Postponement systems: Waiting to the last minute is a virtue

Whether a company waits until the customer order is in hand to dye sweatshirts or apply a grocery store's label to canned tomatoes, it's still postponement.

By Staff -- Modern Materials Handling, 5/15/1998

Postponement systems turn that adage on it's head and ask: What segment of my warehousing or manufacturing operation can I postpone until tomorrow to realize inventory savings today.

Think of postponement as putting the finishing touches on a nearly finished product. "You're holding the product in it's lowest common denominator until your customer places an order," says John A. White, III, a senior manager at Andersen Consulting.

White's lowest common denominator includes all products that can be manufactured in a generic form and stored in bulk in anticipation of an order. The variation in products comes in the form of packaging or finishing, delaying this final step in the process until the customer order is in hand. Thus, the commitment to the final form, whether that means applying a store brand label to a can or using a different size and shape bottle for hand lotion, can be postponed until the last possible moment. Postponement might also be referred to as mass customization.

Traditionally, postponement has been a mainstay of canned food producers because produce has to be processed when it's fresh, even if there is no market for the product when it's harvested.

Today, manufacturers of private label products for mass merchandisers and retailers as diverse as oil filters, office supplies, and carpeting are experimenting with postponement strategies.

What does postponement look like? White cites the example of an apparel manufacturer that produces sweat suits. General demand for these garments can be predicted months in advance based on historical order patterns. Colors are another matter, depending on the whim of fashion. So, the manufacturer produces the anticipated sales volume of sweat suits in advance, but cuts and assembles all of them in white fabric that can be dyed to order later.

What are the primary benefits to postponement? "Reduction in inventory," says Hugh D. Kinney, a consultant with Logistics Re-sources International, Inc. "If you can pull it off, the benefits are huge."

That's because postponement allows you to reduce your inventory volume of finished goods while still providing a high level of service. Rather than maintaining a large stock of a specific product with different labels and packaging for a variety of customers, postponement allows you to keep a lower inventory in a work-in-process storage area in a generic form until just before the shipment. That reduces obsolescence in a rapidly changing market, and waste in perishables.

But even though you're reducing the amount of storage space required for inventory, Kinney adds, don't expect to reduce the overall square footage of your warehouse or distribution facility. That's because the space you save in storage will, in all likelihood, be devoted to a larger work-in-process or finishing area.

"The big savings," Kinney reiterates, "come from the overall reduction in inventory and waste."

Jim Apple of The Progress Group views a postponement strategy as not just a way to reduce inventory, but to add operational flexibility into your operation.

Fast-moving products are easy to stock and ship rapidly. But slower moving items are not so predictable.

To service it's customers, pharmaceutical supplier Perrigo has always maintained stocks of its fastest moving products already packaged and ready for shipment. But, instead of tracking one stock keeping unit (SKU), the company tracks hundreds of SKUs for the same product. Moreover, depending on the orders, Perrigo might find itself out of packaged product for a specific customer.

The solution: store the product, which might be aspirin, as one SKU in a generic form until the company receives an order. The result: Perrigo can now reduce its inventory levels as well as the thousands of SKUs in the system and still provide the level of service required.

Who would have thought procrastination could be a virtue?

Prominent technologies:

* Storage systems--manual as well as automated depending on product size and throughput requirements

* Kitting systems

* Lift trucks and conveyors for delivery to workstations and/or assembly lines

* Printing, labeling equipment

* Packaging materials and systems

Operational characteristics:

* Storage of large quantities of generic and/or identical components or finished product

* Extensive customization or private labeling of product to specific customer requirements

* Kitting of components including packaging materials that are not required until the customer's order has been received

* Accommodates long runs or piecework as required by customer

* May include adaptable manufacturing and/or value-added operations

* Able to customize and ship product with little prior notice