Tailored postponement

Next, we discuss how tailored postponement can be an effective strategy when complete postponement is not appropriate. 

One way to implement tailored postponanent is to produce high-demand, predictable products without postponement and produce only the unpredictable products using postponement. Let us return to the Benetton data with red sweaters constituting about 80 percent of demand. Recall that demand for red sweaters at Benetton is forecast to be normally distributed, with a mean of fired — 3,1(X) and a standard deviation of a-red = 8(X). Demand for the other three colors is forecast to be normally distributed, with a mean of ju. = 300 and a standard deviation of a- = 200. We evaluated that postponing all colors decreases profits for Benetton by more than 2,(XX) (from 102,205 to 99,876). However, if we tailor postponement so red sweaters are made using the traditional method and only the other colors are postponed, profits actually increase by 1,009, to 103,213. 

Tailored postponement allows a firm to increase its profitability by postponing only the uncertain part of the demand and producing the predictable part at a lower cost without postponement. Tailored postponement is more profitable than either no postponement or complete postponement but can be complex to implement. 

Understand conditions under which postponement is valuable in a supply chain. Postponement is valuable in a supply chain when a firm sells a large variety of products with highly unpredictable demand of about the same size that is not positively correlated. Postponement is not as valuable if demand becomes predictable or positively correlated. Postponement is also not as valuable if a large fraction of the demand comes from a few products. In such a setting, tailored postponement is most effective when base loads are not postponed but the variation is postponed. 

What are some scenarios in which postponing product differentiation across all products may not be profitable How can tailored postponement help in such situations ... 

As already mentioned in the previous chapter, the difficulty pertaining to specific GAs in catalysis is the restriction of the full usefulness of any specific genetic algorithm implementation to the task for which it was designed. It was this difficulty that inspired the basic idea behind the proposed approach to postpone the implementation of the algorithm as much as possible, i.e., to only implement the algorithm immediately before it is used to solve a particular optimisation task. Since at that time all requirements concerning the task are already known, this approach enables the GA to be precisely problem-tailored. 

A more sophisticated approach to postponement separates all demand into base load and variation. The base load is manufactured using the low-cost method without postponement, and only the variation is made using postponement. This more sophisticated form of tailored sourcing is more complex to implement but can be valuable even when all products being postponed have similar demand, as we illustrate next (see spreadsheet Table 13-4). Consider the scenario in which Benetton is seUing four colors, and the forecast demand for each color is normally distributed, with a mean of fi = 1,(XX) and a standard deviation of o- = 5(X). We have observed earlier that the use of complete postponement (every sweater is postponed) in this instance increases profits at Benetton from 94,576 to 98,092. 

Tailor your response to uncertainty. A manager should recognize that strategies such as quick response and postponement are most effective when the underlying unpredictability is large. Thus, for the portion of demand that is relatively predictable, one should focus on the lowest cost production method, even if it is not responsive. The unpredictable portion of demand, however, should be served using a more responsive approach (postponement or quick response), even if it is more expensive. 

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