Please read the case and answer the questions given below:

During slowdown of business, Purchase professionals feel that this is the time for breather. But GM (Supply Chain
Management) of a multinational company does not think so. He feels that that is the right time to keep track of suppliers and global
market as well.

Mr. Bhattacharya has learnt long back that it was important to look for new overseas suppliers for critical components and
keep a track of broader economic trends at all times.

“ Purchasing professionals need to be aware of the situation in countries from where they are purchasing their products to
know if there is a problem or an opportunity to reduce the cost further by working jointly” He opined. He also mentioned that if, for
example, you are purchasing from Thailand find out whether there is any riot or blockage of port or transport strike etc which would
paralyze your supply.

Suppliers could also give you excellent information like scrap prices, RM price trend across the globe, Labor cost prevailing,
method of tackling fluctuation of exchange rates between Dollar and Rupee, shipping rates etc. He often drafts 10/12 questions and
hand it over to the select suppliers through their representatives/e-mail. Next time he hands over 10 more questions. Sometimes sales
representatives find it hard to get the answer because they have to contact lot of people in the organization to get the correct answer.
However they do not resent because he respects the relationship with them and treat them nicely all the time.

Once Mr. Bhattacharya receives the answers he analyses them thoroughly. If these are similar for one question this tells him
one thing. If it is different he has to go for further investigation. These answers and other research work he carries out from time to
time give him the information as to where he stands with respect to pricing, which he believes should come down during lesser
demand. Mr. Bhattacharya also believes that suppliers would not reduce their prices on their own but would do so only when you
point out where they can improve the things .For example, if steels are purchased by suppliers at the rate he is purchasing supplier
would be willing to reduce their prices. So should he sell the steel to suppliers or give it to him on loan basis? He also shares with the
suppliers benefits so accrued. He emphasizes that you must be more informative than your suppliers if you want to take the best
decisions for your organization. He likes to see sometimes that suppliers fighting over one product, which helps hin reduce
procurement cost.
 He is very honest and impartial with suppliers and tells them openly if things are not going their way. He says “If you are honest,
suppliers would work closely with you. But you need to be politely aggressive with them, if you want to make them listen to your
logic/arguments. After all, whoever has a better logic/argument should win the game.”

Answer the following questions:-

1) How exchange rate fluctuation affects your purchase cost?
2) What is the most important task of a purchase manager?

Purchasing managers wear several different hats. Typically, the larger the company the more specialized they are in their job
duties and responsibilities and the smaller the company the more all-encompassing their duties.

Purchasing managers not only PLACE ORDERS WITH SUPPLIERS and vendors but they also make efforts to build a strong
relationship with the people behind the companies they deal with. A good relationship is very helpful in taking their business to
a new level and part of that hinges on a command of their own responsibilities.It is also important that the purchasing managers
remain balanced and not get lax in an attempt to better a relationship with one of the vendors because even a sight mistake
can result in huge losses.

The PURCHASING AND PROCUREMENT JOB is quite challenging and each day can present new challenges and new people to deal
with. Excellent communication is one of the core requirements for success in this position. Though there are many variations
and nuances within the purchasing manager position

Here are four responsibilities that are considered an essential part of the job:

Management duties

The purchasing manager needs to handle the management of the various resources and coordinate them properly. In the field
of management they oversee the decisions related to scheduling the meetings of the suppliers and the vendors. It is their duty
to ensure that the stock is always in surplus and the keep a check on the market trends as well. The management duties are
not just restricted to coordination but evaluation and monitoring the different departments so that they can run efficiently. It may
also involve managing other people within the purchasing department.

Procurement duties
The procurement duties are related to the inventory stock of the company, ensuring that all the products are available and
ready in a timely manner. The purchasing manager has to prepare the list of the products and coordinate with the vendors so
that a consistent and regular supply flow is maintained. Having too much stock on hand can be problematic at tax time and tie
up resources that would be better served elsewhere throughout the year. Having too little can cause delays and impact profits.
It’s a constant balancing act that should be fine-tuned and constantly working to make better and better.

Contractual duties

Contract management is one of the important tasks which are accomplished by the purchasing managers. While dealing with
the suppliers and vendors, the managers have to negotiate, prepare and execute contracts. Some will be for one-time only
purchases and other contracts are for extended periods of time and set up regular order intervals or pricing structures. Some
companies may have access to attorney’s while smaller companies may rely on the purchasing manager to review and
approve purchasing contracts.

Analytical duties

The analytical duties focus on the changing demands of the people and how to bring about upgrades, advancements, and
updates based on the data being analyzed. The purchasing managers have to be familiar with the market trend and possess
the desired knowledge to take the right decision. It could also involve running reports, finding problems, or creating better
processes to become more efficient.

