The study of the evolution of the concept of postponement serves to show that the “wait and learn” view of postponement remains unexplored. The etymology of postpone I5 from Latin postponere: post + ponere. That is to place (ponere) after {post}, To postpone has two meanings; one is to put off to a later time or to intentionally defer, usually to a definite later time. The other meaning is: to place later {asin a sentence) than the normal position in English, for example to posipone an adjective; or to place later in order of precedence, preference, or importance [76]. The two views of postponemeni, to delay activities or decision in time, and to change the sequence of events in the supply chain, have been identified in scholarly research. However, over time, the latter view dominated researchers’ attention. In this dissertation, the Two views of postponement are referred to as changing the timing and changing fhe sequence views of postponement, respectively.
Table 2.2 shows selected definitions of postoonement relevant to studying the evolution of the concept. The column labeled Changing the Timing or Changing the Sequence indicates whether the definition considers both views of posiponement as stated by the seminal definition by Alderson, or if it considers just one of them. The next column labeled Number of Decoupling Points indicates whether ithe definition considers only one decoupling point in the supply chain or allows for many. This dimension is relevant because the authors considering one decoupling point generally focus on pastoponement opportunities internal to a firm as opposed to the focus in this dissertation which was on postponement across multiple members of the supply chain. The column labeled Only with Order shows whether postponement is considered as an either/or decision. For Table 2.2, postponement is regarded as only with order when the definition states that activities have fo be delayed uniil an order is received. The last column, named Study, indicates whether the stuay is conceptual, theoretical modeling, a survey, orifis a numerical example (sensitivity analysis}.
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Timing or Changing the Sequence
Authors Definition of Postponement À4. .11.:...
Only with Order ... the principle of postponement requires that changes in
form and identity occur at the latest possible point in the Allows
1957 | Alderson marketing flow, and changes in inventory location occur at Both many No | Conceptual the latest possible point in time [77].
The principle [of postponement] states that changes in form and inventory location are to be delayed to the latest
possible moment. Allows
1965 | Bucklin The principle of speculation holds that changes in form, and the movement of goods to forward inventories, should Timing many No | Conceptual be made at the earliest possible time in the marketing flow
in order to reduce the costs of the marketing system. [78]
Ship as much as possible as far as possible before break-
ing bulk shipments into smaller quantities, or move materi- Allows
1981 | Ballou als as far down the distribution channel as possible before Sequence many No | Conceptual committing them to final products [79].
1984 | Shapiro ‘ae to stock) 80 (make to order) and “speculation na. One Yes | Conceptual Bowersox, Postponement means planned delay of the scheduled Allows
1985 | Carterand | performance of an activity as long as possible in the over- | Timing many No | Conceptual Monczka all MLM [materials logistics management] process [81].
Zinn and [The principle of postponement] ... holds that changes in Allows
1988 Levy inventory location will be postponed until the latest possi- | Timing many No Modeling ble time in the marketing process [82].
The principal of postponement proposes that the time of
Zinn and shipment and the location of final product processing in the One for . 1988 Bowersox distribution of a product be delayed until a customer order Both each Yes | Numerical
is received [83].
; Postponement is the practice of delaying the final configu-
1380 | Zinn ration of a product until a customer order is received [84]. Timing One Yes | Conceptual [Postponement]... allows for some activities normally é . : : S equence
1993 | Cooper associated with production to be performed downstream in then One No | Conceptual the supply chain, delaying the point in time when goods timing
become dedicated to particular markets or customers [85].
A key concept in design for supply chain management is
1993 | Lee delayed product differentiation. This is also known as ... | Sequence One No | Conceptual simply a postponement strategy [86].
Lee and Postponement refers to redesigning the process to delay ` 1994 Billington the point of product differentiation [87]. Sequence One No Empirical
The key ... is postponing the task of differentiating a prod-
4997 Feitzinger uct for a specific customer until the latest possible point in Sequence One No | Conceptual and Lee the supply network (a company’s supply, manufacturing,
and distribution chain) [88].
