Making Postponement Work Globally

In the "Adaptive Supply Chain: Postponement for Profitability," a white paper authored by APICS, Cap Gemini Ernst & Young and Oracle, the postponement strategy is defined as delaying "product differentiation at a point closer to the customer. This involves designing and developing standard or generic configurable products that can be customized quickly and inexpensively once actual consumer demand is known."

While the objective is clear, being able to implement a postponement strategy involves a great deal of work in getting "the right inventory in the right place in the right form." When supply chains reach offshore, the task becomes even more daunting.

Ultimately, the goal is increased customer satisfaction-at a lower cost, but as Agilent Technologies (www.agilent.com) has learned, there are a number of other benefits to a postponement strategy.

"We operate in a configure to order environment," says Arturo Albanesi, a supply-chain engineer for the Palo Alto, Calif.-based company's Electronic Measurement Group (EMG). "We do not actually build the final system to be shipped until we receive an order. That's one of the areas in which we see benefit—in postponing material through our vertical supply chain and figuring out where the optimal locations to postpone that material are while still trying to achieve our objective service levels for our customers."

Albanesi's division provides electronic and bio-analytical measurement instruments for communication networks, software design, fiber-optic networks, broadband and data wireless communications. EMG's low volume, high mix supply chain contains very deep and complex bills of material. Manufacturing lead times are long because of the complexity of the products, often running from 100 to 200 days. By and large Agilent does final assembly, relying on contract manufacturers to build lower-level assemblies that go into the final product.

"Our very long supply chain has final assembly locations domestically, in Asia and to a lesser extent in Europe," says Albanesi. "These final assembly organizations may ship to customers globally, but will source from technical manufacturing centers locally, in Asia and the U.S., and from our contract manufacturing partners locally and globally." In order to better manage its order fulfillment processes, Agilent deployed Oracle Corp.'s (Redwood Shores, Calif., www.oracle.com) Inventory Optimization (IO) module along with some ancillary tools to improve visibility. Agilent is currently using the software in a single division, applying the strategic inventory plan and postponement recommendations that it provides.

"We've always had the philosophy of crawl—walk—run. You cannot go from zero to 100 miles per hour in one or two seconds. You have to gradually ramp up. Agilent started off with one product line and a subset of their supply chain as a focus and they are gradually ramping up from there," says Nadeem Syed, Oracle's vice president for the development of advanced planning applications. "By virtue of approaching it in an incremental fashion, you can also handle the business process change element in a more lucid and much more manageable fashion."

Change management was a challenge that confronted Albanesi and Douglas Gibson, Agilent's ERP supply chain solutions manager.

"When implementing a postponement strategy," says Gibson, "diverse supply-chain nodes feed different parts of the company and so have their own set of targets, financial metrics and inventory levels. Often a tool like IO will recommend a postponement strategy that can really be at odds with those single-level metrics. It takes pretty high support from management to realign those metrics where necessary to optimize the whole system. So we did need to address local metrics to make the implementation work."

Another issue needing resolution when implementing a postponement strategy is the basic design of products and to what degree it's possible to postpone before really committing to a particular configuration or model.

"We've got literally thousands of different products at Agilent," Gibson explains, "Some of them are well designed for postponement strategies, and others not well at all. Having a tool like IO in place helps identify where opportunities are, where it's possible to increase flexibility with lower inventory if some basic product design matters are addressed in terms of how far to build up before committing to a particular configuration." Oracle's Syed agrees, noting that postponement begins by looking at the design of a product and the ability to use common components, assemblies and suppliers for production.

"At the end of the day," he says, " postponement is all about is holding inventory at a pull point to get economies of scale. It's something that has to be factored into your DNA and needs to be designed into the product and supply chain in order to execute, monitor and continually improve performance based on it."

Albanesi says Agilent's postponement strategy has allowed it to hold the right amount of safety stock at higher-level nodes that allow it to maintain service levels to customers while not holding any more inventory than necessary. The rest of operational inventory is postponed through the remainder of the vertical supply chain. As a result, the EMG division is finding fewer strategic problems with material, which permits it to focus on other areas within the supply chain, such as technical issues with assemblies and subassemblies.

There have been added benefits, according to Albanesi. "Before we deployed with IO, we had individual planners and buyers operating at a tactical level, planning safety stock for individual items across the entire, very deep supply chain. With IO implementation, we have a consistent set of safety stock aligned through that entire supply chain," he says.

With the ability to roll up safety stock through the entire vertical supply chain, order fulfillment managers now have a greater understanding of the flexibility possible within the supply chain. "This has been a key enabler in establishing our sales and operations planning process for that division," explains Albanesi. "It is now easy for our management to gain a holistic picture of the supply chain in terms of both forecast flexibility and supply. It has allowed them to understand where our challenges are on the supply side."

"A postponement strategy can really be at odds with single-level metrics. It takes pretty high support from management to realign those metrics to optimize the whole system.—Douglas Gibson, Agilent