Logistic Postponement | Overview, Strategy & Examples - Lesson | Study.com (2024)

There are so many products available in the 21st century that can be bought in person or online that companies are constantly looking for ways to increase their competitiveness by offering high-quality items at a lower cost. Additionally, customers are increasingly expecting to be able to choose from a variety of products. In order for companies to meet the needs of all customers, they would require a large inventory to hold all the varieties. Since that would take a large amount of capital and be extremely risky, mass customization, or introducing a postponement strategy, is a better solution. Utilizing a postponement strategy is one of the methods that companies have used to increase their competitiveness. This has been especially true for larger corporations who are able to take advantage of economies of scale or more purchasing power. Economies of scale mean that they are able to keep costs low because they are serving more customers. A small company with 250 customers may have to charge $35 for a t-shirt, but a larger company with 5000 customers can charge $20 for the same t-shirt because the cost of one t-shirt decreases the more you produce.

What is a postponement strategy? A postponement strategy is a strategy that businesses implement in their supply chain or distribution networks to delay the customization of products. Implementing a postponement strategy allows businesses to decrease costs. Once businesses are able to decrease inventory costs, they are able to utilize that capital for other processes, lowering product costs and improving customer service. Postponement is a great strategy for helping companies compete in the global economy. When it comes to manufacturing, American companies are unable to compete with the manufacturers around the world in regard to the cost of producing goods. That is why American companies utilize foreign manufacturers. However, implementing a postponement strategy means that American companies are utilizing American workers for more detailed work since customization needs to be done near the markets of the company.

Small and medium enterprises (SMEs) have started to recognize the benefits of adopting postponement strategies as well. However, it is important that companies look at their supply chains to make sure a postponement strategy is right for them. A postponement strategy would not be right for a company that manufactured pool tile markers because there are only so many variations. Even if the pool tile marker company served global markets, a postponement strategy would still not be the best strategy for them because there would be a limited number of variations in each market. Employing a postponement strategy is most effective when there is a large variety of unpredictable finished products. A postponement strategy would be a great strategy for a new product development or emerging markets because customer needs are not yet known.

A company like a local bakery that sells 50 to 60 cakes a day and 100 to 200 cupcakes a day could also customize its products without adopting a postponement strategy. Baked goods have short shelf lives, and a small local bakery would most likely bake fresh goods daily. However, postponement may be a strategy for a bakery in a national grocery chain that shipped products all over the United States. They would have a lot more variations than a local bakery because in the various regions the US consumer requirements would be different.

Two industries that regularly use a postponement strategy are the automobile industry and the computer industry. Both industries have customer-driven markets that are highly unpredictable and offer a wide variety of finished products. Computer companies produce the most common variety of computers that are requested by customers and offer them at a discount. Customers are able to take advantage of economies of scale and get these computers at a discounted rate because they are being mass-produced. Other computers are made-to-order according to customer requirements. Since some computer companies use a postponement strategy, they are able to get the customized computers to customers in a short amount of time.

When a firm produces a standardized product, leaving it to be customized when the customer purchases it, that is considered to be logistics postponement in supply chains. There are five basic types of postponement: labeling, packaging, manufacturing, assembling, and time. Each type, with the exception of time, denotes the time at which postponement occurs. For instance, manufacturing postponement occurs at the manufacturing stage when a basic product is created. Its customization is saved for another stage. With time postponement, customization is delayed as long as possible. A sandwich shop that allows customers to customize their sandwich that comes with a side of pre-made hummus is an example of logistics postponement. Designing a line of identical dolls would not be an example of postponement because the dolls are not being customized. Postponement is characterized by the customization of products.

What is a postponement strategy? A postponement strategy is a strategy designed to utilize all available data to meet customer needs so it delays customization until customer requirements are known. It is most often used to increase the competitiveness of a firm entering into global markets or new markets where customer data is unavailable. Firms also use it as a strategy when developing new products and in emerging markets. Two examples of industries that employ postponement strategies are the computer and car industries.