10 Key Roles and Responsibilities of a Purchasing / Procurement Manager

Are you pursuing the position of Purchasing or Procurement Manager? Then you should know that these two are
the same thing. The responsibilities of this job remain the same, regardless of how the employer decides to call
this position. Before applying or even accepting such a job, it is highly recommended to know what it is all about.
Do you know that are the roles of a purchasing manager? How about the responsibilities? To make sure that you
will fit in right and that you will able to deliver great results, you need to be aware of these aspects. Here are 10
key purchasing / procurement manager responsibilities, so that you will grow familiar with this position.
1. Supplier Evaluation
Before the company gets to sign a contract with a particular supplier, you will have to evaluate the supplier to
see if it is worth collaborating with it. You will look at the price and quality of the provided items, and how fast a
delivery can be completed.

2. Interviewing Vendors
You will also have to talk, face to face, with vendors, to learn more about their products and services, to make
sure that your evaluation is correct and comprehensive.
3. Visiting Supplier Plants and Distribution Centers
Visiting the supplier’s plant and distribution center can tell you a lot about a particular supplier. Is the supplier
meeting the standards? Is it working efficiently in order to meet your company’s demand? Are the
manufacturing, storing, and shipping conditions appropriate? These and other questions will be answered during
such visits.

4. Attending Trade Shows, Conferences, and Meetings

A purchasing/procurement manager is always in a constant learning process, as it is mandatory to be up to date
with the latest products and supplier, conditions of the market, and emerging trends.

5. Unrolling Analysis of Price Proposals and the Financial Reports of the

Company
Your company will always want to obtain the best price for each acquisition, so it is your duty to analyze the
price proposals of suppliers and the financial reports of the company, before negotiating the best price.

6. Negotiation of Various Contracts

As mentioned before, one of procurement manager responsibilities is to close great deals in the behalf of the
company, so being good negotiator is definitely an advantage.
7. Collaboration with Suppliers for Agreeing Upon Policies
You will have to collaborate with the suppliers in order to come up with convenient policies that will determine
details concerning the shipment of products and other details that will keep the workflow steady.

8. Collaboration with Staff Members for Meeting the Standards

The staff members should be trained concerning the acceptable quality of the received goods, how to determine
defective or unacceptable goods, and what actions to take in such cases. So you will be in charge with their
preparation when it comes to such knowledge.

9. Monitoring and Evaluation of Unrolling Contracts

Once a contract is signed, you will have to keep an eye on it to make sure that the vendors will respect their part
of the contract. And, of course, when needed, you will have to make the required adjustments to the existent
contracts.

10. Maintaining and Reviewing Records of Bought Items

You will constantly have to be aware of the items that have been purchased. Thus, you need to have up-to-date
inventories, plus detailed information about a product’s price, performance, and delivery.
Conclusion

Now that you are fully aware of what it means to be a purchasing or procurement manager, you can make the
best choices for your career. If you have what it takes to manage these responsibilities and roles, and others that
may come along during your activity, then there is no reason not to apply for such a position. Most certainly an
organized person that has great negotiation skill and it is not afraid to work with numbers will do a great job on
this position. So do assess your skills and see if this particular job will fit your career goals. Our students develop
these skills during online mba supply chain management and supply chain management courses online.

1) Why Supplier relationship is important?

The business landscape is ever changing, numerous innovations have allowed companies to transcend
borders and become global entities. While the opportunities are numerous so are the challenges; in this
fiercely competitive global marketplace success requires companies to pay closer attention to supplier
relations. Global leaders should retain suppliers with vested interest in the long-term success of the
company. These partners should be willing to extend more value added services, flexibility and resources.
To attain this level of trust with suppliers, companies should approach these relationships with the same
care they use when approaching customers. A vigorous supplier relationship management (SRM) strategy
can assist organizations in maximizing partnership value, minimize risk, and manage costs through the
entire supplier relationship lifecycle.

When formulating a supplier relationship management strategy organizations must consider the following
implications to be successful:
3) Become the Customer of Choice
In May, 2014 Raytheon gathered a group of its largest suppliers in Boston, MA to discuss the launch of the
company’s Supplier Advisory Council. This advisory board is to serve as the first step towards a more
comprehensive supplier policy and the building block for Raytheon’s new SRM strategy. As stated by Michel
Shaughnessy, Vice President of Integrated Supply Chain for the company “In order to reach a level of
earned preferential treatment, Raytheon has to build stronger bonds and greater trust into supplier
relationships.”
By working closely with its suppliers to receive the best sales terms, fluctuating manufacturing capacity
when needed and first access to the latest innovations, Raytheon secured its status as a leader in the
defense systems market. The company also realized a 10% increase in stock price since the summer of
2014, in a highly competitive and regulated market.

