Supply Chain Education Series by Alvis Lazarus | Product Postponement Strategy

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Article by: Alvis Lazarus, Supply Chain Consultant
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In this article, I am going to discuss about a very powerful supply chain concept called Product Postponement Strategy. It is very powerful since the benefits that it gives to the Supply Chain is numerous.
Let’s take an example of ‘ice-gola’. I am sure that you all had ‘ice-gola’ during your school days or you may like it even now also. It is nothing but crushed ice with flavor. So, if you see vendor selling ‘ice-gola’ by the road side he will be probably having a bicycle or a small push-cart and he will claim that he can give you almost fifty plus flavor.
He will have crushed ice in a big container and different bottles for each flavor. So, the moment a customer comes and ask for a specific flavor he will take a stick, put the crushed ice and put the flavor to it.
“Now, indirectly he is following a product postponement strategy.”
Let me explain you how it is. If you consider the adding of flavor is the last activity in manufacturing, is preponed to the front that is, he is going to have crushed ice with added flavor then in that case he will require a lot of extra space. In that case he cannot carry out the business in his bicycle for fifty plus flavor that he has to sale. Second, he also has to do an estimate of the demand for a particular flavor. Previously, he did not need to do all these estimates. He had each flavor in different bottles and the crushed ice. However, now he has to estimate specifically the different flavors that will be required. Otherwise, it will lead to unsold inventory for him. This will directly impact his margins as well. So, here the activity of adding the flavor (which is creating the variation) is moved to the last part of the manufacturing. In this case, he has moved it after he has received the order. This will help him to carry out his business without doing any kind of forecasting and by holding lesser amount of inventory.
So, indirectly without even knowing what he has followed is, product postponement. So, this is a product postponement strategy. There are different product postponement strategies like make to stock, make to order, assemble to order, innovate to order and others.