The notion of manufacturing postponement is to retain the product in a neutral and noncommitted status as long as
Pagh and possible in the manufacturing process. Allows
1998 Cooper The notion of logistics postponement is to maintain a full- Both many No) Conceptual line of anticipatory inventory at one or a few strategic loca-
tions [89].
Postponement is the operating concept that aims at delay-
1998 | van Hoek ing activities until actual customer orders have been re- | Timing One Yes Survey ceived [90].
Table 2.2 Continued
Selected Definitions of Postponement
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Table 2.2 continued
Mason- Postponing the variant differentiation of a product until the
1999 | Jones and | latest possible moment reduces the risk and uncertainty | Timing One. No | Conceptual Towill imposed by the consumer demands [91].
Naylor, The aim of postponement is to increase the efficiency of
1999 | Naim and the supply chain by moving product differentiation (at the | Sequence One Yes | Conceptual Berry decoupling point) closer to the end user [92].
Battezzati [Postponement or delayed differentiation means delaying]
2000 | and ... the final customization at plant level or — in the most | Sequence One Yes | Conceptual Magnani extreme cases- at distribution level [93].
In product postponement, the products are designed so that the product's specific functionality is not set until after Brown, Lee customer receives it. In process postponement, a generic
2000 | and Petrakian part is created in the initial stages of the manufacturing : SẺ Hi. tong Sequence One Yes Empirical process. In the later stages, this generic part is customized
to create the finished product [94].
Postponement centers around delaying activities in the
2000 | van Hoek supply chain until customer orders are received, rather Timing One Yes | Conceptual than performing them in anticipation to future customer
orders... [95].
Postponement is an organizational concept whereby some
2001 | van Hoek of the activities in the supply chain are not performed until Timing One Yes | Conceptual customer orders are received [96].
Postponement is the ability of a supply chain to delay
2001 ote and product differentiation or customization until closer to the | Timing mows No | Conceptual
time the product is sold [97]. y
... postponing changes in the form and identity of a prod-
2001 Stock and uct to the last possible point in the marketing process and Both Allows No | Conceptual Lambert postponing inventory location to the last possible point in many
time... [98].
Bowersox, | [Postponement is the delay] ... of final manufacturing or
2002 | Closs and distribution of a product until receipt of a customer order... | Timing (*) One Yes | Conceptual Cooper [99].
The physical movement and the final form of a product
Workin | Zinn and should be delayed as much as possible in the manufactur- One for
Progress| Cardoso ing and marketing processes... Product is not moved until Both each Yes | Conceptual the location of demand is known, and not given its final
form until customer preferences are known [100].
1) The definition suggests that only one view of postponement is being considered by the authors.
However, the explanation seems to indicate that both views are being considered
S]
The analysis of the definitions of postponement used by academics shows five relevant issues about ihe evolution of the concept. Each of these five issues is described in greater detail in one of the following sections. The first issue Is that, the seminal definition of postponement suggests two views of the concept aligned with the etymology and definition of the term postponement. One Is to delay the time when activities are performed, which can be implemented dynamicaily as described later. The other is to change the sequence of activities in the supply chain, which is implemented as a static solution. Changing the sequence of activities might lead to delaying when an activily is performed. Postponement by changing the sequence of activities has dominated the research related to the implementation of postponement.
Second, frequently, postponement is considered a dichotomy: a given supply chain member either practices postponement or if does not; an activity is postponed or it is not. The original objective of delaying activities to reduce uncertainty has been intertwined with the concepts of make-to-stock and make- to-order. In prachce, however, postponement is imolemenied by reducing the degree of speculation. Speculation means to transform the product or change ifs location at the earliest possible time to minimize the total cost to the channel. The ultimate implementation of postponement is one in which the whole supply chain, from original suppliers to retailers, delays activities until the end-customer places an order. This is, in most cases, a practical impossibility constrained by the limits to the used of postponement (see Table 2.1}. Too frequently it is asserted, “postpone until orders from the customers are received”, and we need fo ask: “Who Is the customere” fs it the end-customer or the next-tier customere Postponement does noi imply necessarily that the setting is ether make-to-stock or make-to-order.