1. Connect your supply chain

Supply chain concepts are generally understood in a linear pattern of consecutive planning in the form
of plan-source-make-distribute-return/dispose. What happens when a company plans to bring a product to
market and outsources all of the steps in between to suppliers that do not communicate? Take for example
lithium batteries, which are intermediate parts destined to be incorporated into finished goods such as
laptops, cameras or cell-phones. The transportation of lithium batteries is dangerous, as they overheat,
which can cause significant damage. In electronics supply chains, transparency and visibility is key to
ensuring that products get to market as promised. To do this, the production and transportation of all
component parts must be closely monitored and coordinated.
 Foster partnerships based on trust
In 2013 B2C e-commerce sales accounted for more than 1.2 trillion US dollars. Omni-channel shopping has
given customers a wider selection of goods and a platform for price comparison. Because of this,
businesses are finding it challenging to forecast demand and therefore they risk escalating inventory costs
or stock outs. Organizations need more flexibility in their supply chains and should seek stronger
 partnerships with their suppliers, moving away from transactional relationships based on costs and delivery
times, and focus more on long-term mutually beneficial relationships.
SRM software, much like a CRM system allows supply chain personnel to keep track of supplier interactions
and address concerns early. This type of system can also help organizations understand when their
suppliers are undergoing change or hardship, and offer them an opportunity to step in and help, or provide
them with enough time to source from different suppliers.

2) Manage working capital

To establish and maintain leadership, organizations must innovate. Most often capital is tied up in paying
suppliers with few funds invested in R&D. Some companies choose to extend accounts payable as long as
possible to free up capital that can be invested into R&D and innovation. This requires strong supplier
relations, built on trust as most times delaying payment can erode partnerships, affect terms of payment,
and cause less willingness for collaboration. These strategies are even more beneficial in the retail
space where suppliers consider special arrangements on payments in exchange for better shelf space and
product visibility.
1. Set clear expectations and KPIs
Suppliers are not mind readers; their success relies on communicating with their customers, understanding
their demand needs, and receiving honest feedback. Organizations that rely on hundreds, maybe
thousands, of suppliers to fill demand find themselves reacting to supplier behavior rather than anticipating
concerns and preparing ahead of time. A comprehensive supplier management strategy helps organizations
arrange suppliers based on different tiers of importance and reliability.

Suppliers should be held accountable for their promises; all communications, formal and informal should be
properly logged and followed up with. It is unwise to trust a supplier with more work or a better project, if
they have repeatedly failed to meet deadlines in the past.
Organizations should keep detailed information on supplier communications, contracts, and improvement
based on their internal key performance indicators. While all businesses appreciate a supplier’s ability to
deliver high quality goods on time, organizations should also have individual characteristics they value from
their suppliers. It is important that these characteristics are shared with suppliers and used to measure their
ability to improve on these indicators.

1. Find opportunities and improve supply chain sustainability

Consumers are becoming increasingly more concerned with how their

products are manufactured and sourced. According to The Nielsen Company: 55% of global online
consumers in over 60 countries assert that they are willing to pay more for products and services provided
by companies that are committed to positive social change and environmental protection. In the past we
have seen numerous examples of global leaders fail consumer expectations. These organizations depend
on a vast network of global suppliers to bring their products to market, but in the eyes of consumers it is their
responsibility to ensure that their practices have minimal impact.
To meet the growing demands of customers, organizations must work closely with suppliers, conduct regular
audits, and analyze findings. Managing supplier relationships strategically allows global companies to set
standards and utilize existing assessments such as the Higg Index. To reach sustainability best practices,
communication with suppliers must be collaborative and transparent with stated common goals and clear
ability to measure efforts.
According to the Council for Supply Chain Management Professionals (CSCMP), supplier relationship
management is a comprehensive approach to planning and managing an organization’s interactions with
providers of goods and services. This practice is supported by a dynamic SRM strategy that retains
information that can be used for analysis. The overall objective of SRM is to streamline transactions and
manage communications. As supply chains become more diverse and exposed to various global risks, these
practices help organizations become market leaders, mitigate risk, hold suppliers accountable and measure
their supply chain footprint.

Modern manufacturers work with a wide range of suppliers, and supply chains are growing increasingly complicated. The growing need to
cut prices for the consumer means margins are being squeezed like never before.

And in order to maintain profitability and drive efficiencies, these companies are turning to supplier relationship management as a controlled
and systematic approach to sourcing the goods and materials they need.

There are several benefits associated with supplier relationship management, and they all culminate in a healthier bottom line.

Reduced costs
There are usually some significant costs involved in setting up deals with new suppliers, but a supplier relationship management
programme can eliminate many of those costs.

By cooperating in a mutually beneficial relationship with key suppliers, a company can strive for cost savings over the long term.

Good working relationships with suppliers will not only deliver cost savings, they will reduce availability problems, delays and quality issues
- and that means a better service for the consumer.
Increased efficiency
As a defined and establish supplier relationship develops, communication improves. Suppliers gain a more complete understanding of the
businesses they serve, and this allows them to meet their needs more effectively. Delays in the supply chain will decrease, and the flow of
operations will greatly improve.

And when issues in the ordering process do arise, the healthy working relationship between supplier and client will make such issues easier
to resolve.

Minimises price volatility

Nothing spooks consumers more than huge fluctuations in market prices. In some cases, these fluctuations are as a direct result of
increase volatility of commodity prices. However, by adopting the principles of supplier relationship management, companies can often take
advantage of fixed pricing or scaled increases in exchange for lengthier contract terms, minimum order levels or various other qualifying
criteria.

