ore and more companies are "procrastinating" in the warehouse. Whether they're handling the private labeling of grocery and consumer products, combining components from various manufacturers into kits for use in assembly lines, or tagging clothing and accessories for retail sale, an increasing number of warehouses are engaged in a process known as "product postponement."

Postponement involves delaying the final assembly, configuration, and/or packaging of a product until after an order has been received—often until just before a product ships to the customer. That trend clearly has gained momentum, judging from the results of a study conducted by the International Warehouse Logistics Association (IWLA), a Chicago-based association of warehouse operators. A recent survey found that 11 percent of IWLA's members offer manufacturing services, up from 2 percent in 1994. Seventy-four percent provide assembly services (up from 69 percent in 1994), and just under three-fourths (74 percent) provide packaging services, compared to 17 percent in 1994.

"There's been a paradigm shift in the last few years," observes Steve Jacobus, president and CEO of The Olson Co., a third-party logistics company that does postponement work for a number of clients. "We've been doing postponement for years, but in the last few years we've seen a lot more companies looking very seriously at this supply chain strategy."

Those companies are jumping on the postponement bandwagon because it offers many cost and production benefits. This business strategy creates some challenges for warehouse managers, who must rethink existing procedures and reconfigure facility layouts to accommodate postponement's requirements.

The practice of product postponement, also known as "manufacturing postponement," may have begun years ago with canned goods manufacturers, who waited until orders came in before labeling products stored in a warehouse. "Packagers who supplied store brands quickly realized that postponement was the best way to service customers while minimizing exposure to risk," explains Bill Drumm, president and CEO of Fort Lee, N.J.-based consultancy Establish Inc./Herbert W. Davis and Co.

Postponement spread to other products, most notably computers, as manufacturers introduced slight variations in product offerings, which rapidly expanded the number of stock-keeping units (SKUs) on manufacturers' lists. Soon manufacturers were offering customers so many SKUs that order rates for individual items were too low to absorb much of the inventory. They solved that problem with postponement, a practice Drumm calls "an excellent way to minimize inventory levels while continuing to offer highly customized products."

Large retailers like Wal-Mart also have fostered greater use of postponement by pushing more post-manufacturing activities back onto their suppliers, says Bill Elenbark, a senior engineering consultant at Gross & Associates in Woodbridge, N.J. "They want special packaging, labeling, security tagging, and other services," he explains. "For the most part, all of that is handled via postponement."

The advantages of postponement are well documented. In a 2003 report, the Indian Institute of Science identified five key benefits: the ability to hedge against uncertain customer demand, reduce inventory holding costs, reduce logistics and warehousing costs, minimize imbalances in stock distribution, and eliminate some stages in manufacturing. Respondents to a survey conducted by APICS—the Society for Resource Management, consultants Capgemini, and software vendor Oracle Corp., cited similar benefits. (See chart at left.)

While postponement represents a winning strategy for many manufacturers and retailers, implementation creates a number of challenges for warehouse operators. "When you get into postponement, you're no longer in the warehousing business. You're in the fabricating and packaging business," says Ken Ackerman, president of Ackerman Co., a Columbus, Ohio-based consulting firm. "You need a manufacturing and/or assembly layout, and that's very different from a standard warehouse."

The first step to converting a warehouse to handle product postponement, Elenbark recommends, is creating a dedicated area for performing value-added services. That will eliminate scrambling to clear additional space for each new postponement project. He also suggests setting up the work area so it will be flexible enough to accommodate different types of postponement activities.

Other necessary changes include supplying workstations with power, establishing boundaries ("You don't want people wandering into a storage area," says Jacobus), installing adequate lighting for assembly work, and tweaking the facility's energy system so that workers who remain in one place rather than move around the warehouse are comfortable and productive.

Because customized products usually head out the door as soon as they're finished, Jacobus says, it's a good idea to position an assembly area close to the loading docks but far enough away that it doesn't get in the way of dock activity. "You'll also want to make sure that you have enough dock doors to accommodate the postponement activity," he adds.

Labor issues like recruiting, hiring, and training also come into play when warehouses engage in postponement, says John Tracy, president of logistics consulting firm Tracy-Hayden Associates of South Orange, N.J. Whereas a warehouse that's normally geared toward storage or cross docking can get away with a relatively small, semi-skilled labor force, a facility that's providing such services as final assembly, packaging, repackaging, and kitting needs trained individuals to keep it running efficiently, he says.

"When product postponement is applied properly, training is a constant," Tracy says. Because postponement requires the warehouse workforce to easily adapt to an ever-changing list of tasks, moreover, managers must be able to assess employees' capabilities. And because automation and mechanization require a certain skill level, companies implementing postponement strategies need to consider what kind of equipment they will use, he adds.

Product postponement has proved to be so successful that most industry observers are certain it will continue to grow in popularity.

Rightly or wrongly, the big national retail chains will continue to demand that their suppliers engage in product postponement strategies, says New York-based Jeff Hutchison, an associate partner at Accenture, the global management consulting firm. "It's the direction that they're going in," he says. "Those 'big boxes' drive the future and direction, and they want more things done at the last minute, like repackaging and reassembly."

Others foresee postponement increasingly being applied to large items such as windows, appliances, and cars. "The reason is inventory," says Lloyd Morgan, principal with St. Onge Co., a supply chain consulting and engineering firm in York, Pa. "Everyone is looking for ways to lower it, and postponement has been one of the more successful techniques for doing so."

Joel Hoiland, IWLA's president and CEO, predicts that more companies will outsource postponement activities, based on the amount of warehouse space, equipment, and human resources needed to perform them effectively. Regardless of whether companies rely on their own warehouses or outsource to contract providers, though, postponement clearly is becoming the norm in some industries. And as more manufacturers and retailers see the value in product postponement, more warehouses and distribution centers will need to be ready to "save the best for last" in order to meet their customers' needs.