Generally, postponement ts considered only internal fo a firm. Postoonement as an interorganizational concept has received litle attention [1011; this is particularly true in empirical work. Therefore, the third issue is that many definitions suggest
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there is only one differentiation point in a supply chain (see Table 2.2}. Other definitions consider a supply chain having several differentiation paints, suggesting that postoonement could be implemented at several tiers in a supply chain atthe same time. Furthermore, as contended in the previous paragraph, a firm can impiement postoonement at different degrees. The goal of SCM should be that management from each supply chain member facilitates the implementation of postponement at every possible tier to the greatest extent possible within the limits to the use of postponement.
Fourth, few authors consider the full concept of postoonement-specuilation as suggested by Bucklin [102]. Bucklin contended that postponement cannot explain the accumulation of inventory at the many tiers in a marketing channel.
Therefore, he contended that postponement-speculation should be used fo explain the formation of the structure of a marketing channel. Postponement will be used whenever possibie to reduce inventory-related costs and soeculation will be used to gain economies of scale or reduce replenishment times by making products avaiable in advance to the encd-customers placing orders.
Last, none of the studies published explicitly addresses how to assess the level of implementation of postponement. There is no benchmark available. The degree to which activities are postponed might be assessed relative to a previous situation, to standard business practices in the industry, or to a compefitor’s oractices. The most frequent benchmark used to assess the implementation of postponement seems to be a comparison with the previous situation.
In the following sections, each of these five issues are described further.
Two Views of Postponement
In Alderson’s seminal work [103], he viewed postponement as a two- dimensional concept, which ts in concert with the etymology and the meaning of postoonement. The first part of the definition refers fo the position in the supply
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chain (from raw materials to end products} at which product differentiation happens. This can be referred to as changing the sequence of activities because relocating the point of product aifferentiation changes the sequence in which activities are performed. Since the early 1980s [104], this view of postponement captured considerable attention in both the fields of logistics and operations management.
The other view of postponement is to delay activities to icter in time. Delaying activities in time enables manager to reduce uncertainty in decision-making by learning from the behavior of the demand and by making decisions closer to the time when the end-customer places an order. Aiderson only considered the delay in time of moving producis closer to the end-customer. But, as explained later, any kind of activity in the supply chain can be delayed (and it should be delayed} if tofal supply chain cast, such as holding casts and risk of obsolescence, can be
reduced.
As it is explained in the next section, the benefits from postponement by changing the sequence of activities stem from two facts. One is that it enables planning io be performed based on aggregate demand, the demand aggregation effect, and the other is that it reduces the needed forecasting horizon which, in turn, nas the potential to increase forecasting accuracy [105], the learning effect.
There are ihree key issues about the relationship between these two views of postponement. First, changing the sequence of activities might lead to delaying activities in time. if that happens, changing the sequence of activities will lead managers to making decisions closer fo the time when the end-customer places an order enabling some learning effect. But whether this happens is rarely assessed explicitly. The second issue is that both views complement each other and, thus, in scholarly research they shouid be considered independently. Otherwise, the benefits from postponement are confounded by the demand aggregation effect and learning effect. The last issue is that changing the sequence of activities is static,
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while changing the timing of activities can be implemented dynamically based on the level of predictability of demand. Having a betier understanding of postponement of activities in ime has considerable potential.
Posiponement by Changing the Sequence of Activities. The focus on posiponement by changing ihe sequence of activities was accentuated after the publication of studies in postponement developed at Hewleti-Packard during the early ‘90s [106]. For Hewlett-Packard , postponement meant redesigning the DeskJet Pius inkjet orinter and redesigning some manufacturing processes. The printer was reciesigned to inclucie a dual power supply and the manufacturing processes were redesigned to finish assembly in a distribution facility rather than ina manufacturing pliant [107].
Implementing postponement by changing the sequence of activities in the supply chain ts a structural decision. That is, the products, the processes, or the supply chain network structure is reassessed and changed to implement postoonement. Several ways to delay differentiation by changing the sequence of activities have been identified [108]:
@ Standardization of components and subassemblies.
@ Modular design.
@® Postponement of operations.
@ Re-sequencing of operations.