Having a clear and unambiguous cost base allows a business to set its own pricing structures with some certainty, and that often translates
to happier, more loyal customers.

Consolidation of the supply chain

As specific areas of both the supplier's and buyer's business work together, this allows both parties to better understand the inner workings
of the other. In some cases, both parties will be able to adapt their own working practices and operations to better accommodate the other,
and that can lead to further efficiencies and operational advantages.

The consolidation of the supply chain may allow buyers to reduce the number of suppliers they purchase from - streamlining the purchasing
process and making budgeting a far simpler task.

Outsourcing certain activities

A successful supplier relationship management programme will often create a trusting partnership between a buyer and a supplier. In some
cases, this may result in many key activities being transferred to the supplier on a permanent basis. This may include entrusting a supplier
with the management of inventory levels and some elements of customer service.
Continual improvement of operations
A long-term relationship between supplier and buyer allows for the free-flow of feedback and ideas. Over time, this will create a more
streamlined, effective supply chain that could have a positive impact on both costs and customer service.

The areas of product development, instigating new ordering processes and inventory control can become a joint venture, and that can
deliver a range of financial and operational benefits to both parties.

An integral component of many ERP softwaresolutions is supplier relationship management. Working together with its suppliers, a
company can tailor its supply chain to meet its individual needs. Processes can be consolidated, costs can be reduced and the end product
for the consumer can be improved. Through a combination savings and efficiencies, companies can create a healthier bottom line despite
underlying weakness in their sector.

***************************************
Postponement

Customer satisfaction at minimum inventory has always been a challenge faced by industries in competitive business
environment. Companies are restructuring their businesses to meet this challenge.
Colour dispensing machines have transformed manufacturing and distribution strategies followed by paint manufacturers world
over. Earlier paint companies used to manufacture and distribute 30 to 50 shades in 5 to 8 packs of different sizes.
The demand pattern was difficult to predict with historical demand, as consumer preferences were changing very fast.
The colour dispensing machines changed the production pattern from producing shades to producing bases. Variety of shades is
produced by mixing these bases in prescribed proportions. This reduced the variety and produced economies of scale, reduced
inventory levels and also eliminated redundancy of stock. New product introduction time reduced considerably. Range of shades
expanded rapidly without the burden of inventory. Customers enjoyed the benefit of variety of shades in every colour. Retailers did
not lose business due to long lead time.
With the strategy of processing postponement, finished products are produced only when specific needs of the customer are
identified. The final product is created only at the point of consumption and not in the factory. The paint companies set up these
colour dispensing machines at dealers places, even at big garages which consume large volume of variety of shades. Paint companies
have drawn huge benefits in terms of inventory reduction and customer satisfaction from the new strategy of manufacturing and
distribution.

Questions:
a) Analyze the case and identify the main problems faced by paint companies before the advent of colour dispensing machines.
 b) Explain the of processing postponement with reference to the above case.

The postponement strategy is based on the following two basic principles of demand
forecasting.

2. The accuracy of the forecastdemand decreases with an increase in the time horizon. The
farther the time window for which the demand is being forecasted, the more inaccurate it will
be. The figure graphically represents this effect as a funnel: as time extends farther into the
future, the forecast error grows, showing that the forecast demand will have larger and
larger variations as time periods progress into the future.
3. Demand projections for a product group are generally more accurate than projections for
individual products. For example, it is much easier to forecast the total demand for LCD
TVs than it is for an individual TV of a specific brand, model, screen size, resolution, and
color contrast ratio.

