postponement strategy from a supply chain perspective: cases from
TRANSCRIPT
Postponement strategy froma supply chain perspective:
cases from ChinaJeff Hoi Yan Yeung
Department of Decision Sciences and Managerial Economics,Faculty of Business Administration, The Chinese University of Hong Kong,
Shatin, Hong Kong, People’s Republic of China
Willem SelenInstitute for Logistics and Supply Chain Management, Victoria University,
Melbourne, Australia, and
Zhou Deming and Zhang MinDepartment of Decision Sciences and Managerial Economics,
Faculty of Business Administration, The Chinese University of Hong Kong,Shatin, Hong Kong, People’s Republic of China
Abstract
Purpose – This research widens the scope of the use of postponement by addressing how the genericsupply chain structure and information sharing/relationship among supply chain actors affects thepostponement decision, based on empirical data of Chinese manufacturers in the Pearl River Delta.
Design/methodology/approach – Case analysis, cross-case comparisons, semi-structuredinterviews.
Findings – A cross-case analysis including study of the downstream structure, downstreamrelationship, upstream structure, upstream relationship, production method and inventory positionproduced a postponement classification into five categories: balanced structure without customerinformation; customer dominated; manufacturer dominated; balanced structure with loose suppliers,and finally virtual supply chain. Based on this classification, two propositions are postulated: when asupply chain has a balanced structure, it should use speculation or production postponement. Whenthe supply chain has an unbalanced structure, it should use purchasing postponement or productdevelopment postponement.
Research limitations/implications – This study is exploratory in nature, and more empirical datais needed to further validate the postulated results. Another limitation of the study is in itsmeasurement of postponement, measured in this instance by the production method and inventorypositions used. Other characteristics of postponement may be included in future research.
Practical implications – This research has extended the scope of the use of postponement byaddressing how the generic supply chain structure and information sharing/relationship amongsupply chain actors affects the postponement decision.
Originality/value – Addresses postponement on the level of the supply chain, rather thancompany-level. Addresses how the supply chain structure (balanced/unbalanced) and informationsharing/relationship among supply chain actors affect the postponement decision.
Keywords Supply chain management, Information exchange, Supplier relations, China
Paper type Research paper
The current issue and full text archive of this journal is available at
www.emeraldinsight.com/0960-0035.htm
This research was supported by Li & Fung Institute of Supply Chain Management and Logistics.
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Received September 2006Revised January 2007
Accepted February 2007
International Journal of PhysicalDistribution & Logistics Management
Vol. 37 No. 4, 2007pp. 331-356
q Emerald Group Publishing Limited0960-0035
DOI 10.1108/09600030710752532
1. IntroductionPostponement is defined as a strategy that intentionally delays the execution of atask, instead of starting it with incomplete or unreliable information input (Yang et al.,2004a). It is widely used by many industrial giants, such as Xilinx, HP, Mars,Motorola, Toyota, Gillette, Benetton (Brown et al., 2000; Peter, 1992; Van Hoek, 2001;Yang et al., 2004a). The reasons underlying the use of postponement and how toimplement it successfully have been of great interest to many researchers (Appelqvistand Gubi, 2005; Aviv and Federgruen, 2001; Bucklin, 1965; Bowersox and Closs, 1996;Van Hoek, 2001; Su et al., 2005). These studies initially focused on building theories onpostponement from a single company’s perspective, but have expanded to include theuse of postponement on a supply chain level (Huang and Lo, 2003; Nair, 2005; Paghand Cooper, 1998; Yang and Burns, 2003). In this context, research topics haveaddressed the relationship between manufacturer and downstream companies(Cvsa and Gilbert, 2002; Wouters et al., 1999), full supply chain integration (Ernstand Kamrad, 2000; Mikkola and Skjott-Larsen, 2004), and coordination ofpostponement and other supply chain strategies (Van Hoek, 2000; Waller et al., 2000;Yang et al., 2005a).
Postponement strategy has been widely applied across the world. In theliterature, for instance, there are postponement studies focusing on the fastmoving commercial goods in Italy (Battezzati and Magnani, 2000), the supplychain producing mobile phones in Denmark (Catalan and Kotzab, 2003), theinformation technology industry in Taiwan (Chiou et al., 2002), the manufacturingprocedure in Poland (Kisperska-Moron, 2003), and the bicycle industry in the USA(Randall and Ulrich, 2001); but Chinese applications of postponement still needfurther study.
This research will extend the investigation of postponement application intomainland China by empirically examining how Chinese manufacturers adoptpostponement as a supply chain strategy, based on eight cases in the Pearl RiverDelta (PRD), including the cities of Dongguan, Guangzhou, Shenzhen andZhongshan in Gong Dong province. Besides examining the application ofpostponement strategy, the objective of this paper is also to classify varyingtypologies of postponement applications, and derive some postulations for futuretesting.
This paper is structured as follows. Firstly various types of postponement andunderlying determinants are reviewed in the literature. Secondly, the datacollection is described, followed by within – and across-case analyses andcomparisons. This results in a classification of five postponement practicesaccording to the supply chain structure and information sharing and relationshippractices. Next, a number of research propositions are postulated for furtherempirical testing, based on the cases studied. Finally, conclusions are listed andareas for future research identified.
2. Literature review2.1 Definitions of postponementPostponement first appeared in the marketing field. Anderson (1950) definedpostponement as a strategy that changes the differentiation of goods (form, identity andinventory location) to as late a time as possible. After 15 years, Bucklin (1965)
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developed the complementary concept of postponement, namely speculation, whichmeans changing form and moving goods to inventories as early as possible to reducethe cost of supply chain. Today researchers view postponement differently. Van Hoek(2001) views it as an organizational concept whereby some of the activities in thesupply chain are not performed until customer orders are received.
Management began to understand the value of postponement when the productionphilosophy changed from mass production to mass customization. Some researchersbelieve that postponement is mainly a pragmatic means to move towards masscustomization (Feitzinger and Lee, 1997; Kotha, 1995; Lampel and Mintzberg, 1996).Other people regard postponement as a useful tool in the configuration of globalsupply chains and virtual logistics to gain the benefits of both leanness and agility(Clarke, 1998; Christopher, 1992; Christopher and Towill, 2001; Cooper, 1993; VanHoek, 1998). Different types of postponement have been identified, and aresummarized in Table I.
Some less obvious types of postponement are further clarified in order to get adeeper understanding of the richness and complexity of the concept of postponement.logistics postponement is delaying the forward movement of goods as long as possiblein the chain of operations (time postponement) and keeping goods in storage at centrallocations in the distribution chain (place postponement), whereas form postponementrelates to delay product finalization until customer orders are received (Van Hoek,2001). Full postponement is defined as using make-to-order (MTO) in manufacturingand centralized inventories and direct distribution in logistics; in contrast, fullspeculation is defined as using make-to-stock (MTS) in manufacturing anddecentralized inventory in logistics (Pagh and Cooper, 1998). Product postponementrefers to design the products so that the product’s specific functionality is not set untilafter the customer receives it, whereas in process postponement, a generic part iscreated in the initial stages of the manufacturing process and in the later stages, thisgeneric part is customized to create the finished product (Brown et al., 2000). On asupply chain level, upstream postponement means manufacturers wait to order rawmaterials form suppliers until they receive the customer order, in contrast to
Literature Classification
Zinn and Bowersox (1988) Labeling postponement, packing postponement, assemblingpostponement, manufacturing postponement and time postponement
Bowersox and Closs (1996) Time postponement, place postponement, manufacturing/formpostponement
Lee (1998) Full postponement, logistics postponement and form postponementPagh and Cooper (1998) Full speculation, logistics postponement, manufacturing
postponement and full postponementBrown et al. (2000) Product postponement and process postponementWaller et al. (2000) Upstream postponement, downstream postponement, product
postponement and place (distribution) postponementYang and Burns (2003) Engineering-to-order, buy-to-order, MTO, assemble-to-order, MTS,
ship-to-stock and make-to-forecastYang et al. (2004b) Product development postponement, purchasing postponement,
production postponement and logistics postponementTable I.
