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Postponement strategy and pack centers: Are they right for you?

3-Tier Postponement. The three-tier postponement model compares and contrasts the three progressive levels of manufacturing. Tie
3-Tier Postponement. The three-tier postponement model compares and contrasts the three progressive levels of manufacturing. Tie

  A postponement strategy focuses on delaying manufacturing as close to consumer demand as possible. An effective postponement strategy will reduce inventory, improve customer service, eliminate obsolescence, and reduce cost. It enables the right product at the right time at the right place.

Postponement works well for select open-stock SKUs—examples are a four-pack of triple-A batteries or eight disposable razors—as well as promotional packaging. The model I will discuss briefly breaks the manufacturing process into three tiers. Tier 1 is where a basic product unit, without packaging, is produced. Tier 2 is the packaging operation, where final product differentiation is completed for open-stock SKUs. Tier 3 addresses promotional packaging, where displays or combination packs are manufactured to order. For the purposes of this discussion, I will focus on an open-stock postponement strategy.

Open-stock postponement works best for products where the majority of product differentiation takes place in the packaging stage, either in combinations of different products or in packaging quantity. If you are unable to separate the packaging operation from the basic product unit, this model will not apply as easily.

Basic product units are manufactured and stored in a Finished Work in Process (FWIP) buffer inventory area. The reasons are that FWIP inventory will be the basic unit, inventory density can be highly efficient, and inventory cost will be minimized. Packaging centers benefit from being located within key distribution centers along with the FWIP buffer inventory.

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