Kai Lee's Group Question - With more examples, how do you think postponement can help firms to reduce costs?

How do you think postponement can help firms to reduce costs?


Hello Kai Lee's Group,


I will bring your focus to these 2 cost areas- Production and Inventory costs and how the 2 forms of postponement- Form and logistical will impact the costs.

Production- Form postponement






As mentioned earlier, form postponement is the deliberate action to delay the form of a product until when customer commitment is confirmed.


However, firms would want to "enjoy" the economies of scale from production by producing a generic product base in large batches and then storing it in a warehouse until required. This way, firm is able to enjoy costs saving in production.

When customer order is received, mass customization will take place to allow the generic product base to have a no. of end product options.


Refer to the above diagram for better understanding. Clothings manufacturer would stock generic product base (White color) and leave the dying part undone until customer order is received.

Conclusion:


Through postponement, firm is able to reduce the number of stock keeping units(Costs) while supporting the marketing effort and retaining mass production economies of scales. Once product is customized, it will be able to serve different customers' requirements.


Inventory- Form postponement

A Car manufacturer usually sub-contract the various sub assemblies of a car to various suppliers and storing them at their premises. Since a car is of too high value to store, it will only be assembled when a customer order is received. The car manufacturer will release purchase order to the various sub contractors and the sub-assemblies will be send to the plant for FINAL assembly of a car.

Conclusion

In this case, the car manufacturer is able to reduce the risks/costs of holding inventory and the capital can be used in other more profitable areas.

Inventory-Logistical Postponement

Logistical postponement is the deliberate delay of forward movement of goods is until when customer demand is confirmed. A DC will usually pool the demand of the various retail store before dispatching the goods. By aggregating/Pooling the demand together, the retailer will be able to reduce its total inventory due to lower variability in aggregated demand. (Business statistics)

Conclusion:

The firm is able to reduce the risk/cost of the forward deployment of inventory. The resources can like wise be invested in other more profitable resources.

Production-Logistical Postponement

Full line inventory is built and stocked at one or a few strategic warehouse. The forward movement of inventory is delayed until when customer demand is confirmed.

Conclusion:

Under the concept of geographical postponement, the risk of forward movement inventory is eliminated while manufacturing still enjoys economies of scales.

Best regards,
DCMwarriors