Postponement

How to respond to demands for– Customized products– Rapid delivery– Competitive prices

in the face of short product lifecycles.

The Issues

• To provide rapid delivery need to have – capacity to make to order quickly or– inventory of finished goods

• Capacity means high capital costs

• Inventory is expensive because customization means many skus.

Example

Auto manufacturers could cut 2 weeks out of delivery time by

• building many small assembly plants with capacity to meet regional demand. Why don’t they do this?

• Positioning inventory of finished vehicles closer to the customers. What are the consequences of this?

Other dangers from Inventory

• Extends time to market– Guess what products customers will want– Poor forecasts of demand volumes– Slower to bring new technologies to market– Obsolescence

The Third Way

• Modular design with postponement– Modular design

• reduces the cost of customization

– Postponement• delays the investment in customization

Consequences• Aggregate forecasts for majority of product

• Detailed forecasts are restricted to customization modules

• Investment in customization is delayed so component forecasts are short

• Customization capacity needs are reduced -- limited to adding customization modules not building the entire product

Opportunities

• Move customization closer to customer– What are the tradeoffs?

Apple imac

• 5 Colors. Built to forecast. – Indigo– Ruby– Sage– Graphite– Snow

Compaq

• Special panels user can apply to change color of the computer at home

Milliken Carpet

• Before– Dozen Bases– Several Gun Bars– Change overs from Base to Base– Change overs from Gun Bar to Gun Bar– Down time on expensive printer

Milliken Carpet

• After– 1 (or 2) bases– 1 gun bar– Changeover from one product to next requires

seconds – No down time

What’s Involved

• Product Design

• Manufacturing Process

• Supply chain design

Modular Design

• Standardize Components

• Identify and postpone non-standard ones

• Simultaneous assembly of different modules reduces critical path

• Localize problems and re-design efforts

Power Supply

• Option 1: More expensive supply that can convert voltage

• Example: HP LaserJet– Manufactured in Japan and shipped to the

world.– Change to a versatile power supply saved 5%

on cost to manufacture, stock and deliver

Power Supply• Option 2: More specialized supplies that cannot

convert voltage installed late.

• Example: HP Deskjet– Made in Singapore– Designed with country specific external power

supply– Shipped to Stuttgart

• where power supply is purchased and added• adds manuals and packing material

Consequences

• Higher manufacturing costs

• Bottom line: 25% lower manufacturing, shipping and inventory costs.

• Where did the savings come from?

Trade-offs

• Increased cost of materials and perhaps manufacturing

• Savings in inventory depend on:– Variability and uncertainty in demand– lead time to markets and from suppliers– life cycle– ...

Conflicting Objectives

• Marketing: every possible product option

• R & D: most functionality at lowest cost

• Manufacturing: Few products and stable volumes

• Resolution should be system wide view

Example

• Generic Deskjet for Mac and PC rather than two models– What were the arguments

Manuals and Information

• Printer manuals can be printed in several languages

• Software versions make this even simpler

• Pharmaceutical products require country-specific labels: – dosing info and warnings must be in local language– country specific information– what to do?

Home Depot Paint

Mix and Add the Colors to Order

• What are the benefits and costs?

Re-sequencing

• Traditional Clothing manufacture– Dye the yarn– Knit with the dyed yarn

• Benetton– Knit with grey yarn– Dye the sweaters

• Trade-offs?

Standardization

• HP Disk drives– Add customer-specific driver boards– Test (time consuming)

• Revised process to – Test drive– Insert customer-specific boards– Test board

• Trade-offs?