Postponement is defined as pushing a pressing matter to a later date, usually, this happens due to lack of funds to support that venture or when the resources needed are urgent, and implementing them may halt the process. Postponement is a concise strategy that reduces the stocking of excess inventories that is always in form of goods that are finished.
A warehouse plays an important role as a place for storing inventories, however, in most logistical systems, warehousing may involve switching facilities in contrast to storage as a facility. This paper evaluates how the corporations are faced with the warehouse constraint and how they play the role of postponement. Furthermore, the paper will analyze critically the development of postponement and its strength and weakness in the organization. Finally, the paper concludes by briefly exploring how warehousing and postponement can improve efficiency in supply chain management and the overall performance of an organization.
Postponement in Material Management
Appelqvist and Gubi (2005) note that most organizations have resolved to outsource the service. However, the overhead that is associated with outsourcing prohibits these organizations to be in a better position to own and maintain. Moreover, challenges that involve the distribution of products from one location to another also cause the warehouse to venture into a tricky strategy for these organizations. Alternatively, instead of outsourcing the warehouse, organizations have seen the need and benefits of expanding the already available warehouse in their organization by restructuring to facilitate more space and conform to security and another efficient method of administration (Appelqvist and Gubi, 2005). This however comes with an extra high bill that many organizations cant afford because most organizations tend to find avenues of increasing revenues but they put less in spending.
Cutting down expenses would rather not help, because the need arises amid the peak period of production when orders are available in plenty hence the need for a warehouse to handle. The organization can therefore benefit by applying the postponement policy in the management of their activities. Postponement helps in the reduction of organization overheard i.e. employees, speeds up communication within and outside the organization, and will significantly increase the revenue for the organization because by incorporating cost-saving Information systems such as the supply chain management (Bates, 1977).
Bates (1977) illustrates that material management in postponement affects the flow of a product in the supply chain of an organization. Time postponement makes it possible for material and parts which were initially procured at the manufacturing head office to be procured at distributed locations utilizing the local resources available. Warehousing would have made it difficult because of location. Postponement affects material costs regarding purchasing and freight costs.
Form postponement increases the materials costs due to its ability to standardize commonly used parts. However, an increase in purchases of common parts reduces costs because the discount is considered and provides an environment of strong negotiation with suppliers (Bates, 1977). This consequently helps in efficiently managing the material. If postponement strategy embarks on sorting and rearranging the processes that span from manufacturing to distribution, the way items are transported changes and this affects transportation causing changes in freight costs and material wastage. s
Postponement and Cost
Postponement involves redesigning a product and the process that is associated with it to ensure that it is successful. Hence resources are a prerequisite. Costs associated with implementation such as retesting, training, re-tooling, and installation of equipment has to be considered. Boone, Et al (2007) explains that apart from implementation costs, a new postponement may cause the prevalence of other costs which might be either fixed or variable regarding the product.
For example, time postponement decentralizes its work to distributors allowing them to perform the tasks that the company previously did. When a company has distributed branches spread across the world, it means that more fixed overheads will be needed for all these multiple sites rather than a single one. This results in an increase in costs for a single component.
Using and managing fewer components makes it easy to manage fewer parts and suppliers hence this lowers down overheads and the “fixed costs” decrease as the delay of form postponement. Similarly, a component that plays an important part in processing costs may also increase or decrease as the delay of postponement is exercised (Chiou, Et al. 2002).
One of the importances of postponement has been that there is a lot of revenue accumulation from this mechanism; this is by the fact that expanding a warehouse in a very short duration of time can be a very frustrating chore and need a lot of resources. However, postponement usually assists in eliminating this complex composition, after the expansion have been delayed and the warehouse inventory management established, the space in the warehouse utilized and production is customized according to the demand of the clients, then from the item sold that makes the organization to account for the loss will be the first profit accumulation from this juncture (Appelqvist and Gubi, 2005).
Production customization usually helps the organization to save the cost that they would have incurred in the end as most of the productions as they are done by the different organizations have little market value or are obsolete and their production is still engineered, this only consumes up the storage space in the warehouse as they are the products that are slow in the market, now the elimination of production or production of a little amount of this products will not only increase the storage place in the warehouse but will also enhance profit margin as the organization will be concentrating on the production of the stuff that is on-demand in the market (Joshi, 1990).