The postponement strategy leverages the above characteristics of demand

forecasting. It dictates that the firms should postpone the creation or delivery of the final product as long as possible. For retailers, this
takes the shape of postponing the delivery of the final product to its destination, while for assemble-to-order manufacturers this means
postponing the final assembly of the product. For manufacturing scenarios like build-to-stock, the postponement strategy may drive pushing
the packaging or final assembly of the products, allowing the manufacturer to personalize, configure finished products to customer orders,
and change the final product mix to suit any changes in demand. The postponement strategy effectively reduces inventory obsolescence
and takes out the risk and uncertainty costs associated with having undesirable products, but it requires an integrated and agile supply
chain to ensure that the latest demand forecasts can be frequently created and propagated through the supply chain to produce or allocate
the right products for their customers.
While postponement is conventionally thought of as a supply chain strategies, a little thinking will dispel this notion. Postponement is not an
absolute choice, it is an imperative forced by the type of industry, assortment, and demand patterns. For example, a postponement strategy
for delivering supplies to a trauma center or cereal to a grocery store are just not practical choices, even though it may allow for delivery of
specific medical kits optimal for the type of trauma or the correct size of cereal packages in response to the actual demand. Therefore,
medical supplies manufacturer cannot select postponement as their supply chain strategy any more than a grocer can postpone delivering
their cereal. However, in few situations the production and demand patterns may allow postponement to become a business option, in
which case, the supply chain must be designed to support that choice – an example is Avon as provided by Shoshanah Cohen and Joseph
Roussel in their book on Strategic Supply Chain Management. Avon declined to label their bottles themselves for a long time, viewing this
as additional cost and complexity. However, after developing an end-to-end supply chain visibility, Avon saw the opportunity in postponing
the creation of its final product by placing the labels in the desired target language. It successfully deployed an idea that had been pushed
out earlier, after understanding that this allowed them to postpone the production of final finished goods and better align their supplies to
the end-demand without tremendously increasing their inventory.
The situations in which postponement may be an explicit choice to be made for a supply chain are limited, but may become real options for
specific categories of products or sales channels of a company. For example, Dell has mastered the art of postponement for their custom-
 designed machines for individual consumers. When Dell started, this was not necessarily the case in the industry, however, Dell invented a
new business model and leveraged postponement as a business model – not as a supply chain strategy – though, it then designed their
supply chain to support this business model. That is the distinction I want to make clear – postponement as a business model which then
drives the supply chain strategy and not the other way around. And that is also the reason for why I believe that postponement as a supply
chain strategy puts the facts on their head – supply chain strategy must follow a business strategy and not the other way around!
In the next article, I will talk about the speculation as a supply chain strategy and why that too falls short of truly being a strategy for supply
chains. Keep tuned!
If you are looking for an alternate way to design effective supply chains, the answer does not lie in adopting theories in the hope of finding
the right answer, but to build supply chain capabilities driven by your business staretgy. To find this new approach to build effective supply
chains, understand the supply chain sphere of influence, find out what drives your supply chain, and learn about the new design imperative
to build supply chain capabilities to support your strategy.

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How Warehouses Play A Role In Postponement

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Published: 23rd March, 2015

Disclaimer: This essay has been submitted by a student. This is not an example of the work written by our professional essay writers. You
can view samples of our professional work here.

Any opinions, findings, conclusions or recommendations expressed in this material are those of the authors and do not necessarily reflect
the views of UK Essays.

The aim of this essay is to explain how the warehouse can play a role in postponement strategies. It begins with a brief description on the
functions of the warehouse. It then explains the concept of postponement strategy, the different types of postponement and the purpose of
postponement. This essay will provide some case studies on the role of the warehouse in postponement. The essay concludes on the
increasing influence and role of the warehouse where it undertakes more value-added-processing tasks. The function of the warehouse is
getting more focused from storage dominance to transaction dominance. It has evolved from a minor aspect in the logistics system to
performing two critical utilities of time and place that is crucial to the success of the supply chain.

Warehouse
Warehousing is a key component of the overall business supply chain. A warehouse is a facility where the supply chain holds or stores
goods, until they are needed by the customers. It is typically viewed as a place to store, stock and maintain inventory. The functions of the
warehouse are to:

Receive the goods from a source

Store the goods until they are required

Pick the goods from the storage area when they are required

Ship the goods to the appropriate user

Warehousing allows product accumulation, consolidation and customization where key activities are executed including packaging,
labelling, marking, pricing and returns processing (Frazelle 2002). The warehouse acts as a link between the producer and customer and is
an integral part of the logistics system. It affects the customer service stock-out rates and the company's sales and marketing success.
Moreover inventories help to buffer the uncertainties and inefficiencies in the system. Inventory has become a crucial part of supply chain
management. Sople (2007) observed that in many logistical system designs, the role of the warehouse is viewed as a switching facility
rather than as a storage facility. There is an increasing trend for the warehouse to assume more value-added processing tasks which is
additional work beyond that of building and shipping customer orders (Frazelle 2002).
Postponement
The concept of postponement first appeared from a marketing perspective to manage risks and uncertainty. Over time, the scope of
postponement has expanded from marketing to logistics, manufacturing, purchasing, distribution and promotion processes. Alderson
(1950) defined postponement as a strategy that changes the differentiation of goods (form, identity and inventory location) to as late a time
as possible. Researchers view postponement differently (Yeung et al. 2007). To some, postponement simply means performing at least one
differentiating step later than it used to be performed. To others, postponement means adding variety after receiving a customer order
rather than in anticipation of orders.

The principle of postponement proposes that the time of shipment and the location of final product processing in the distribution of a
product be delayed until a customer order is received (Bucklin 1965; Zinn & Bowersox 1988). By holding inventory in a 'less-finished'
state and postponing the final product assembly until actual customer demand is known; companies can respond more quickly to the
market and offer greater customization options. Yang, Burns & Backhouse (2004a) accordingly defines postponement as a strategy that
intentionally delays the execution of a task, instead of starting it with incomplete or unreliable information input. Yeung et al. (2007) have
identified the different types of postponement and they are summarized in Table I.

From Table I the four major postponement strategies are: purchasing, form, logistics and time postponement. Where purchasing
postponement is the practice of postponing the purchase of incoming components or raw material until demand is known (Yang, Burns &
Backhouse 2004b). Form postponement keeps undifferentiated semi-finished products to initiate production in anticipation of orders, such
as changing the sequence of activities to delay changes in form or identity (Zinn & Bowersox 1988). Logistics postponement maintains a
full-line of anticipatory inventory at one or a few strategic locations (Pagh & Cooper 1996). Time postponement refers to the delaying of
the forward movement of inventories until customer orders have been received (Zinn & Bowersox 1988).

