Postponement Strategies Critical But Often Unimplemented

Study points to reduced uncertainty, improved service as benefits; lack of knowledge, technology limitations remain inhibitors

Study points to reduced uncertainty, improved service as benefits; lack of knowledge, technology limitations remain inhibitors

Las Vegas — October 9, 2003 — The majority of companies that have implemented postponement strategies are realizing significant improvements in customer satisfaction, inventory costs and more accurate demand forecasting, according to the results of a new study.

The study, entitled "The Adaptive Supply Chain: Postponement for Profitability," was conducted by software company Oracle, consulting firm Cap Gemini Ernst & Young U.S. and APICS (formerly the American Production and Inventory Control Society) and released this week as APICS' annual conference here.

The study surveyed more than 350 supply chain professionals at both large and midsize companies across numerous industries including aerospace, automotive, education, high-tech, healthcare, retail and telecommunications.

Nearly half of responding companies in the study reported that they have not implemented postponement strategies because of little knowledge of postponement benefits and associated costs, perceived technology limitations and ineffective organization alignment.

Postponement strategies enable companies to design products that are customized and assembled quickly and inexpensively once actual customer demand is known, as opposed to building products in bulk and storing them in warehouses until demand increases.

By holding inventory closer to customers, companies can transition from a "push" oriented supply chain to a "pull" or demand-driven supply chain, resulting in improved order fill rates, wider product offerings and increased top line revenue.

As organizations continue to identify areas for cost and operations improvements, demand forecasting and order fulfillment processes are being re-examined and postponement strategies are becoming increasingly popular, according to the study's authors.

"Although postponement is not a new concept, it is a supply chain strategy that is gaining momentum," said Bob Collins, APICS' president. "By pushing the point of product differentiation closer to the customer, postponement can improve customer service levels, reduce inventory costs and increase top-line revenue."

Key study findings include:

  • 91 percent of respondents using postponement strategies have realized significant improvements in customer satisfaction and inventory costs;

  • 73 percent of respondents said that increased difficulty to forecast demand is a key driver for implementing a postponement strategy; 60 percent said that customers demanding higher levels of customization is a primary driver;

  • 56 percent of respondents noted that a lack of understanding of postponement strategies and technology limitations are significant inhibitors;

  • 50 percent of respondents said that the biggest postponement implementation challenge is aligning the organization.

"Postponement is an adaptive supply chain strategy that enables companies to improve responsiveness to shifting customer demand, and we believe it can significantly increase the value delivered by supply chains," said Paul Matthews, vice president and supply chain leader for the Americas at Cap Gemini Ernst & Young.