An empirical test of inventory, service and cost benefits from a postponement strategy

Postponement of the point of product differentiation is a potentially powerful strategy to improve supply chain management. The literature offers theoretical arguments supporting the relationship between postponement and improved inventory turns and customer service quality, as well as lower operational costs. This study empirically examines these proposed benefits. Data from a disk drive manufacturer that applied postponement to simplify its supply chain are used to test the benefits of this strategy. During the time of the case study, the company implemented an initiative to create a generic product that needed less customization; what configuration remained could be delayed until the product was integrated at the customers’ sites, instead of at the company's distribution centres. Regression analysis is used to investigate whether higher levels of postponement are associated with better service, lower inventory, and lower cost. Our results indicate that higher levels of postponement—measured as the percentage of generic products shipped—are associated with better on-time delivery and lower variable costs. Our results also indicated the importance of redesigning products and processes and working together with customers.