This view of pastoonement iends to dominate OM/OR literature, where case studies are frequently used fo complement optimization models. To a lesser extent, this view of postponement has dominated in the field of logistics [109]. However, logisticians have reporied fewer empirical findings. Overall, the concept of postponement is about 45 years old, but practical examples are found only since the early 1990s [1 10] because the implementations of postponement have been enabled by advancements in information technology [117].
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Changing the sequence of activities is a structural decision and, as such, usually it follows a structural change in the environment such as a new manufacturing technology, a considerable increase in the level of operation, or a change in the design of the product. Changing the sequence of activities leads to delaying the point at which products are differentiated. In the example of the Hewlett-Packard DeskJet printer, before implementing postponement, the printers were differentiated for different markets when the power supply was assembled.
Thus, at the end of the manufacturing process (°), there were printers with a 220 volt power supply for the European and Latin American markets and printers with a 110 volt power supply for the US market. After the product and process redesign, there was only one type of inventory at the end of the manufacturing process; that is, dual-oower printers that could be shipped to all markets.
Figure 2.6 represents the effect of changing the sequence of activities to delay the point of product differentiation in the supply chain. Figure 2.6.1 represents three raw materials, denoted as S(a}, S(b), and S(c}, transformed into two finished products, P(1}) and P(2). Finished product is then shipped to field warehouses. In each warehouse, inventory of each finished product is held awaiting demand. This setting has been called a push system [112], forecast driven [113], based on forecast [114] or make-to-stock [115].
Figure 2.6.2 represents the same supply chain having implemented postponement by changing the sequence of activities. In this case, semi-finished products are shipped from the plant to the field warehouses, where the final configuration of the products is performed based on the orders placed by the retailer, for example. This scenario has been called pull postponement [116] or order based [117].
C) This example is not intended to describe the case of HP in detail; it has been simplified to be used as an example.
56
Figure 2.6.1
Before Changing the Sequence of Activities in the Supply Chain Supplier Manufacturer Distributor
Ge) )
S 3V XU L vane
© Material or Product [J Manufacturing V Inventory
Figure 2.6.2
After Changing the Sequence of Activities in the Supply Chain Supplier Manufacturer Distributor 11) ZT
a
@ ev
®Vji=rv
ey
6©) đáo
O Material or Product [4 Manufacturing V Inventory
Figure 2.6
Postponement by Changing the Sequence of Activities in the Supply Chain
Zinn summarized the source of the benefits from moving the point of product differentiation closer to the point of consumption:
If postponement is not applied, a firm must rely on past sales of each individual item of a product line to decide how much safety stock should be maintained for that item. In contrast, if postponement is applied and the firm keeps only inventory of unassembled product, the firm may rely on past aggregate sales for the entire product line to decide on the level of safety stock
S/
needed. Safety stock savings are thus generated because the product line safety stock is smaller than the sum of individual safety stock for each item [118].
Zinn's descriotion of the benefits of postponement addressed only the demand aggregation effect. Reducing uncertainty by aggregating demand Is frequently referred to as “statistical economies of scale” [119] since the benefits from aggregating demand stem from pooling, or aggregating, the variance of the demand. Pooling the variance of the demand reduces the risk associated with holding inventory.
Figure 2.7 shows a very simple example of whai pooling variance means.
Note that the variance of the demand Is 10.8 and 9.4 for Market 1 and Market 2, respectively. lf safety stock for each market is needed, each safety stock will be based on the corresponding variance (among other parameters excluded to simplify the explanation}. lf safety stock is centralized, then the safety stock caiculations are based on the variance of the demand for “Market 1 & 2” which is 0.4. In this simple example, the benefit from pooling variance is materialized in ihe reqduction of inventory after centralizing safety stocks.
The benefits from postponement by changing the sequence of activities stem from aggregating demand, and from reducing the time between decision- making and the end-customers placing orders. Changing the sequence of activities surely enabies the aggregation of demand which has been documented, but rarely are the benefits from delaying activities in time assessed. Each view of postponement should be considered as independent initiatives that complement each other.
Posiponement by Changing the Timing of Activilies. The other view of postponement refers to the time when product differentiation happens in terms of form, identity, or place, Prociuct differentiation in terms of form is, for exampie, when
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