Reconfiguring logistics systems through postponement strategies

Journal of Business Logistics, 1998 by Van Hoek, Remko I, Commandeur, Harry R, Vos, Bart

Postponement strategies can be applied to form, time, and place. Form postponement means that companies delay production, assembly, or even design until after customer orders have been received, which increases the ability to fine tune products to specific customer wishes. Time and place or logistics postponement means that the forward movement of goods is delayed as long as possible in the chain of operations, and goods are kept in storage at central locations in the distribution chain.1

Postponement strategies are not new. The principle was introduced in 1950,2 and the roots can be traced to the late 1920s,3 but use has been increasing recently. Based on a survey of 3,693 companies, the Council of Logistics Management indicates that a shift towards postponement is taking place in the international business world More than 40 per cent of North American and nearly 50 per cent of European respondents employ postponement strategies more often today than five years ago. Only 24.4 per cent and 16.2 per cent of respondents, respectively, indicated that their use of these strategies has not increased. Morehouse and Bowersox predict that by 2005 more than half of all inventory in food supply chains will be retained in a semiprocessed state at manufacturing locations, waiting for final manufacturing or packaging to meet customers' specifications.5 An increasing number of European industrial companies are implementing postponed manufacturing systems. These combine the three areas of postponement: customization of products (form postponement) is delayed until goods are ordered (time postponement) and have reached the international distribution chain, frequently followed by direct delivery to retailers or customers (place postponement). This system allows companies to separate the customization of products from the primary or basic manufacturing of standard products or generic modules. This separation frees primary manufacturing to focus more on large economical runs, while secondary or final manufacturing can be focused on responding to customer wishes. Thus, this system simultaneously enhances customer service and efficiency.6

Despite the potential (or theoretical) attractiveness and the increasing application of postponement strategies, little is known about their implementation.7 In a previous survey manufacturers reported great difficulty with providing product modification or customization while in the logistics system. Improvements in this area have significant potential for improving distribution service quality and making firms more responsive to customers.8 This study contributes to the practical knowledge of postponed manufacturing and offers some clarification as to why a highly attractive principle hardly has been applied to date. This clarification is to be used as a basis for further research.

TOWARD NETWORK ORGANIZATIONS

A number of developments are fostering and reinforcing the key shifts taking place in the design of international supply chains. First, markets have become more transparent and less fragmented owing to the gradual removal of barriers to trade and foreign direct investment. European unification is an example. Trade within the European Union has become more liberalized with the elimination of barriers in transportation, border control, fiscal policies, law, and finance.9 These efforts enhance the possibility for companies to rationalize their European manufacturing and logistics structures and move away from strong nation-based geographical structures.10

Second, demand is becoming increasingly variable and uncertain in time and place, and even after Europe 1992 there are still differences in local culture, demand, and taste. As a result, companies are urged to increase their responsiveness to customers while simultaneously achieving cost efficiency. A move from mass production and marketing systems toward mass customization may be required.1

Third, advances in information technology are enabling companies to achieve a degree of control in international supply chains which could not be envisioned only a short time ago.12 Advanced information systems tend to reduce the transaction costs associated with the control of international flow of goods and enable rapid response to customer orders. As a result, modern information technologies can now "orchestrate" the revolution of operations from a push to a pull system required for postponement.3

Coordinating technologies can also help create a totally new context for management decisions. Many authors point to the enabling role of coordinating technologies in organizational reconfiguration. The sharing of information across the supply chain can allow companies to move from a product, functional, or departmental organization to an organization oriented toward processes (such as the product development process, the brand management process, and the supply chain management process).14 According to Achrol,15 strategy has been rooted in functional approaches, but with windows of opportunity becoming narrower and more transitory in turbulent markets, new forms are required. In turbulent environments advantages of vertical control may be offset by inflexibility and inertia. In that respect coordinating technologies can help replace the formal, slow moving hierarchical command and control organization with an informal, fluid, and organically evolving, electronically connected network organization, integrated across organizational boundaries.16