought out plan to continuously execute for each new product.
There is major pressure on manufacturers to become as flexible as possible, and in some cases completely pivot on a dime. This customer demand is actually becoming the norm in industries with shorter product life cycles, and high sell through. So how do manufactures leverage a postponement strategy effectively? Postponement in a manufacturing setting can take shape through the manufacturers waiting as long as possible to personalize, or configure products into it’s final state before leaving the factory. By doing so the manufacturer is able to produce only what the customer demand signals are calling for, thus reducing on hand inventory, which lowers capital, and increases free cash flow.
3rd Party Logistics
Commonly referred to in the industry as 3PLs, these partners can play a significant role in executing value added services that directly impact the bottom line. Take notice of the key word “Partner” in the previous sentence, and if not treated like a partner in the business, 3PLs can serve a single purpose and choose not to offer solutions to your business. One common postponement strategy that 3PLs execute well is applying the final packing of the product making it ready for distribution in various channels or market regions. A simple consumer electronics product for example, has global distribution through omni-channels (multiple sales channels such as retail, eCommerce, B2B). To meet retail requirements the product must have country specific languages on the packaging, and meet a certain requirement specified by the retailer, which if different then how the product is packaged and sold online or through B2B channels. This makes planning the number of finished goods to produce or keep on hand of each packaging configuration a tall task for the planning team. However, by postponing the act of packaging the goods into channel specific packaging it allows the company the ability to react quicker to customer demand signal, and reduce the overall inventory on hand.
Although the above areas lend themselves well to leveraging and implementing a postponement strategy, to truly execute a World Class postponement strategy it must be part of the company’s overarching business strategy. Everyone from the executive level on down to the administrative staff should understand that postponement is a strategy that is only successful if supported by the actions of all of the business units with the company. It is imperative that businesses realize the internal and external forces working against them to make executing a postponement strategy extremely difficult, such as fluctuating demand patterns, large assortment, short product life cycles, and increased customer expectations. Do not rely solely on the supply chain to bridge the gap between these challenges, regroup as a company and develop a well thought out strategy to leverage postponement as a competitive advantage over your competition.
We hope you enjoyed exploring how postponing making decisions in your supply chain could lead to greater operational flexibility and impact the bottom line. Have a look at how your company is leveraging postponement as a corporate strategy, you may be surprised what you find.