The 4 Major Postponement Strategies

Purchasing postponement

Delay purchase of expensive and fragile materials/components

Form postponement

Products in semi-finished forms and can be customized quickly in production facilities

Logistics postponement
Maintain a full-line of anticipatory inventory at one or a few strategic locations. Products can be customized quickly in production facilities
close to customers

Time postponement

Finished products are kept in central location and are distributed quickly to customers

To illustrate the above postponement strategies, an example would be on the Sony PSP (PlayStation Portable) supply chain. The PSP has a
highly modular and standardized product design that is favourable to customization. It consists of a base pack that contains the console,
battery and AC adapter. The PSP supply chain is for the products sold in Japan, Taiwan, China and Hong Kong where the total number of
units is aggregated. However the actual quantity required in each country is unknown. The products sold in each country have some
distinct differences in terms of manual and packaging for the different languages (Japanese, traditional or simplified Chinese) and the
different types of sockets in each country (2 or 3 pin plugs).

Standard PSP Console

Different sockets: 2 &3 pin plugs manual and packing

Option 1: Purchasing Postponement.

Process flow: purchase+ make+ assembly+ delivery.

Delay purchase of expensive components until order is received

The make process includes the console system and type of plug

Assemble according to the type of manual and packaging for actual country

Deliver to the country per customer's order

Option 2: Form Postponement.

Process flow: make+ assembly+ delivery.

The make process includes the console system and type of plug
Assemble according to the type of manual and packaging for each country

Deliver to the country per customer's order

Option 3: Logistics Postponement.

(Postponement in place utility)

Centralization of inventories improves on-time delivery and high stock availability.

Deliver products to the country per customer's order

Option 4: Time Postponement.

Finished goods are stored in a central location and distributed quickly to customer.

Process flow: assembly+ delivery.

Assemble and package according to the requirements for each country

Deliver to the country per customer's order

Having identified the four major postponement strategies, this essay will briefly explain the reasons companies use postponement. Aside
from managing risks and uncertainty, postponement helps the organization to reduce inventory cost by delaying purchase of expensive
components or in holding semi-finished goods. Postponement reduces transportation cost through consolidation of inventory.
Postponement reduces the risk of obsolescence as raw materials are less prone to deterioration and have a longer shelf life compared to
finished goods. Postponement reduces demand variability as manufacturing and distribution of products are acted upon receiving customer
order. This further help to improve competitiveness by offering customized products quickly. This essay will provide some case studies to
examine further on the benefits of postponement.

Case Study
Amazon.com
When Amazon.com began as on online bookstore in 1995 could offer more than the traditional brick and mortar bookstores that offers
200,000 titles. Applying logistics postponement (finished goods) it seeks postponement opportunities in the final movement of products,
which have taken their final form in advance of customer orders, to the customer. With the emergence of e-commerce, virtual inventories
are independent of the physical location of the inventories at the time orders are placed. Amazon.com thus manages the inventory to fulfil
customer orders by postponing the location of inventory to their suppliers in the upstream supply chain until the arrival of customer orders
(Bailey & Rabinovich 2006). With warehouses and fulfilment centres located in cities often near to airport deliveries are directed to the
customer. In practice, Amazon.com usually chooses to work closely with its vendors and the United States Postal Service to ensure that it
can use such a postponement strategy (drop-ship) to handle the volume and delivery timing of a popular product (Yang et al. 2007). This
case study demonstrates the warehouse's role as a holding facility to store the goods until they are needed. It also allows the products to be
customizes quickly before shipment to customer.

c) What is the disadvantage of producing large variety in anticipation of forecasted demand?

d) Discuss briefly inventory systems used by paint companies before and after introduction of colour dispensing machines?

e) In one of the dealer's locations a base colour is consumed at the rate of 500 litres per day. The lead time for procurement is 3
days. A safety stock of 1000 litres is maintained by the dealer. Calculate the rcorder level.

Study the following business case and answer the questions asked at the end of the case:-

Furniture India (P) Ltd. made a humble beginning in the liberalized atmosphere of mid 1990s. They produced steel furniture for
offices in their plant in Mumbai. They put their focus on process quality since the beginning. Their products earned the reputation of
being one of the best in the trade, though they were small in terms of volume. Indian economy grew rapidly post liberalization
creating good market for office furniture.
Furniture India's marketing efforts coupled with their reputation for product quality helped them expand their market share. The
volumes grew, revenue jumped up and the business was booming. in their Annual Operating Plan meeting in 1999 marketing
Manager presented a vision of the company being No. 1 in the market in near future. Engineering function demanded large
allocation of funds for expansion plan in line with projections of marketing. Operations function wanted to expand work force to
meet the demand of the market.