Types of postponement
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downstream postponement which is defined as delaying some sort of physical changeto the product after it leaves the primary manufacturing stage (Waller et al., 2000).Finally, purchasing postponement is the practice of postponing the incomingcomponents or raw material until demand is known (Yang et al., 2004b).
The above classification highlights the diversity in postponement practices, as wellas the underlying complexity of the issues addressed by management, both on acompany and supply chain level. Next, the underlying determinants of varyingpostponement strategies are reviewed.
2.2 Determinants of postponementMany researchers have used mathematical models to study the effects of particulardeterminants on postponement strategy, such as demand uncertainty (Aviv andFedergruen, 2001; Gary and Tang, 1997); product variety (Eric Johnson and Anderson,2000; Su et al., 2005); and production characteristics (Ma et al., 2002; Van der Vilist et al.,1997). Table II summarizes the underlying factors as identified by the respectiveauthors.
Another stream of research identifies determinants affecting postponement, usingempirical evidence of case studies and surveys. Pagh and Cooper (1998) finddeterminants of postponement strategy include product characteristics (life cycle,monetary density, value profile, product design characteristics); the market anddemand (the relative delivery time and frequency, demand uncertainty), and themanufacturing and logistics system (economies of scale and special knowledge). VanHoek et al. (1998) obtain similar results, grouping the determinants into threecategories:
(1) technology and process characteristics (feasible to decouple primary andpostponed operations, limited complexity of customizing operations, modularproduct designs, and sourcing from multiple locations);
(2) product characteristics (high commonality of modules, specific formulation ofproducts, specific peripherals, high value density of products and product cubeand/or weight increases through customization); and
(3) market characteristics (short product life cycle, high sales fluctuations,short and reliable lead times, price competition and varied markets andcustomers).
Using empirical data, Van Hoek (1998) also argued that external application ofinformation and communication technology, variability in demand, complexity inmanufacturing and modularity are highly positively related to the application ofpostponement.
Using cases of the Taiwanese information technology industry, Chiou et al. (2002)empirically test four kinds of postponement strategies (labeling, packing, assemblingand manufacturing) and identify the following factors as important determinants ofpostponement practice: experience in implementing a particular postponementstrategy; customization; modularity in construction; product value and product lifecycle. Skipworth and Harrison study the postponement applications of a companyproducing high-voltage cabling equipment (Skipworth and Harrison, 2004) andanother electric motor manufacturer (Skipworth and Harrison, 2006). In these studies,the motivations for postponement include product demand profile (demand mix,
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Literature Factor
Gary and Tang (1997) Demand variability and correlations; lead timesVan der Vilist et al. (1997) Assembly batch; delivery frequency; planning and scheduling
mechanismsPagh and Cooper (1998) Product characteristics; the market and demand; the
manufacturing and logistics systemVan Hoek (1998) Information and communication technology application;
competitive market environment; operating characteristicsVan Hoek et al. (1998) Technology and process characteristics; product
characteristics; market characteristicsVan Hoek and Weken (1998) Logistics cost; lead time; customization considerationsaMason-Jones and Towill (1999) Product type; degree of customization; supply chain strategyaWouters et al. (1999) The traditional links between the supply chain partners; the
points at which inventory is held in the chain and the point atwhich end-customer orders are placed
Brown et al. (2000) Manufacturing cycle time; product variety; production leadtime; demand unpredictability
Eric Johnson and Anderson (2000) Derivative products and high forecast errorWaller et al. (2000) Product customization and speed of productionAviv and Federgruen (2001) Statistical economies of scale; risk polling via a common buffer
and learning effectVon Donk (2001) Required delivery reliability; required delivery time;
predictability of demand; specificity of demand; lead times andcosts of steps in the process; controllability of manufacturingand procurement; cost of stock-holding and value addedbetween stock points; risk of obsolescence
Chiou et al. (2002) Experience in implementing one postponement strategy;customization; modularity in construction; product value andproduct life cycle
Cvsa and Gilbert (2002) Demand uncertaintyMa et al. (2002) Process time and procurement lead timeHuang and Lo (2003) Unit value of the product; sales fluctuations in the industry;
number of distribution warehouses and product varietyOlhager (2003) Market related factors; product factors and productionaYang and Burns (2003) The position of decoupling point; supply chain integration and
control of the supply chainAppelqvist and Gubi (2005) Delivery speed requirement; product value; product variety and
shop sizeaMikkola and Skjott-Larsen (2004) Interface compatibility effects; component customization; value
inputs and supplier-buyer interdependenceSkipworth and Harrison (2004) Product demand profile; demand amplification; product design;
excess capacity and throughput efficiencyYang et al. (2004a) Demand uncertainty; expect range of variability; information
availabilityYang et al. (2004b) Uncertainty and modularityaAshayeri and Selen (2005) Capacity management and market orientation through
strategic positioning of the customer order decoupling pointKrajewski et al. (2005) Magnitude and frequency of allowable quantity changes;
predictability of the timing of the authorized shipments and theinterval between schedule revisions
aPrasad et al. (2005) Uncertainty; information complexity; operation independence;replenish volumes and supplier integration
(continued )
Table II.Summarization of the
literatures
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demand variability, demand volume); demand amplification (bullwhip-effect); productdesign (product standardization, product modularity); excess capacity and throughputefficiency.
The above research efforts do not yet address the use of postponement from asupply chain perspective as such, the importance of which was raised by Van Hoek(2001). While some earlier research studies have addressed postponement from asupply chain’s perspective, some lack empirical evidence (Mikkola and Skjott-Larsen,2004; Olhager, 2003; Yang and Burns, 2003); others do not include the supply chain asan antecedent (although companies are put in a supply chain environment, the focus isstill on the single company, not the supply chain characteristics) (Appelqvist and Gubi,2005; Ashayeri and Selen, 2005; Brown et al., 2000; Huang and Lo, 2003; Yang et al.,2005a). Other researches use analytical models which do not consider the impact of thesupply chain relationship (Ernst and Kamrad, 2000); whereas some researchers playdown the role of determinants (Cvsa and Gilbert, 2002; Nair, 2005; Svensson, 2003); andyet another only considers the effects of the supplier part, not the whole supply chain(Prasad et al., 2005).
Using a survey of 106 British manufacturing companies, Yang et al. (2005b)empirically investigate 13 factors that might impede on the application ofpostponement. Their results show that most of the highest ranking factors arerelated to how a company manages its suppliers and customers (supplier deliveryperformance and direct customer interaction). However, this paper does not considerthe effects of different supply chain structures and relationships.
