Customer order decoupling

The customer order decoupling point separates the demand side of the supply chain (focused on delivery to the end customer) from the supply side (based on procurement and production). The decoupling point can be positioned so as to best suit the need for responding to a volatile demand downstream yet providing level schedule upstream of the decoupling point. The decoupling point approach is essentially based on the concept of postponement. 

Note that with the revised CODP for assemble-to-order (in Fig. 6.2) customers must wait while their order is assembled. To minimize this wait time, the supply chain can be structured for a third option where the finished product is made to stock (MTS) as well as assembled to order (ATO). We call this make to stock and order (MTSO), where the size of inventory is smaller than that in MTS. While the make-to-stock items ensure demand fulfillment for customers who arrive early, MTSO facilitates fulfillment of late orders as well, on an ATO basis. As the demand is not known in advance, a policy that combines MTS of components with ATO can be optimal. To implement this, inventory is allocated to two buckets bucket 1 with finished products is used to fulfill the demand of early customers, and bucket 2 with the generic components is earmarked for the late customers. The company must decide how much of which products to stock in bucket 1 and what should be the size of inventory in bucket 2. 

Consider a scenario with n final products (rme component per product type) and demand i =, n. The supplier builds MTS inventories of g, units of finished product i at unit cost c and holds them in bucket 1. The supplier also builds and holds Q units of the generic component (unit cost c) in stock in bucket 2. Of this Q units, assume that units are earmarked for conversion to product i ( qi Q), at cost ri per unit, c c, c + r,. Therefore, the maximum 

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On the level of material flow, physical properties ofthe network are designed, i.e., decisions upon the existence of plant sites, warehouses and distribution centers, the transportation links between these components and their capacities are made. The decision upon the customer order decoupling point is a good example of how strategic decisions may influence the level of material flow. 

Since the leagile strategy has been defined for product 1 of the computer manufacturer, it is now important to take a closer look at the position of the customer order decoupling point (CODP), which will take place in CM2, but can be considered when looking at the determination of the supply chain strategy. 

Fig. 4.7 Positions of the customer order decoupling point, after Olhager (2003) and Hallgren and Olhager (2006)...

Supply Chain Strategies and Customer Order Decoupling Point... 

Olhager, J. (2010). The role of the customer order decoupling point in production and supply chain management. Computers in Industry, 61(9), 863-868. 

However, those five manufacturing situations are all related to different positions of the decoupling point. In recent decades the positioning of the decoupling point, sometimes also called the customer order decoupling point (CODP), has become a topic of strategic interest, since the concept highlights the involvement of customer orders. 

Modularization of product groups Identifying the customer order decoupling point... 

Inventory represents unproductive investment, although it may be necessary to hold some inventory to cushion against demand uncertainty. In the supply chain inventory is held at multiple stages, upstream and downstream. Because of the value added, it is more expensive to hold inventory downstream. Customer order decoupling, discussed earlier, is one of the ways of reducing downstream inventory. 

The vertical dotted line which separates D-time from P-D time in Figure 5.3 is the customer order decoupling point (CODP). This divides the point to which a focal firm carries out processes to known customer orders from the processes it has to carry out speculatively. We return to the importance of the CODP in terms of planning and controlling materials in the next chapter. 

Where D-times are a measure of the importance of speed as a competitive factor, while P-times measure the ability to deliver. The integration of the two measures the point at which the customer order penetrates the supply chain. In Chapter 5 and Chapter 6, p. 176, we develop this issue in terms of the customer order decoupling point. 

Demand changes from independent to dependent at the customer order decoupling point (CODP, Figure 5.3). What actually happened to demand, and why is this change so important in managing material flow ... 

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