In this atmosphere of enthusiasm, cost accountant was an unhappy participant. He argued that the costs were increasing. The
revenues are absorbed by various cost heads which were not so prominent till then. The costs of distribution were rising
dangerously. The CEO took serious note of the concern raised by the accountant.

One of the participants in the meeting, a young MBA, Deputy Manager in operations function talked about the importance received
by new Management functions called Logistics and Supply Chain Management in competitive business. He said that these new
concepts dealt mainly with movement of inputs and outputs in industry which is a cause of serious cost concern. The CEO asked the
new manager to closely examine the company's movement activities and work out a plan of action to put a lid on the rising costs.
The efforts of the new MBA started showing results.

In a presentation made by him he said:-

1. Transportation and warehousing costs increased rapidly with growing volumes.

2. Application of the packaging concept of "cube minimization" from packaging function of Logistics and Supply Chain Management
yielded substantial reduction in transportation cost.

3. The products were now distributed in "knocked down" condition (dismantled condition) to a warehousing hub in the market. This
further reduced transit damages and warehousing costs.

4. The Hub sent the required volumes to spokes outlets for sale. The mechanics assembled the furniture on the spot at the
customers' place
The cost accountant agreed that there was a favorable impact on total cost.

Answer the following questions

(i) Explain concept of "cube minimization " from packaging function.

The size and shape of packages affects sales value, material cost, and filling speed. But most important, geometry affects
logistics cost, especially transportation cost.

The Council of Supply Chain Management Professionals’ annual “State of Logistics” report shows that the cost of logistics is
8.5% of GDP, and that trucking costs make up almost half of total logistics cost.

We, in Packaging, have the opportunity to reduce transportation cost by reducing package cube and/or weight. It depends on
whether your products weigh out or cube out a vehicle. For example, liquid (like beer) packed in glass bottles weighs out a
trailer before it is filled, so a strategy to reduce package weight can result in lower transport cost. Therefore, even though
plastic bottles may be more costly, they can result in lower total costs.

On the other hand, most products cube out. Assembled furniture, for example, can never fill a trailer to its maximum weight.
That’s why IKEA’s strategy to ship knocked-down furniture has been so successful: lower transportation costs.

Kevin Howard, MSU School of Packaging alumnus and consultant, has based much of his successful career on promoting
“Space, the Final Frontier.” It’s not that he’s a “Trekkie” as much as the fact that he finds so much wasted space in packaging.
His well-publicized case study of postponed packaging for Hewlett Packard was the largest cost-savings in HP history, a
savings in transportation cost due to shipping printers on their sides (so that they cleverly interlocked L-shapes in a pallet-
pattern) in bulk to regional distribution centers where the printers were packed to order. Kevin realized that adding the
cushions, boxes, and orientation doubled the cubic volume of the product. He realized that the cushions weren’t needed until
the last leg of the logistical journey. The increased packaging cost and complexity was more than offset by the multi-million
dollar transportation savings.
But improving cube utilization is not really a new (or final) frontier for logistical packaging. The commercial amphoras used by
the ancient Romans, Greeks, and Egyptians and the barrels/casks used for 2,000 years thereafter, were designed to fit ships
securely, without wasting any space. Likewise, the historic British tea chests were dimensioned to tightly fit the tea clippers (like
the Cutty Sark), to maximize the cargo carried and minimize the possibility of shifting during a storm.

Cube is a powerful packaging tool. Strategies to reduce cube (and/or weight) give packaging professionals the power to reduce
logistics cost. “Right-sizing” packages for internet sales reduces packaging and logistics cost. Tools like CAPE and TOPS can
help make decisions that reduce the amount of wasted space in pallet and truck loads. Strategies like postponement can
reduce the space occupied during long-distance shipping.

(ii) How does the knocked down condition reduce transit damages and warehousing cost?

Definition: What are Knock Down Containers?

Containers with their walls made using composite panels that can be used as exterior sheathing in building construction at the point of
destination of the shipped goods are known as knock-down containers. Assembled using a number of bolts, its four upright corner posts form a
pair of steel angle brackets. The inner bracket consists of a number of threaded studs that extend through the walls of the container. The outer
brackets use tamper-resistant nuts threaded onto the studs. These then connect the inner and outer brackets together, in order to attach the side
walls together at the upright corners.
Upon reaching its destination, it is possible to disassemble such containers. The recipient of the shipment then returns the outer brackets of the
corner posts to the shipper for reuse. The recipient then can use panels that form the container walls as building materials. This eliminates the
need for return shipment or storage of an empty container.

(iii) What are warehousing hubs and spoke outlets?

Federal Express, UPS, Norfolk Southern and Yellow Freight have all successfully implemented hub and spoke distribution to achieve a
competitive logistics advantage (1). They have found that this method of distribution reduces transportation costs, improves cycle times, and
reduces inventory. These firms and many other companies are now realizing that significant cost savings can result from improving their
distribution processes.

A hub and spoke network is a centralized, integrated logistics system designed to keep costs down. Hub and spoke distribution centers receive
products from many different origins, consolidate the products, and send them directly to destinations.