In summary, the majority of the existing literature on postponement addressespostponement on a company level, identifying that market environment and productand production characteristics impact the postponement strategy. Till now, little work
Literature Factor
Su et al. (2005) The number of different products; arrival time and process timevariations; interest rates
Tibben-Lembke and Bassok, 2005) Customization cost; demand variability; regular product cost;expected value and salvage of generic product; cost of buyingand holding generic product
Yang et al. (2005a) Environment uncertainties and managerial practiceYang et al. (2005b) Supplier delivery performance; direct customer interaction;
culture and organization change; involvement of suppliers inengineering and operations; product characteristics; productioncharacteristics; operational control; market policies;incompatible communication/information system withsuppliers and customers; intricate and direct distribution; theimplementation of postponement would be too costly; theability to handle product configuration in the distributionchannel and governmental regulation
Skipworth and Harrison (2006) Product demand profile; demand amplification; product design;excess capacity; throughput efficiency and production variety
Note: aMeans supply chain characteristics are consideredTable II.
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has been done on how supply chain structure and relationship will affect thepostponement decision. Furthermore, there is no empirical data about Chinesemanufacturers. In this paper, we try to fill this gap.
3. Data collection and case analysesIn this research, postponement strategy is extended to its application on a supply chainlevel, culminating in a classification of postponement strategies and the building onresearch propositions based on supply chain characteristics. A grounded theorybuilding approach (Strauss and Corbin, 1990) is used, with case studies as theprinciples of theory building (Eisenhardt, 1989; McCutcheon and Meridith, 1993; Milesand Huberman, 1994; Wu and Choi, 2005; Yin, 1994). Next, the data collection method isdiscussed, followed by the case descriptions and cross-case comparisons.
3.1 Sampling and data collectionThe PRD was selected as the sampling frame for this study. Guangdong provinceaccounts for over one third of the total import and export in China. The PRD accountsfor 90 percent of the gross industrial output and 95 percent of the total export value ofGuangdong as a whole (China Statistical Yearbooks, 2003, Guangdong StatisticalYearbooks, 2003). Most of the manufacturers in PRD have overseas customers and/orsuppliers and actively participate in global supply chains, and as such are embedded insophisticated supply chain structures and relationships. A number of 22 companieswere initially selected and contacted. Based on the postponement strategy and supplychain characteristics of the companies, eight organizations were eventually used.Eisenhardt (1989) suggests seven cases for theory-building purposes, based on thenotion that fewer pose a problem with generalizability, while too many cause too muchof a burden to researchers to process the data.
In order to ensure external validity of our case-based study, a wide spectrum ofpostponement strategies is to be included. According to different positions of thepush-pull boundary and degree of postponement, Yang et al. (2004b) identified fourtypes of postponement (product development postponement, purchasing postponement,production postponement and logistics postponement). Given the manufacturing focusof the selected companies, the first three types have been included.
Semi-structured interviews were conducted with senior executives in charge ofsupply chain management and/or customer and supplier relationship management. Inaddition, the operations sections of these companies were visited to gather first handinformation on their supply chain characteristics. Each company was only identifiedby main product group to ensure anonymity.
The interviews were subsequently transcribed and coded for analysis. Followingthe procedure suggested by Miles and Huberman (1994), this analysis includes twoparts: within-case descriptions and cross-case comparisons. In the first part, keyconstructs are derived based on the case data, resulting in the identification of thesupply chain structure and relationships of the eight distinct organizations. In thesecond part, the supply chain structures and relationships, as well as postponementstrategies across the eight cases, are classified into five groups. The eight selectedorganizations are briefly described in Table III. The within-case and across-caseanalyses are discussed next.
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3.2 Within-case analysesThe within-case analyses shed light on the underlying supply chain characteristics ofeach firm, and cover downstream structure, manufacturer-customer relationship,upstream structure, manufacturer-supplier relationship, production method, productcharacteristics, lead time and inventory position. Each of the sample companies isdiscussed next.
3.2.1 ATM. Automatic teller machine (ATM) is in the business of producing ATM,and has three large customers. Customer 1 is its largest customer and accounts for50 percent of total sales, followed by Customer 2, responsible for 20 percent, andCustomer 3 with 10 percent of total sales. ATM does not integrate its process with itscustomers, but it shares some information with them. For example, customers canobtain product design and new product introduction information from ATM. The maincommunication methods are face-to-face, telephone and e-mail. There are no specialarrangements with key customers. The relationship is totally based on personalrelationships, which profoundly impact whether or not the firm wins the order. Mostcustomers have to go through a formal bidding process.
The largest supplier is a European company which accounts for 36.37 percent of thetotal purchase. The two remaining main suppliers reside in mainland China andaccount for 12.95 and 11.42 percent of total spend, respectively. ATM does notintegrate its process with its suppliers either, but shares production plan, productiondesign and demand forecast information. Telephone and e-mail are the majorcommunication methods, including face-to-face as well for Chinese suppliers. There ishigher degree of trust with key suppliers. On the one hand, ATM gives these suppliersmore responsibilities including outsourcing of some assembly work, and inspectionand testing. Through outsourcing and changing the process, ATM was able to reducelead-time and cost. Suppliers also participate in the product design process of thecompany. On the other hand, ATM participates in the supplier’s day-to-day runningthrough training and process improvement. Sole sourcing and vendor managementinventory (VMI) are currently being looked at, but no official partnership programexists as of yet. ATM evaluates the performance of suppliers based on a quarterlyindex. The performance criteria include quality, delivery, and service.
An ATM has multiple parts and complex bill of material. Of the products, 95 percentare produced MTS. For the overseas supplier, the purchase lead time is 20-45 days, andone week less for the domestic suppliers. The production lead time is about seven days.Of the inventory, 30 percent is raw materials; the other 15 percent is work-in-process,and 50 percent is finished goods.
ATM does not use a postponement strategy and keeps most inventories in the formof finished goods. The top three customers account for 80 percent of total sales,resulting in an oligarchic structure for the downstream part of the supply chain. Since,ATM shares little information with its customers and has no special relationship withkey customers, it only loosely connects with its customers. The top three suppliersaccount for 60.74 percent of the total purchase, so the upstream part of the supply chainis characterized an oligarchic structure as well. Yet, ATM closely connects with itssuppliers.
The above example shows that a competitive market structure emerges along whichcustomers and suppliers of goods and services are organized. Such market structurecould take on the form of a monopoly, defined as “a situation in which a single
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company owns all or nearly all of the market for a given type of product or service”(www.investorwords.com/3112/monopoly.html); an oligarchy, or “Rule by a few or asmall exclusive group” (www.mises.org/easier/O.asp); or a free market structure,defined in this context as “one in which any individual may exchange their products orservices by competitive bidding, open to all, without constraint” (www.google.com.au/search?hl ¼ en&lr ¼ &defl ¼ en&q ¼ define:Free ^ market&sa ¼ X&oi ¼glossary_definition&ct ¼ title).
Hence, the supply chain structure of ATM with its close trust relationship with itssuppliers and loose connection with its customers is denoted asoligarchy-close-oligarchy-loose (OCOL).