Inventory and Stocking
Inventory plays an important role in postponement. Inventories assist in managing customer problems and help to streamline services about supply chain management. Inventory and customer service plays interrelated (Huq, Et al. 2007).
. Inventory is vital in an organization because it acts as a driver for an organization to evaluate its processes.
For the organization to fully impact inventory management, they have to encompass various inventory controls and stocking policies, these policies are fundamental in establishing that what items are valuable in the chain of production and those that are irrelevant and obsolete. This classification is very essential as it eliminates the space the obsolete product had occupied and creates storage space for the new and movable product as noted by Boone, Et al (2007).
This is usually achieved through warehouse analysis of the products that are ordered and have not been collected or the orders that were canceled and the supplier is not available. Elimination of machinery that does not have any chore in the production, this would be sold. On material planning, each of the machinery would be consolidated and each part that is needed will be bought on small scale from the vendors that supply them. These orders would be placed in collaboration with each production requirement, this is aimed at reducing congestion of spare material and raw material in the warehouse (Chiou, Et al. 2002).
By listing the importance of materials, and evaluating how frequent they are consumed, this l enable the inventory management to be able to determine the extent of the number of orders to be placed with the vendor of the raw materials, moreover, this will also document the timetable for deliveries at various intervals to reduce storage congestions on material that consumption is not due on the production chain (Van Hoek and Commandeur, 1998). The delivery interval would be evaluated according to the time phrase demand of the finished product and according to the order placed by the suppliers.
This evaluation of consumption would be based on the income of the products; this is where an item that has high demand in the market would be given high priority and first chance in the production phrase Bates (1977).
A whole evaluation of the warehouse will then be evaluated and all items would be analyzed again on the importance and this would include all departments so that they may point out the importance of each item or materials and the ones that need to be disposed of and those that need restocking. This would eventually increase the frequency of delivery as the vendors that supply these items would be delivering them before production and the exact amount that is needed, this includes items that are slow in consumption including office stationeries which would be ordered in small amounts from the vendors.
Modification of the ordering mechanism that the organization used will be evaluated to determine quantity calculation; this will enable the reduction of inventory which will result in saving space in the warehouse. The result derived from this reduction is mostly in the aspect of saving the space in the warehouse and the best thing that usually there is no extra task force needed to execute these tasks (Huq, Et al. 2007).
Dell’s Inventory management
Most organizations face the challenge of maintaining accurate and up-to-date inventory, this has been due to raping expansions and complexity of the company, For example, the dell company. The dell company has a reduced inventory this has been attributed to several factors (Kapuscinski, Et al. 2004). The company has concentrated on ensuring that both the components and products that are used for computer manufacturing are available in the supply chain. This is to ensure efficiency for the company to deliver new products to customers much faster than its competitors.
Dell embraces the use of well organized and managed supply chain to deal with its inventories (Kapuscinski, Et al. 2004). The supply chain is very direct. I.e. when a customer gives an order either through the company website or via a phone, dell does evaluation and makes configurations about it at the same time.
The order is then shipped to the customer. However, where customers are located in faraway countries like Asia; dell has teamed up with other suppliers and shares revolvers. The inventory remains the property of the suppliers, but the cost of product pricing is met by Dell. The company then recoups the cost of inventory maintenance by markups on the price of the product (Kapuscinski, Et al. 2004).
Customization involves using different “accessories” to assemble a product. For example for computer products, it will involve inserting input/output cards, software’s and memories. The elementary significance of mass customization in postponement strategy is basically to unify production and make it be aligned with the demand of the customers; this eventually leads to the elimination of space that would have been utilized through storage in the warehouse.
This is also a strategy that also increases cost efficiency when goods and services are mass-produced according to their market demand (Appelqvist and Gubi, 2005). This usually occurs in various stages of chain production and assists postponement in reductions of the storage space that could have been used by the production of goods that are not flowing in the chain distribution of delivery and sales.
