Our Guest Post today comes from Dr. Drew Stapleton, Professor of Operations Management at the University of Wisconsin La Crosse.
When we speak about postponement strategies in OM (Chapter 11 in your text) we are usually referring to a firm’s strategically postponing the addition of some sort of value down the supply chain until the firm can better assess actual demand. It is essentially the opposite strategy of speculation where a firm forecasts demand, produces to that forecast, and hopes they got it right.
For instance, United Colors of Benneton originally followed a Speculation strategy, forecasting demand of the popular styles and colors for the fall fashion season in the US, and shipping the textiles from Genoa, Italy, in April or May. The containers would come into the port of New York/New Jersey into a Free Trade Zone (FTZ) and await the fall season before releasing the goods to the US market. If they forecasted, or speculated correctly, all was well. But when they did not, they ended up sending most of the inventory to markets for pennies on the dollar, taking huge losses.
Once United Colors shifted to Postponement, they shipped the textiles in white or gray, still in April or May. They then monitored the fashion districts around the world like London, Paris, and Milan to determine the popular fashions and colors. Once they better ascertained demand they dyed the textiles at the port’s FTZ and then released the goods to the market with a much better prospect of maximizing their profit.
We are starting to see a new form of Postponement – that of automobile manufacturers shipping their inventory without key features due to the computer chip shortage. The dual supply chain challenges of Covid and the Russian invasion of Ukraine have disrupted global supply chains. Many auto manufacturers cannot get needed computer chips. For instance, Ford is shipping Explorer SUVs without all of its chips to address the tight inventory of vehicles available at their dealerships– sending vehicles without rear-seat controls for A/C or heat. The idea is to postpone adding that feature until the chip shortage eases and the customer can return for chip installation in the next 2 years.
Some features will not be able to be added at a later date. For example, the start-stop feature on the Ford F-150 trucks cannot be installed once delivered. Instead, the automaker is giving their customers a choice – get the truck without the feature now – and a $50 credit – or wait until the chip supply eases.
Either way, we now see manufacturers postponing adding value– but rather out of necessity and not out of better demand assessment and supply shortages.