3.2.2 MP3. The second organization manufactures MP3’s, and is denoted as MP3.MP3 has only one client, but does not integrate its process with this customer. Yet, thecustomer shares demand forecasts with MP3, whereas MP3 provides informationabout its production plan, product design, new product introduction, the status ofcustomer orders in the production process and transportation and status of the goodsin transit to customers. Telephone and e-mail are the main information sharingmethods.
MP3’s largest supplier is a Hong Kong-based company which accounts for20 percent of total spend. Rank 2 and 3 suppliers are all located in mainland China andaccount for, respectively, 15 and 10 percent of total purchase. MP3 does not integrateits process with its suppliers either. Nevertheless, suppliers share information aboutproduction capacity, the status of orders in the production process and transportationand status of the goods in transit with MP3. In turn, MP3 shares its production planand demand forecast with its suppliers. Telephone and e-mail are the majorcommunication methods. MP3 has built a partnership with its suppliers, but till nowhas not implemented VMI.
MP3 operates in a MTO environment for all its products. The MP3 product ischaracterized by a complex bill of materials with multiple parts that can be customizedto customer requirements. The lead time from purchase of raw material to productdelivery is about 42 days; with a production lead time of about 14-21 days. Half of theinventory is composed of raw materials, 30 percent work-in-process, with theremainder in finished goods.
MP3 uses postponement as part of its supply chain strategy. It produces highlycustomized products and reduces the inventory of finished goods by the keepingmaterials as long as possible in raw material – and work in process-status. MP3 hasonly one customer, so it is a monopoly structure for the downstream part of the supplychain. There is a lot of information exchange between MP3 and its customer, and theyare closely connected. On the other hand, the top three suppliers account for44.5 percent of the total purchase, so it is an oligarchy structure for the upstream partof the supply chain. MP3 closely connects with its suppliers. As such, the supply chainstructure of MP3 with its close sharing of information with its suppliers and its closerelationship with its sole customer is described as oligarchy-close-monopoly-close(OCMC).
3.2.3 Hair dryer. The third case study involves a manufacturer of householdelectronics, with hair dryers as their main product line. The company has numerouscustomers, with only two customers accounting for more than 10 percent each of totalsales. The company does not integrate its process with its customers, but shares
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information on product design, new product introduction, and transportation andstatus of goods in transit from the hair dryer company. The main communicationmethods are face-to-face and e-mail. Key customers have higher priority and thecompany is currently working with these customers on setting up a VMI system tomanage their inventory in the future.
The largest supplier only accounts for 10 percent of total sales. There is no processintegration, but the hair dryer company shares its production plan and demandforecast with suppliers, as well as pricing information and negotiates price targets withkey suppliers; whereas suppliers share information on transportation and status ofgoods in transit with the hair dryer organization. Telephone is the only communicationmethod. No VMI or sole supplier arrangement are in place.
All products are produced MTO. The hair dryer company does not produce verycomplex products, and the products can be either standardized or customized tocustomer requirements. The lead time from the purchase of raw material to productdelivery is about 45 days; with a production lead time of about 5-7 days. Of theinventory, 40 percent is raw materials; 10 percent work-in-process, and 50 percentfinished goods.
The hair dryer company postpones its production until it receives the customerorder, but surprisingly keeps a large amount of finished goods. This is because there isonly one way information sharing with its customer. The company cannot “see” thecustomer’s inventory level and production schedule, and hence keeps a large amount offinished goods stock to balance risk of possible demand surges and acceptable servicelevels. It would like to have access to customer inventory levels, which can help themmanage their own finished goods inventory more efficiently. The largest twocustomers only account for 55 percent of the total sales, so it is considered a free marketstructure for the downstream part of the supply chain. The company does shareimportant information with its customers and works together to set up some advancedcooperation programs, so they are closely related. On the other hand, the largestsupplier only accounts for 10 percent of total purchase, so suppliers are not in a strongbargaining position and it is comparable to buying from a free market. Although thehair dryer company shares information with its suppliers, it is limited to pricenegotiation only, so the company loosely connects with its suppliers. As such, thesupply chain structure of the hair dryer company with its many suppliers and limitedinformation shared with them, along with its many customers and deeper informationsharing, is described as free market-loose-free market-close (FLFC).
3.2.4 Shirt. The fourth case study is an apparel company producing shirts, anddenoted as “shirt.” Its largest customer only accounts for 15 percent of total sales,followed by a second ranked customer at 10 percent. Shirt does not integrate its processwith its customers and customers only share demand forecasts with shirt by e-mail.There is no special arrangement for key customers.
The largest supplier only accounts for 10 percent of total sales. There is no processintegration, but shirt shares demand forecasts with suppliers and in turn suppliersshare information on status of orders in the production process, and transportation andstatus of the goods in transit with shirt. Telephone and e-mail are the tools forcommunication. Shirt does not provide special programs for key suppliers. Actually,they do not think of their suppliers as “close” suppliers.
Postponementstrategy
341
Shirt operates solely in a MTO-environment. Its major products can be fullycustomized. The lead time from the purchase of raw material to product delivery isabout three months; with a production lead time of about 21 days. Of the inventory,70 percent, comprises raw materials, 25 percent work-in-process, and 5 percent finishedgoods.
Shirt actively uses postponement. The largest two customers only account for25 percent of total sales, hence shirt sells in an open market environment. There is verylittle information exchange between shirt and its customers and there is no specialarrangement for key customers, so the relationship in the downstream of the supplychain is loose. Similarly for the upstream part of the supply chain where the largestsupplier only accounts for 10 percent of total purchase, so it resembles buying on theopen market. Shirt only shares limited information with its suppliers, and there is no“close” supplier. Hence, this supply chain, with many suppliers and limited informationsharing and many customers with little information exchange, can be described as freemarket-loose-free market-loose (FLFL).
3.2.5 Shaver. This electronics manufacturer will be denoted as “shaver,” its mainproduct line. Its largest customer only accounts for 10 percent of total sales, but thecompany fully integrates its processes with its customers. Customers share point ofsale (POS) information and demand forecasts with shaver, whereas shaver shares itsproduction plan and transportation and status of goods in transit with customers. EDI,a web-based system and global conferences are the ways of communication. Shaverintegrates its order system with its customers and orders can be placed automaticallybased on forecast. Shaver would be willing to carry in-transit inventory for some keycustomers.
On the supply side, shaver’s largest supplier only accounts for 12.5 percent of totalpurchase, followed by a second-ranked supplier at 12 percent. Shaver also integrates itsprocesses with suppliers, who share their production schedule, production capacityand the status of orders in production process with shaver, whereas shaver shares itsproduction plan, production design and demand forecasts with suppliers. Shaver usese-mail, fax, telephone and monthly meeting to exchange information with suppliers.The design process is fully integrated with suppliers. Furthermore, a partner supplierprogram has been implemented which aims to coordinate business interests, share riskand develop capabilities.
Shaver also operates wholly in a MTO environment. All of its products have acomplex bill of material structure involving multiple parts, and are mostlystandardized, rather than customized. The production lead time is about threeweeks and shaver keeps its inventory completely in the form of finished goods.
