adoption of form postponement strategy in a global logistics system: The case of Taiwanese information technology industry, The

Journal of Business Logistics, 2002 by Chiou, Jyh-Shen, Wu, Lei-Yu, Hsu, Jason C

The concept of postponement advocates that commitment, as to the form and place of commodities, can be delayed to the latest possible point in the supply chain (Bowersox and Morash 1989). Although this concept was first proposed in the early 1950s (Alderson 1950; Bucklin 1965), increased application and interest have been noted only recently (e.g., Closs et al. 1998; Feitzinger and Lee 1997; Pagh and Cooper 1998; van Hoek, Commandeur, and Vos 1998). This is reflective of the move toward customization and recognition of inventory risks and logistics costs for firms.

Zinn and Bowersox (1988) examined the benefits of implementing form postponement strategies in place of the traditional anticipatory distribution strategy. Their simulation results, based on a normative cost model, suggest that form postponement strategies can reduce the direct cost of production under many circumstances, However, the optimal postponement strategy under each circumstance may be different. Product and demand characteristics will influence the cost function and thus the optimal choice of strategy or mixture of strategies (Bowersox and Morash 1989; Closs et al. 1998; Feitzinger and Lee 1997; Pagh and Cooper 1998; van Hoek, Commandeur, and Vos 1998). For example, Zinn and Bowersox find that products marketed under different brand names benefit from labeling postponement. In contrast, products sold in various configurations benefit from assembly postponement.

Taylor (1996) noted that postponement strategy is especially important for an international enterprise. International enterprises, with diverse markets, tend to have more extensive supply chains and encounter greater degrees of risks resulting from inventory management. These enterprises have to critically examine the trade-offs between reducing inventory risks (postponement strategies) and increasing the economies of scale in productions (anticipatory strategies).

In this empirical paper, Taiwanese information technology (IT) firms are examined. The IT sector was selected because IT products (such as personal computing products, network equipment, and communication devices) are characterized by high product values, short product life cycles, and high demands for customization. These are the attributes identified by Zinn and Bowersox and others that could potentially benefit from form postponements. Taiwan was selected for our study because it is one of the largest producers of IT products and is the largest original equipment manufacturing (OEM) partner for U.S. and Japan. Furthermore, Taiwanese firms have recently taken up the responsibility of providing global logistics. Thus, Taiwanese IT firms provide a rich data set on postponement behaviors, and the conclusions drawn from this data have strong implications for all managers.

The goal of this paper is multi-fold. First, the four types of form postponements proposed by Zinn and Bowersox are empirically examined. The measurement scale is developed from and tested on 102 IT firms in Taiwan. Second, we explore the factors affecting the adoption of different form postponement strategies. Confirmatory factor analysis is used to validate the dimensionality of form postponement strategies, while path analysis is used to examine the relationships between product/demand characteristics and the adoption of postponement strategies.

Following the introduction, section two discusses the role of Taiwanese IT firms in the global IT industry. Section three then introduces briefly the four types of form postponement strategies proposed by Zinn and Bowersox. Hypotheses are proposed to examine the strength of the relationships among the four postponement strategies. Section four discusses the factors influencing the adoption of the different form postponement strategies. Hypotheses are proposed to examine product/demand characteristics that should benefit from form postponements. Section five discusses the empirical methodology. Section six summarizes the results from our confirmatory factor analysis and path analysis. In-depth discussions of these results are presented in section seven. Section eight discusses the limitations of the study and offers directions on future studies. Finally, section nine states the managerial implications and conclusion of the study.

THE IMPORTANCE OF TAIWAN'S INFORMATION TECHNOLOGY INDUSTRY IN THE WORLD MARKET

Taiwan's IT industry ranks third in dollar outputs after the U.S. and Japan. It produces more than 50% of the world's output in several computer components (Table 1). However, Taiwanese firms rarely compete with U.S. or Japanese firms. They are often partners within a global supply chain (Table 2). Taiwanese IT firms are small (comparably) in size and have traditionally relied on U.S. and Japanese production technologies and distribution channels. However, their lower labor costs and environmental costs give them a competitive edge in manufacturing. Consequently, Taiwanese IT firms have specialized as the electronic world's OEM partners. In recent years, Taiwan has become the largest OEM country for personal computing products. For example, in the year 1998, IBM, HP, Dell, and Compaq purchased over 11.5 billion $USD in OEM personal computing products from Taiwan. Also, notable is Taiwan's foundry industry, which produces OEM integrated circuit (IC) products. Together, Taiwan Semiconductor (TSM) and United Microelectronics (UMC) account for more than 60% of the world's OEM foundry production (Business Week 1999).