Postponement Essay

2764 words - 12 pages

Chapter 6

Application of Postponement: Examples from Industry

In this chapter we report on two case studies of applying postponement strategy in industry. The first case is a study of a Hong Kong based toaster manufacturing company, which has successfully implemented postponement strategy. We present a summary of how postponement strategy was implemented in its supply chain and elaborate on all the benefits arising from the implementation of postponement. We also discuss the implications of postponement for its supply chain. In the second case an empirical analysis by Chiou et al. [28] is introduced. They empirically examine the application of postponement strategy in Taiwanese ...view middle of the document...

, Postponement Strategies in Supply Chain Management, International Series in Operations Research & Management Science 143, DOI 10.1007/978-1-4419-5837-2_6, C Springer Science+Business Media, LLC 2010



6 Application of Postponement

6.1.1 An Overview of the Company
The manufacturer produces more than 120 different models of toasters for 11 key customers (in terms of brands) from the US, Europe, Japan and China. It has more than 1,500 employees, who can produce 12,000 units per day. The company operates in a batch production mode. The number of toasters required per order ranges from 1,000 to 3,000 units and the customer is expected to wait between 2 and 4 weeks for the delivery of products. It is noted that the manufacturing capacity is sufficient to handle 12 orders at the same time. If there is enough capacity to handle an order, the average order lead-time is 9 days when work-in-process inventory (WIP) is available. Otherwise, it takes 15 days on average to complete the order. The order is fulfilled when it is delivered to a predetermined dock in Guangdong. The breakdowns of the lead-time is shown in Table 6.1.
Table 6.1 Lead-time breakdowns for toaster offering Process From raw material to WIP From WIP to finished products (assembly) Gift box ordering (after order receipt) Packing and pre-shipment inspection Ship to dock Order lead-time (no WIP) Order lead-time (WIP available) Average lead-time required (days) 6 1 7 1 1 6 + 7 + 1 + 1 = 15 7+1+1=9

Table 6.1 reveals that the company should keep more WIP so that the lead-time can be 6 days shorter. It is one of the reasons to motivate the company to implement the postponement strategy. Besides, customer demand fluctuates highly because orders are generated from different companies, which sell their products to different markets. In addition, customers always demand highly customized products so there are few repeat orders. This demand pattern makes both the make-to-stock and make-to-order operational modes impossible to smooth the production. It drives the company to consider adopting a postponement strategy, in which some operations are run in a make-to-stock mode, while others are operated in a make-to-order mode. The postponement strategy implementation is presented in the next section.

6.1.2 Implementation of Postponement
Before adopting a postponement strategy, the company employed a pure maketo-order mode to fulfill customer orders. In short, it transformed raw material to finished goods only after customer order was received. It resulted in a highly unpredictable production schedule. The company implemented two postponement strategies, namely a form postponement strategy and a pull postponement strategy, to improve the production schedule. The company carried out a form postponement by part standardization.


A Case Study from Hong Kong


Parts, such as heaters, power cords and modules, are make-to-stock based on demand forecast and all related...

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