This seems an anomaly at first sight. The major advantage of operating MTO is toreduce finished goods inventory, yet shaver keeps all its inventory as finished goods.The underlying reason for this is that shaver is not a traditional manufacturer,concentrating its major business around initial sourcing, design and procurement. Assuch, shaver does not actually “manufacture,” but rather designs and procures, andsubsequently outsources the manufacturing. So shaver does not actual “make” thingsbut “design and procurement” and then outsourcing the production process and at lastsells finished goods to the distributor/wholesalers. That is the reason why there is noinventory of raw material and work in process in shaver. The largest customer onlyaccount for 10 percent of the total sales. So, it faces many small buyers, just as in the
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free competition market. Shaver fully integrates its process with its customers andthere is a lot information flows between them, so the relationship in the downstream isclose. This is the same to the upstream of the supply chain. The largest two suppliersonly account for 24.5 percent of the total purchase, so it is just like buying stuff from afree competition market. Shaver integrates its processes with suppliers and exchangesa lot of information, which means they are closely connected. So, this supply chain,with many suppliers and customers and full information and process integration, canbe described as free market-close-free market-close (FCFC).
3.2.6 Boot. The sixth case company produces boots as its main product line. Itslargest customer accounts for 35 percent of total sales, followed by a second rankedcustomer at 30 percent, with another three major customers accounting for 10 percenteach. Boot does not integrate its process with customers, but customers share theirdemand forecast with boot, which in turn shares its production plan, new productintroduction and status of customer orders in the production process with itscustomers. Telephone, e-mail and face-to-face are the main methods of communication.Boot offers many facilities for customers and tries to build good customer relations. Forinstance, some customers can pay by open account within 60 days, and boot allowscustomers’ quality control groups reside in their factory. Moreover, boot reservescapacity and provides special designs for the key customers.
The largest three suppliers are all mainland China companies and totally accountfor 65 percent of total purchase. Boot does not integrate its process with suppliers, andonly limited information is shared, including suppliers’ production capacity andinformation on transportation and status of goods in transit. The tools for informationexchange are fax and telephone, and the larger suppliers are requested to pay by openaccount in 30-50 days, whereas smaller suppliers need to pay by cash. Some suppliersenjoy more business from boot and share price information, but there is no VMI or anyother partnership arrangement with suppliers in place.
Boot operates wholly in a MTO production environment. It produces simple goodsthat can be fully customized to customer requirements. The lead time from rawmaterial purchase to product delivery is about 3-4 weeks, with a production lead timeof about 1-2 weeks. Of the inventory, 15 percent is held as raw materials; 55 percent iswork-in-process, with 30 percent held as finished goods.
Boot uses a postponement strategy in its production. It increases work-in-processinventory with the capability of quickly assembling the semi-finished products intocustomized goods. The largest two customers account for 65 percent of total sales, sothe downstream supply chain exhibits an oligarchy structure. Boot offers specialfacilities to its large customers, so they are closely related. The largest three suppliersaccount for 75 percent of the total purchase, so it represents an oligarchy structure.Very little information is flowing in the upstream part of the supply chain, and thereare no special arrangements for key suppliers, so boot only loosely connects to itssuppliers. As such, this type of supply chain, with a few large suppliers with littleinformation exchange and a few large customers with close relationships to boot, isdenoted as oligarchy-loose-oligarchy-close (OLOC).
3.2.7 Soft toy. This company’s market is dominated by one large customeraccounting for 90 percent of total sales. Soft toy does not integrate its process with itscustomer, and only production design information is shared by e-mail. No other specialarrangements are in place for this customer.
Postponementstrategy
343
The largest three suppliers account for 90 percent of total purchase (30 percent foreach supplier). Soft toy does not integrate its processes with its suppliers, and they donot share any information either.
Soft toy operates completely in a MTO environment. Its products have a complexbill of material involving multiple parts. They are highly standardized products thatcan also be fully customized according to customer requirements. The lead time frompurchase of raw material to product delivery is about 30-50 day, with a production leadtime varying between 1 and 20 days. Of the inventory, 65 percent is held as rawmaterials; 33 percent is work-in-process and only 2 percent in finished goods.
Soft toy actively uses postponement and keeps very little finished goods inventory.It has one very powerful customer which accounts for 90 percent of total sales,resulting in a monopolistic downstream supply chain structure. Without any processintegration and information sharing, soft toy only loosely connects to the customer.The upstream part of the supply chain is an oligarchy structure, for there are threemajor suppliers, each accounting for 30 percent of total purchase. They also looselyconnect to soft toy. As such, this supply chain, with a few large suppliers with noinformation sharing and one major customer with little information sharing, can bedescribed as oligarch-loose-monopoly-loose (OLML).
3.2.8 Plastic doll. The final case study describes a company that manufacturesplastic dolls. Its largest three customers account for, respectively, 60, 20 and 10 percentof total sales. Plastic doll does not integrate its process with its customers, but sharesavailable inventory, product design, the status of customer orders in the productionprocess, and information on transportation and status of goods in transit withcustomers. Face-to-face, e-mail and telephone are the main methods of communication.Plastic doll regularly meets with key customers for problem solving and provides somespecial facilities to key customers, such as reserved capacity, shorter lead times andsmaller minimum order batch sizes.
The largest two suppliers account for 25 percent of total purchase each, followed bytwo suppliers which each account for 10 percent of total spend. Plastic doll does notintegrate its processes with suppliers, but obtains the production schedule, productioncapacity, and status of orders in the production process from suppliers. In turn, plasticdoll provides production design and demand forecast information to suppliers.Telephone, e-mail, and face-to-face communications are widely used. Plastic doll workswith its key suppliers on annual review reports, and has a major vendor list in place.Suppliers on this list have closer communication with plastic doll and may be inspectedin regard to plastic doll’s order status.
Plastic doll operates 100 percent MTS. They produce both complex and simplestandardized products, and customers cannot request customized products. Lead timefrom the purchase of raw material to product delivery is about 5-6 weeks, with aproduction lead time of about two weeks. Half its inventory is held as raw materials;20 percent work-in-process, and 30 percent as finished goods.
Plastic doll does not use any postponement strategy. It produces to forecast andkeeps an inventory of finished goods. Four customers account for 70 percent of totalsales, resulting in an oligarchy downstream supply chain structure. There is a lot ofinformation exchange between both parties, so plastic doll closely connects with itscustomers. The same is true for the upstream part of the supply chain. As such, this
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supply chain structure, with a few larger suppliers and a few large customers withdeep information sharing, is described as oligarchy-close-oligarchy-close (OCOC).
3.3 Cross-case comparisonsEach case has its own unique supply chain configuration. Some of the case companiesuse a postponement strategy, while others do not. Table IV summarizes the differentsupply chain configurations of the eight cases (downstream structure and relationship;upstream structure and relationship), their product characteristics and productionorientation (MTO or MTS), and their main inventory composition.
Next, the postponement strategies used under the varying supply chain structuresand operating conditions of the eight cases are discussed. This is followed by acomparative analysis of the downstream, respectively, upstream, supply chainstructure and the relationships built.
