You may consider inventory postponement an unavoidable evil more than a preferred supply chain strategy. With the right distribution partner, though, postponement and late-stage differentiation provide clear benefits and opportunities.
“Better late than never” isn’t a saying that supply chain pros generally use in a positive context. But as an inventory management strategy, inventory postponement planning and late-stage differentiation offer measurable and valuable positives. In the current environment of high demand uncertainty, manufacturers can use inventory postponement planning to increase customer satisfaction. And an adept distribution partner can help you get it right.
Here’s how we’ve usually thought about inventory postponement planning
In supply chain parlance, delayed differentiation or postponement refers to the practice of starting the manufacturing process by creating a generic or family product which can be altered later to offer specific features or benefits.
Simplicable, an online encyclopedia of terms, offers this definition: “Delaying finishing the product until the last reasonable moment in order to meet demand and avoid surplus.” As one example, think of manufacturing a device only in the color white but later offering multiple colors (or adding a color after the product has already been made) once it becomes clear what customers want.
Depending on what is being manufactured, it is often necessary to:
- redesign the product to make delayed differential possible; and
- shift the manufacturing steps into the appropriate order.
How a distributor can help
Both of these efforts can be eased by partnering with a knowledgeable distribution partner. An article in the International Journal of Business and Management outlines three features that a distributor can leverage to help its manufacturer create a differentiation:
The distributor prepares a buffer of inventory while capturing downstream demand signals from customer orders. Postponement, in turn, enables mass-customization and facilitates supply chain flows that balance long lead times and quick order responses.
The distributor delays the movement of goods or services until orders are received.
The distributor delays activities that determine final form of a product until demand is known.
5 ways late-stage differentiation adds value
Delayed differentiation can result in a range of benefits for manufacturers, including:
- Reduced inventory spend
- Avoidance of over-manufacturing of unwanted items and the risk of obsolescence
- Reduced need for warehouse space (and other cost savings)
- Reduced time spent on forecasting demand for specific features or iterations of a product
- Identification of an on-ramp to offering customized products to customers
The conclusion of another worthwhile read — “Postponement Strategies in Supply Chain Management” — also mentions the reduction of anticipatory risk in the supply chain:
“It can be finetuned or staged so that only the generic parts shared by a firm’s various end products are warehoused, used only once orders come in for whichever products are selling, and will reduce inventory pressures throughout the firm.”
The key, then, is figuring out whether these benefits are worth the investment. Priority Metrics Group, a research and consulting firm, suggests in a blog post that differentiation may be valuable if it meets even one of the following criteria, and we quote directly:
- Valuable: the perceived benefit exceeds the cost
- Important: delivers a benefit critical to success
- Distinctive: unique or offered in a distinctive way
- Superior: better technology, faster
- Emotional: ties to a core emotion — love, hate, desire
- Communicates: understood and visible
- Preemptive: cannot be easily copied
- Affordable: customers can pay the higher price
- Profitable: contribution (margin times volume) exceeds cost of difference
Is a new take on inventory postponement planning the right strategy for your organization?