Studies have shown that logistics costs are between 10 percent and 35 percent of companies’ gross revenues. Sixty percent of these logistics
costs are for transporting goods (1). A study by consulting firm PRTM found that companies considered to be best practice organizations in
moving product to market enjoyed a 45 percent supply chain cost advantage over their median competitors (1).

Wal-mart is an industry leader in supply chain functions. The company’s distribution center network and logistics expertise is the cornerstone of
its competitive advantage (2). A new player in realizing this competitive advantage is Lowe’s Home Improvement Warehouse
(http://www.lowes.com/). Lowe’s has embraced the concept of the hub and spoke distribution model, allowing the company to gain a large
share of the home improvement market. Analysts comment that the Lowe’s distribution center strategy has enabled the company to obtain a
competitive advantage (3).

The Lowe’s Distribution Center Strategy

Lowe’s decided to implement the hub and spoke distribution model to encourage growth to gain market share and to achieve wider profit
margins (3). Lowe’s set up a network of nine distribution centers for its current 850 stores. Each distribution center is designed to serve
approximately 100 to 125 stores. Lowe’s plans to open more than 100 stores each year for the next several years, therefore, a new distribution
center also will open every year.

A Lowe’s distribution center contains more than 1 million square feet (space for almost 30 football fields), has more than eight miles of conveyer
belts, and has storage shelving more than 30 feet high (3). These distribution centers receive large truckloads of products from suppliers. The
products are scanned by barcode and then placed in a specific location in the warehouse. When the products are ready to ship, the conveyor
belt and barcode system automatically directs them to the trucks. There are more than 100 outgoing truck docks per distribution center. Each
store the distribution center serves receives from two to eight truckloads of product per week.

The construction cost of each distribution center for Lowe’s is $45 million to $75 million. Lowe’s explains that these high upfront costs lead to
lower costs charged by vendors and result in tighter inventory controls (3). Lowe’s says it receives a 5 percent to 10 percent savings on the cost
of each product. As a result of the hub and spoke model, distribution is now only 3 percent of the company’s cost of inventory, down from 5
percent to 6 percent in 1994. This beats the industry average of between 3 percent and 8 percent, resulting in significant cost savings for a
company with $22 billion in annual sales (4). Colin McGranahan, an analyst with Sanford Bernstein, puts the Lowe’s distribution system “in the
top quartile of retailers in terms of their distribution capability (3).”

Currently, more than 50 percent of the company’s inventory moves through its distribution centers. Lowe’s executives aim to add more
inventories to their distribution center network, sending more trucks more often to each store (4).

The Lowe’s decision in the early 1990s to use the hub and spoke distribution model has enabled it to gain a competitive advantage. (3). With the
world market continuously changing, companies must have various sourcing locations, multiple transportation modes, and a flexible and cost-
effective distribution network (2). The hub and spoke network enables companies to centralize their distribution network and to be more
efficient in controlling the flow of products across their businesses, while realizing significant cost savings.

Increase efficiency by embracing the hub-and-spoke model

Just-in-time shipments make all the difference in the automotive industry. Yet the speed of shipments must be balanced with
affordability.

To deliver products in the most cost-effective and timely means possible, forward-thinking logistics companies are embracing
hub-and-spoke models, where connections are arranged like a wheel. Freight traffic moves along spokes connected to a
central hub. This efficiently moves products out of strategically located distribution centers and shortens travel time.

As an industry leader, Penske Logistics puts its own hub-and-spoke model into action for customers. Penske experts optimize
the model to help you to speed up deliveries, increase efficiency, reduce costs and keep products moving.

Maximize Freight Efficiencies

As part of the hub-and-spoke model, hubs are positioned no more than 300 miles apart from one another. Here’s how it works:

Driver A leaves from his origin hub and meets Driver B at a switching point. They then exchange trailers. And while Driver B
continues to the next switching point, Driver A heads back to his originating hub. This sequence of events keeps products in
continuous motion and allows drivers to return home each night.
The hub-and-spoke model creates numerous benefits, including:

Continuous movement for loads thanks to centralized handoffs.

Reduced lengths-of-haul, which improve scheduling, reduce transit time and help drivers comply with hours-of-service
regulations.

Consistent on-time performance, which enhances service levels and ensures products arrive in the right place at the right
time.

Improved driver recruiting and retention. Drivers are able to return home each night, thus experiencing an improved quality
of living. This produces additional benefits, including higher tenure, route consistency, increased transit dependability and
performance, and improved safety.

Reduced costs and enhanced productivity thanks to Penske’s economies of scale (larger loads reduce per-unit costs) and
the elimination of the need for team drivers.

Lower carbon footprint, because few empty miles driven reduces wasted fuel and emissions.

Consistent pricing mitigates the risk of third-party carrier price fluctuations.

Just-in-time doesn’t have to mean high costs. By partnering with Penske and leveraging our hub-and-spoke system, you can
strategically use your transportation resources and steer a course toward efficiency.

http://insight.proximagroup.com/five-reasons-why-supplier-relationship-management-is-important