3.3.1 Postponement strategy. The core concept of postponement is to “pull” insteadof “push” the manufacturing process, and subsequently move inventory from finishedgoods to semi-finished goods and/or raw materials. When the majority of inventory iscomposed of raw materials, this is often referred to as purchasing postponement.Production postponement, on the other hand, is when the majority of inventory is heldin semi-finished products, and when the manufacturers do not design the productsuntil they receive the order, it is called product development postponement. However, ifsupply chain uses “push” method in the whole process and keeps inventory as finishedgoods, it adopts speculation instead of postponement. Yet, companies may want tobalance different kinds of inventories for reasons other than postponement, such asrisk sharing, product characteristics, market environment, etc. In the eight casesstudied, ATM and plastic doll use speculation; MP3, hair dryer, shirt and soft toy aredeploying purchasing postponement; whereas boot adopts production postponementand shaver uses product development postponement. However, the cases of hair dryerand shaver are interesting. All of shaver’s inventories are finished goods. This isdetermined by its underlying business model. Shaver does not actually “make” things;when shaver receives an order, it begins designing the product and subsequentlyoutsources the manufacturing process. This is why there is no inventory of rawmaterials and semi-finished products. Hair dryer is forced to keep a large inventory offinished goods because it cannot obtain information from its customers on plannedorder status.
3.3.2 Supply chain information and relationship structure. The relative powercustomers have with the main organization differs among the eight cases studied. MP3and soft toy conduct business with only one powerful customer; whereas ATM, bootand plastic doll face several relatively equally powerful customers; and finally shirt,hair dryer and shaver all have a lot of small customers. Table V summarizes theintensity of the information sharing pattern between manufacturer and customer (andvice-versa) across the eight cases.
Contrary to the downstream information structure, the upstream side does notshow any company dealing with a sole partner (supplier). ATM, MP3, boot, softtoy and plastic doll each have several important suppliers, while the other threecompanies have a lot of powerless suppliers. Table VI summarizes the informationsharing pattern between manufacturer and suppliers.
Postponementstrategy
345
Cas
es
Su
pp
lych
ain
stru
ctu
reD
own
stre
amst
ruct
ure
Man
ufa
ctu
rer-
cust
omer
rela
tion
ship
Up
stre
amst
ruct
ure
Su
pp
lier
-man
ufa
ctu
rer
rela
tion
ship
Pro
du
ctch
arac
teri
stic
sP
rod
uct
ion
char
acte
rist
ics
Inv
ento
ry
AT
MO
CO
LS
ever
alim
por
tan
tcu
stom
ers
No
spec
iala
rran
gem
ent
Sev
eral
imp
orta
nt
sup
pli
ers
No
pro
cess
inte
gra
tion
bu
tA
TM
tru
sts
key
sup
pli
ers
and
giv
esth
emm
any
resp
onsi
bil
itie
s
Com
ple
xp
rod
uct
s,ca
nb
est
and
ard
ized
and
/or
cust
omiz
edto
som
ed
egre
e
95p
erce
nt
MT
SH
alf
ofin
ven
tory
isfi
nis
hed
goo
ds
On
ew
ayli
mit
edin
form
atio
nsh
arin
g(M
fgto
cust
omer
)
On
ew
ayin
ten
siv
ein
form
atio
nsh
arin
g(M
fgto
sup
pli
er)
MP
3O
CM
CO
ne
pow
erfu
lcu
stom
erN
ofo
rmal
arra
ng
emen
tb
ut
clos
ely
lin
ked
thro
ug
hth
ein
form
atio
nfl
ow
Sev
eral
imp
orta
nt
sup
pli
ers
No
pro
cess
inte
gra
tion
bu
tM
P3
has
bu
ilt
par
tner
ship
wit
hit
ssu
pp
lier
s
Com
ple
xan
dcu
stom
ized
pro
du
ct
100
per
cen
tM
TO
Hal
fof
inv
ento
ryis
raw
mat
eria
ls
Tw
ow
ayin
ten
siv
ein
form
atio
nsh
arin
g
Tw
ow
ayin
ten
siv
ein
form
atio
nsh
arin
gH
air
dry
erF
LF
CA
lot
ofp
ower
less
cust
omer
s
Key
cust
omer
sh
ave
hig
her
pri
orit
yan
dh
air
dry
eris
wor
kin
gw
ith
them
tose
tu
pV
MI
Alo
tof
pow
erle
sssu
pp
lier
s
No
pro
cess
inte
gra
tion
,on
lyp
rice
neg
otia
tion
Mod
erat
ely
com
ple
xp
rod
uct
sth
atca
nb
eh
igh
lyst
and
ard
ized
and
/or
cust
omiz
ed
100
per
cen
tM
TO
40p
erce
nt
ofin
ven
tory
isra
wm
ater
ials
and
50p
erce
nt
isfi
nis
hed
goo
ds (con
tinued
)
Table IV.Cross-case comparisons
IJPDLM37,4
346
Cas
es
Su
pp
lych
ain
stru
ctu
reD
own
stre
amst
ruct
ure
Man
ufa
ctu
rer-
cust
omer
rela
tion
ship
Up
stre
amst
ruct
ure
Su
pp
lier
-man
ufa
ctu
rer
rela
tion
ship
Pro
du
ctch
arac
teri
stic
sP
rod
uct
ion
char
acte
rist
ics
Inv
ento
ry
On
ew
ayin
ten
siv
ein
form
atio
nsh
arin
g(M
fgto
cust
omer
)
Tw
ow
ayli
mit
edin
form
atio
nsh
arin
g
Sh
irt
FL
FL
Alo
tof
pow
erle
sscu
stom
ers
No
spec
iala
rran
gem
ent
Alo
tof
pow
erle
sssu
pp
lier
s
No
pro
cess
inte
gra
tion
and
oth
erar
ran
gem
ents
Ver
ysi
mp
lean
dcu
stom
ized
pro
du
cts
100
per
cen
tM
TO
Th
em
ajor
ity
isra
wm
ater
ials
On
ew
ayli
mit
edin
form
atio
nsh
arin
g(c
ust
omer
toM
fg)
Tw
ow
ayli
mit
edin
form
atio
nsh
arin
g
Sh
aver
FC
FC
Alo
tof
pow
erle
sscu
stom
ers
Fu
llp
roce
ssin
teg
rati
onA
lot
ofp
ower
less
sup
pli
ers
Fu
lly
inte
gra
ted
pro
cess
esan
dso
me
par
tner
pro
gra
ms
Mod
erat
ely
com
ple
x,
stan
dar
diz
edan
dcu
stom
ized
pro
du
cts
100
per
cen
tM
TO
All
ofth
ein
ven
tory
isfi
nis
hed
goo
ds
Tw
ow
ayin
ten
siv
ein
form
atio
nsh
arin
g
Tw
ow
ayin
ten
siv
ein
form
atio
nsh
arin
g
(con
tinued
)
Table IV.
