Posted in Operations and Supply Chain Terms, Total Reads: 475

Definition: Postponement

Postponement is a business strategy that aims to maximize the possible benefit and minimize risk by delaying current investment into a product or service until the last possible moment. 

Dell Computers’ build-to-order online store is the best example of this strategy.

The five types of postponement are labelling, packaging, assembly, manufacturing and time postponements.

Postponement is a very important concept used in Supply Chain Management wherein the manufacturer on produces a generic product, to be modified at later stages before transporting it to the customer.

For example, an umbrella manufacturer may manufacture all white umbrellas at once as he may not know the demand of specific coloured umbrellas beforehand. He may then dye these white umbrellas as and when he gets the orders for the same. This way he can minimize his labour costs and at the same time ensure that he is stocked well in advance for the monsoon season.

Postponement is based on two major principles:

1) The accuracy of the demand forecast decreases with an increase in the tine window and the error is minimal when the time window is optimal.

2) Demand forecasts are more accurate for a product group than for an individual brand. For example, it is easier to forecast the demand for laptops than to forecast the demand for Dell, HP, Asus laptops separately.

However, postponement strategy is not universally applicable. It is not practical to use this strategy in a medical trauma centre or in a grocery store as the demand may be urgent and stocking the final product seems to be the most logical alternative in these cases.



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