Postponement Strategies – Where do You Start?
Once you have decided that a supply chain postponement strategy could be applicable for your business, (if you are not there yet, I suggest that you read our recent post: Postponement Strategies – Why Should You Care?) there comes the inevitable question of how do you start to implement this? As we go through this process for many clients each year, I decided to share some of the key steps for consideration:
Understand the current supply chain model
- Start by mapping the current product and financial flows. Pay particular attention to the trigger points of where you are committing to component or finished goods inventory coverage and the cash-flow triggers as ownership and liability changes hands. These will be important in understanding your business case benefits.
- Ensure you have visibility to the full bill of materials for the product and specifications (you would be surprised at the number of companies that do not have this detail for their products – this can be rectified but it will increase the administrative workload to implement a postponement strategy).
- Understand the breakout of the final assembly and packaging costs. Expect some resistance to this question if working with an original design manufacturer (ODM) /electronic manufacturing services (EMS) company or the response of, “it is all included in the total product price – we do not charge you separately for that.” Of course, they do charge for this, but it is often buried in their total costs. If you are working with a business process outsource (BPO) provider however they should be able to give you an indication of benchmark costs.
- Understand your current contractual terms with your ODM/EMS suppliers.
Develop postponement strategy options and model scenarios
- Postponement strategies may include changes to the place (likely closer to the customer markets), or the timing of when to postpone (likely closer to the timing of the actual customer demand) and may also include packaging and product redesign options.
- In each of these cases it should be possible to model the total cost and cash-flow impact of the scenario vs. the current supply chain. At a minimum, this should consider materials, labor, logistics and inventory implications but also pay attention to soft issues around customer service. Watch out for the impact of payment terms to ODM/EMS suppliers, but ensure that you model the potential reductions in inventory and rework costs that are enabled by the supply chain postponement strategy.
- This modelling can be contracted externally or can be provided as part of the service from your BPO provider. The good news is that you can build and evaluate an effective postponement strategy business case without ever moving a product, but be sure that you understand enough of the mechanics of the simulation to challenge the results of the models based on your knowledge of your business.
Map the revised product and information flows – validate costs
- Once you have selected the postponement strategy that best meets you business needs it is important to remap the product and information flows in the new supply chain configuration. The scope of this will need to extend from sales and operations planning, to customer order fulfillment and visibility.
- The revised product and information flows should also include detailed consideration of the transition from the old model to the new one – calling out the impact of inventory cut-offs, disposition of existing inventory and any set-up or exit costs likely to be incurred.
- This will help you understand the revised scope required from your manufacturing and postponement operations and can be used in the development of a detailed scope of work and in setting business expectations.
- This detailed scope can be used to negotiate and validate the revised costs from each of the future stakeholders and get a commitment to the changes that underpin the value of the business case.
- It also helps to communicate to sales and marketing colleagues and customers of the likely changes in the postponed supply chain environment.
Assign resources to manage the transition
- Key factors to a successful transition include:
- Senior resources assigned from all stakeholders to manage the transition
- Common understanding of the scope and timeline and a forum to manage progress
- Executive involvement and support to clear roadblocks
- Adequate time and attention provided to testing of the physical, process and technology elements of the postponed supply chain solution
- Agreement on go-live criteria
- Clear communication to all stakeholders
Once the process is completed it is important to clarify changes during the implementation phase, to validate the results vs. expectations and to take some time to appropriately celebrate success.
I hope that you find this helpful and would love to hear your own tips for successfully managing transitions to postponed supply chain models.