Postponementstrategy
347
Cas
es
Su
pp
lych
ain
stru
ctu
reD
own
stre
amst
ruct
ure
Man
ufa
ctu
rer-
cust
omer
rela
tion
ship
Up
stre
amst
ruct
ure
Su
pp
lier
-man
ufa
ctu
rer
rela
tion
ship
Pro
du
ctch
arac
teri
stic
sP
rod
uct
ion
char
acte
rist
ics
Inv
ento
ry
Boo
tO
LO
CS
ever
alim
por
tan
tcu
stom
ers
Tw
ow
ayin
ten
siv
ein
form
atio
nsh
arin
g
Off
erm
any
faci
liti
esan
des
tab
lish
ag
ood
rela
tion
ship
wit
hcl
ose
cust
omer
s
Sev
eral
imp
orta
nt
sup
pli
ers
On
ew
ayli
mit
edin
form
atio
nsh
arin
g(S
up
pli
erto
Mfg
)
No
pro
cess
inte
gra
tion
and
spec
ial
arra
ng
emen
ts
Mod
erat
ely
com
ple
xb
ut
hig
hly
cust
omiz
edp
rod
uct
s
100
per
cen
tM
TO
Ov
erh
alf
ofth
ein
ven
tory
isw
ork
inp
roce
ss
Sof
tto
yO
LM
LO
ne
pow
erfu
lcu
stom
erO
ne
way
lim
ited
info
rmat
ion
shar
ing
(Mfg
toC
ust
omer
)
No
spec
iala
rran
gem
ent
Sev
eral
imp
orta
nt
sup
pli
ers
No
info
rmat
ion
shar
ing
No
pro
cess
inte
gra
tion
and
spec
ial
arra
ng
emen
t
Mod
erat
ely
com
ple
x,
stan
dar
diz
edan
dcu
stom
ized
pro
du
cts
100
per
cen
tM
TO
Mor
eth
anh
alf
ofth
ein
ven
tory
isra
wm
ater
ials
Pla
stic
dol
lO
CO
CS
ever
alim
por
tan
tcu
stom
ers
On
ew
ayin
ten
siv
ein
form
atio
nsh
arin
g(M
fgto
Cu
stom
er)
Reg
ula
rly
mee
tw
ith
key
cust
omer
sfo
rp
rob
lem
solv
ing
Pro
vid
eth
emso
me
spec
ial
faci
liti
es
Sev
eral
imp
orta
nt
sup
pli
ers
Tw
ow
ayin
ten
siv
ein
form
atio
nsh
arin
g
No
pro
cess
inte
gra
tion
An
nu
alre
vie
wre
por
tIn
spec
tor
tom
onit
oror
der
stat
us
Mod
erat
ely
com
ple
xan
dh
igh
lyst
and
ard
ized
pro
du
cts
100
per
cen
tM
TS
50p
erce
nt
ofth
ein
ven
tory
isra
wm
ater
ial
and
30p
erce
nt
isfi
nis
hed
goo
ds
Table IV.
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348
Based on the supply chain structure, information sharing characteristics, andpostponement strategy, the eight cases can be classified into five groups as listed inTable VII.
3.3.3 Case analyses. Soft toy can be considered a special case. It has only onecustomer, while its relationship is loose. This is because we assessed therelationship on the basis of the scope and degree of information sharing. Soft toyis a traditional labor intensive factory and competes on cost. As such, it does notinvest in information systems. However, as it only serves one customer, it cantailor its production process to its customer needs with a production lead time ofonly 5-7 days. This allows the company to postpone its production until orderreceipt without prior information.
For other MTO cases, information sharing is a prerequisite. Another interestingcase is boot, which only postpones the final production and keeps inventory inwork-in-process format, similarly to the well-known postponement of the dyingprocess at Benetton (Peter, 1992). A pre-condition is that products can bemodularized and the production process be divided into steps. Comparing bootwith the other MTO cases (except for soft toy), boot has a balanced structure anddoes not share information with its suppliers. As a result, suppliers cannotcustomize the raw materials for boot, and as these have to be pre-processed first,explaining why boot uses production postponement instead of purchasingpostponement.
Next we postulate a number of research propositions based on the case analyses.
4. Research propositionsThe above case analyses demonstrates that, besides market environment and productand process characteristics, the supply chain structure andsupplier-manufacturer-customer relationship do influence the postponement strategyas well.
The following two propositions sum up our findings:
P1. When a supply chain has a balanced structure, it should use speculation orproduction postponement.
In the balanced supply chain structure, no single actor is significantly more powerfulthan any other actor. In order not be “locked” in by a specific partner and losing
Intensive Limited
Manufacturer to supplier ATM, MP3, shaver, plastic doll Hair dryer, shirtSupplier to manufacturer MP3, shaver, plastic doll Hair dryer, shirt, boot
Table VI.Information sharing
pattern-upstream
Intensive Limited
Manufacturer to customer MP3; hair dryer; shaver; boot; plastic doll ATM; soft toyCustomer to manufacturer MP3; boot; shaver Shirt
Table V.Information sharingpattern-downstream
Postponementstrategy
349
Gro
up
Ap
pli
cab
leca
ses
(su
pp
lych
ain
stru
ctu
re)
Pos
tpon
emen
tst
rate
gy
Bri
efd
escr
ipti
on
Bal
ance
dst
ruct
ure
wit
hou
tcu
stom
erin
form
atio
nA
TM
(OC
OL
);p
last
icd
oll
(OC
OC
)S
pec
ula
tion
Inth
ese
two
case
s,n
eith
erp
art
ofth
esu
pp
lych
ain
has
dom
inat
ing
pow
er.
Cu
stom
ers
do
not
shar
eth
eir
info
rmat
ion
,so
itis
dif
ficu
ltfo
rm
anu
fact
ure
rsto
mak
ep
rod
uct
sb
ased
onor
der
Cu
stom
erd
omin
ated
MP
3(O
CM
C);
soft
toy
(OL
ML
)P
urc
has
ing
pos
tpon
emen
tC
ust
omer
sar
ev
ery
pow
erfu
lin
thes
etw
osu
pp
lych
ain
s.M
anu
fact
ure
rsca
ncu
stom
ize
thei
rp
rod
uct
ion
pro
cess
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ater
ial
form
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ther
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ish
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ated
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rd
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(FL
FC
);sh
irt
(FL
FL
)P
urc
has
ing
pos
tpon
emen
tH
ere
the
pow
erfu
lman
ufa
ctu
rer
wil
ltry
tom
inim
ize
its
cost
and
red
uce
risk
by
pos
tpon
ing
pro
du
ctio
nan
dk
eep
ing
inv
ento
ries
ofra
wm
ater
ials
Bal
ance
dst
ruct
ure
wit
hlo
ose
sup
pli
ers
Boo
t(O
LO
C)
Pro
du
ctio
np
ostp
onem
ent
Inth
isca
se,
pro
du
cts
can
be
mod
ula
rize
dan
dth
em
anu
fact
ure
rd
oes
not
shar
ein
form
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nw
ith
sup
pli
ers.
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mat
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lsh
ave
tob
ep
re-p
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and
kep
tin
the
form
atof
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ssV
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pp
lych
ain
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aver
(FC
FC
)P
rod
uct
dev
elop
men
tp
ostp
onem
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Th
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alsu
pp
lych
ain
has
anad
van
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info
rmat
ion
syst
emth
atco
nn
ects
up
the
sup
ply
chai
n.
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em
anu
fact
ure
rp
ostp
ones
the
des
ign
un
til
itre
ceiv
esth
eor
der
,an
dth
enou
tsou
rces
the
pro
du
ctio
nfu
nct
ion
for
the
cust
omer
ord
er
Table VII.Classification of cases
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business opportunities and/or bargaining power, a company will not tailor theirprocesses for a specific partner. However, the key concept of postponement is toproduce based on actual orders instead of forecasts, and this requires a closerelationship between partners. As such, the required information exchange to facilitatepostponement may be more difficult to emerge in a balanced supply chain structure.