Another role that postponement can play includes delaying final processes such as assembly, production among others till the appropriate and possible time. Delaying production in postponement, the postponement will help strategically to eliminate surplus inventory of finished goods. The most organization has embraced the full implementation of a full postponement strategy to avoid speculative strategy which sometimes leads to risks of stocking unnecessary inventories or obsolete products. Organizations that have implemented partial or full postponement have higher flexibility in the supply chain (Appelqvist and Gubi, 2005). Postponement strategies are therefore helpful in offsetting demand uncertainties hence facilitating a high degree of customization, reduction of lead time, and lowering holding costs of inventories.
The first postponement strategy is focusing on costs across the supply chain. Dell Company has strongly embraced this strategy i.e. manufacturing postponement. Historically the computer market, most products were made and stocked and computers were assembled, stored, and recorded in an inventory. Dell Company realized that an opportunity arises if the company would have an inventory of components in selected centralized places to ensure the reliability of customers’ orders.
Distribution and shipping to are done directly to the customer. The system facilitated dell to be more flexible in the supply chain and had efficiency which most companies lacked (Appelqvist and Gubi, 2005). Major efficiencies that dell enjoyed included reduction of lead times because most of the pre-assembled computers were assembled and manufactured overseas.
Moreover, it took the shortest time to ship the computer to the customer. The process has reduced costs in shipping and increased customer satisfaction. This kind of postponement strategy has made dell computers significantly reduce their inventories, improve cash flow, and use the accrued cash to equip their supply chain.
The second postponement strategy is moving from “a warehouse to a distributor center” because of faster and efficient development of supply chain, many organizations are moving from a “warehouse network” to a “distribution model”. In this process, an organization does not delay a process but they do make sure that it is available earlier in a supply chain till a later stage (Appelqvist and Gubi, 2005).
The third strategy in postponement involves postponement in packaging and shipping. Shipping strategies that involved moving labeling processes for example manuals, product stickers, and language to the final stage of packaging significantly reduced the inventories that manufacturers were facing.
HP and Mass Customization
HP has embraced this strategy of postponement in shipping and transportation of their printer products. Hp has customized its shipping to ensure more reliable and efficient services to customers (Fritzinger, Et al. 1997). The HP company realized that their printers were strong to sustain slight vibration, hence they came up with a strategy whereby the printer was packaged finally when it was being taken to a customer. HP discovered the innovation by carrying out tests on their printer products while weighing alternative shipment criteria (Fritzinger, Et al. 1997).
The shipment strategy has made HP save more money, led to a reduction of bulky shipment, and has lowered inventory (Joshi, 1990). Five elements have to execute to achieve mass customization this include; development of consumer customizable products, end products customization through postponement distribution and manufacturing phrase, quick response provision in the value chain, standard customization during the production progression, and customization of delivery point (Joshi, 1990).
Strength and weaknesses of postponement
Postponement in an organization helps in reducing transportation costs because the carrying cost of inventory is solely left to the vendors that supply them. This aspect also improves the value and efficiency regarding the final products and this will automatically trigger higher sales fluctuations because of the abridged inventory levels in the production manufacturing (Chiou, Et al. 2002).
Moreover, postponements help the organization in its logistical solutions which are mainly concerned with sustaining sales and marketing royal programs. This is usually achieved when the organization executes inventory management and mass customizing of products (Van Hoek and Commandeur, 1998).
Implementing the logistic system has been a major challenge for the postponement manufacturing process. Modifying products poses high risks, this has led the production to differ from the original design and this has relented customers from hating the brand they are accustomed to this was expressed by Joshi (1990).
Consequently, not all products and processes foster postponement. This mostly affects the chemical organization where the whole production cannot be separated at any moment (Chiou, Et al. 2002).
Postponement in warehousing contributes to efficient management and enhanced customer service care, major attributes for the survival of businesses. Customization, material management, inventory management among other key areas of postponement allow the organization to effectively monitor and control their businesses at the same time focusing on strategic goals. Postponement ensures that the organization; enjoys shipment consolidation, reduced transport costs, and reduces the issue of inventory piling.
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