Putting something off until the last possible minute isn't usually thought of as an effective business practice. But that strategy has certainly paid off for manufacturers that put the final touches on products and packaging just before they roll out the dock doors for delivery.

Through postponement, or "mass customization," companies that have the resources and the motivation to do more than just pack and ship have been able to reduce inventory and overstocks, minimize obsolescence, and better meet their customers' needs. They do it by storing generic parts and components at a warehouse or distribution center, and then performing finish work such as kitting, assembly, packaging, or other customization activities.

David Hogan, senior vice president and CIO of the National Retail Federation in Washington, D.C., says postponement makes sense for retailers and manufacturers alike. Manufacturers, he notes, can provide high levels of service to their customers while quickly and efficiently shifting resources and raw materials from one customer to another. At the same time, retailers can shave days off lead times by postponing customizations, such as customer-specific packaging or swapping out a zipper in a piece of apparel, until just prior to delivery. "The sooner the retailers can get the merchandise, the sooner they can get it on the shelves and start returning a profit," says Hogan. "To me, postponement is just smart business."

Today's marketing strategies are putting pressure on more companies to engage in postponement at the warehouse level, says James Tompkins, president of Raleigh, N.C., supply chain consultancy Tompkins Associates.

"Burger King's 'have it your way' philosophy has won out, and the one-size-fits-all [approach] doesn't work anymore," says Tompkins. "Retailers want their own unique offerings, and that in turn has driven the need to customize product offerings to specific applications. That means suppliers either have to carry a huge amount of inventory or use postponement."

Wal-Mart, Sam's Club, Target, and BJ's Wholesale Club are just a few of the retailers that are pushing the postponement trend, says Tompkins, but demand for customized products doesn't stop there. Other champions of postponement include manufacturers of consumer packaged goods, who produce both famous-label and store-brand products. The trend is particularly hot in the apparel industry, where a dress shop's desire for private labeling can be fulfilled at the warehouse level, based on the store's actual order rather than on a forecast estimate.

Postponement also makes it possible for companies to react very quickly to unpredictable demand—something that's a way of life in the world of professional sports. Take SuperBowl XXXIX, for example. Weeks before the New England Patriots beat the Philadelphia Eagles, 24-21, apparel manufacturers were already making up "SuperBowl Champion" tee shirts with both teams' logos on them.

"Apparel manufacturers know that they can't effectively manufacture enough shirts for the winning team, so they make a small number of them for both scenarios to cover initial demand," says E. Jeffrey Hutchinson, associate partner in Accenture's supply chain practice in Boston. As soon as the game is over, manufacturers shift into high gear and finish the rest of the shirts. "They postpone the final make until the game is over, throw out a small quantity of shirts, and are able to meet demand without having to throw out one hundred percent of the product," Hutchinson explains.

Postponement isn't right for every company, of course. Perhaps the most important determining factor is the degree of commonality of parts and components among finished goods stock-keeping units (SKUs). A lighting manufacturer with 250 SKUs that contain many different internal components, for example, probably wouldn't benefit from postponement. But a manufacturer that uses the same hardware in all 250 SKUs and differentiates them with a variety of spindled bases and lampshades probably would.

"That high degree of commonality would make the company a great candidate for postponement, allowing work-in-progress to be used to generate a large number of different [finished goods] SKUs," says Bill Drumm of warehousing consultants Establish Inc./Herbert W. Davis and Co.

What does it take for postponement to be efficient and cost-effective at the warehouse level, where most of that work will take place? "The biggest thing a DC's management staff has to worry about is having the flexibility inherent in their facility to react on a dime," says Lee Wilwerding, director of i2 Technologies' Strategy Advisory Group and a former logistics manager. "The notice on such projects will be short, yet the expectations of your ability to execute are high."

To meet those expectations, Wilwerding says, managers should consider moving labor, equipment, and the products themselves to a specially designed, high-volume pick location to allow for quick action when projects are announced. Prepping a distribution facility to handle assembly and light manufacturing, in fact, usually requires a capital investment in assembly, storage, and handling equipment that will be needed to get the job done. Adequate floor space, of course, is a must.  Continued...

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