Information flow is very important in a balanced structure. Based on customers’POS information, demand forecast, production plan, etc.; manufacturers can scheduletheir production plans prior to coordinating with customers’ orders. If such informationis absent, it will be very difficult to implement postponement, resulting in speculativedecision making, as is the case in ATM and plastic doll. We note that boot has a similarsupply chain structure as ATM and plastic doll, except for the fact that boot and itscustomers deploy two-way intensive information sharing. This makes postponementpossible, but for some reason boot does not share its information with suppliers, sothey cannot adjust their supply to requirements of the production process. If boot wereto fully postpone its production, and therefore keep its inventory solely in raw materialformat, it is possible that they may not get the required raw material from suppliersand hence are unable to deliver the customer final products in time. As such, the bestsolution is to use production postponement and keep inventory in semi-finished goods,which can be finalized very quickly.
In the cases described above, one could argue whether it is the informationexchange that impacts the feasibility of postponement or balance in the supply chainstructure. This is a discussion along the line of the “chicken and the egg, which comesfirst?” which may not be easily resolved. Yet in our study, the focus is on theunderlying supply chain structure with the observation that in the cases describedunder a balanced structure, this required information exchange (with either customersor suppliers) was absent:
P2. When the supply chain has an unbalanced structure, it should use purchasingpostponement or product development postponement.
The unbalanced supply chain is characterized by a leading company who has morepower than other companies in the supply chain. In order to improve efficiency andprovide a high service level, the leading company often demands other companies totailor their production process and share information. As such, it is easier to build closerelationships in an unbalanced structure than it is in a balanced one. This makes highdegree postponement possible and suitable.
If a manufacturer produces for a sole customer, it is obvious it will tailor itsproduction process to the specific requirements of that customer. The manufacturercan therefore produce based on the customer’s actual demand instead of an impreciseforecast, alleviating the need to keep semi-finished inventories to balance uncertainty.Instead, they will fully postpone the production process and only keep raw materialinventory. When the products include many parts and are customized, making theproduction process complex; the manufacturer needs to invest in information sharingto support postponement (i.e. MP3 case). On the other hand, when products are fairlystandard with a relative simple production process, the manufacturer might not need toinvest in information sharing (i.e. soft toy case).
When the manufacturer is in a more powerful position, customers have two choices:they either share information intensively with manufacturers, which in turn can help
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them better coordinate their production plan (i.e. hair dryer and shaver-cases); or do notinvest in information sharing but accept a long production lead time (i.e. shirt-case). Inboth situations, manufacturers can reduce cost and risk by only keeping raw materialinventory and delaying other required procurement until demand is known. On theupstream part of the supply chain, manufacturers can easily find substitutes in theopen market, so there is no need to build close relationships with suppliers. As such,when a manufacturer dominates in the supply chain, it should use purchasingpostponement.
Shaver, just like Nike, is not your traditional manufacturer. They do not producethemselves, but instead design products and then outsource the production function.Such a virtual supply chain is characterized by many suppliers and customers,organized through projects, and generally not exhibiting long-term relationships. Eachpartner in the virtual supply chain has an advanced information system whichsupports intensive information sharing. Such a virtual supply chain is also unbalancedas the organizer is more powerful than the other partners. It delays the whole processof design, sourcing, production, etc. until receipt of a customer order. Virtual supplychains often face high uncertainties, and it is difficult to finalize product specificationsbeforehand, making the design become quickly obsolete. In product developmentpostponement, all production activities are driven by actual information. This will leadto a vast reduction in costs because of fewer re-designs. As such, virtual supply chainsshould use product development postponement.
5. Conclusions and areas for future researchPostponement is a widely used manufacturing strategy, used on a company level basedon market environment and product and production characteristics. This research hasextended the scope of the use of postponement by addressing how the generic supplychain structure and information sharing/relationship among supply chain actorsaffects the postponement decision, based on empirical data of Chinese manufacturersin the PRD.
First, supply chain characteristics (OCOL, OCOC, OCMC, OLML, FCFC, FLFL,OLOC and FCFC) were determined for eight manufacturers in China. A cross-caseanalysis including study of the downstream structure, downstream relationship,upstream structure, upstream relationship, production method and inventory positionproduced a postponement classification into five categories: balanced structurewithout customer information; customer dominated; manufacturer dominated;balanced structure with loose suppliers, and finally virtual supply chain. Based onthis classification, two propositions are postulated for the use of postponement, basedon the balanced or unbalanced structure of the supply chain.
This study is merely exploratory in its methodology, and requires further work.First of all, more empirical data is needed to further validate the postulated results.This may be done through further more in-depth case field research, and future surveywork of supply chains in China and on a global scale. Another limitation of the study isin its measurement of postponement, measured in this instance by the productionmethod and inventory positions used. Other characteristics of postponement may beincluded in future research. Third, a framework needs to be developed to explain theantecedents and consequences of using postponement in a particular supply chainenvironment. The postulated propositions and classification derived in this paper
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could serve as a starting point. Last, but not least, more work is needed to betterunderstand the relationship and interaction among postponement and othermanagement practices such as just-in-time, total quality management, VMI, and riskmanagement.
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About the authorsJeff Hoi Yan Yeung is a Professional Consultant at The Chinese University of Hong Kong(CUHK), and teaches SCM and e-commerce in the MSc and MBA programs. He obtained his MScin Industrial Engineering from the University of Houston, and a PhD in ManufacturingEngineering from Queensland University of Technology. Prior to joining CUHK, he was aBusiness Consultant for J.D. Edwards. His research areas are SCM, e-commerce, BPR, andOperations Management. He has published numerous articles in reputable journals, includingInternational Journal of Production Research, Communications of ACM, International Journal ofPhysical Distribution and Logistics Management, and Total Quality Management. E-mail:[email protected]
Willem Selen is Professor at the Institute for Logistics and Supply Chain Management atVictoria University in Australia. He obtained a Commercial Engineering degree from LimburgUniversity in Belgium, and a PhD in Business Administration from the University of SouthCarolina. His broad research interests span the logistics, operations management, and e-businessareas, and he has published numerous papers in leading journals and international proceedings.He continues to be involved heavily with industry with projects that have involved a variety oflogistics/operations management issues, including business process flow re-engineering on asupply chain level, and studies on 3 and 4 PL’s. Willem Selen is the corresponding author and canbe contacted at: [email protected]
Zhou Deming is an Assistant Professor at The Chinese University of Hong Kong (CUHK). Heholds a Bachelor of Engineer and Master of Management Science and Engineering fromTsinghua University and a PhD in Management from the Anderson School of Management atUCLA. His research interests are in supply chain contract design, supply chain competitions,logistics and health care issues. He has one paper published in Management Science, and severalpapers under review in other journals. E-mail: [email protected]
Zhang Min is a PhD student at The Chinese University of Hong Kong (CUHK). He holds aBachelor of Management and Master of Management Science and Engineering from NankaiUniversity. His research interest is supply chain management. E-mail: [email protected]
To purchase reprints of this article please e-mail: [email protected] visit our web site for further details: www.emeraldinsight.com/reprints
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