Introduction
In todays world, everyone is talking about energy saving and how to save the earth. With the latest technology and innovation, high-power light emitting diodes (LEDs) was introduced to replace fluorescent lamps which are commonly used in the world; from the shopping malls, to the libraries, to the factories and even at homes. The advantages of this new technology enables high-power LEDs to be brighter, longer-lasting and more energy efficient compared to incandescent, halogen and fluorescent bulbs. More and more companies are moving towards the same direction in order to keep up in the market trend, thus, market demand and competitiveness between competitors is high (Collin & Lorenzin 2006).
Philips Lumileds Lighting Company was established in the year 1999, it is a multinational corporation with the headquarter located in San Jose, California, two sisters manufacturing plant located in Penang, Malaysia and Yishun, Singapore with over 1500 employees at each manufacturing plant respectively. Philips Lumileds is the pioneer world's leading manufacturer of high-power light emitting diodes (LEDs) which provides lighting solutions for automotive lighting, computer displays, mobile phones, LCD/LED televisions, signage and signaling and general lighting. Currently is the top world ranking number one in high-power and high-brightest LED in the market world.
Problems Faced
As the demand of high-power LEDs increased drastically over the last five years, Philips Lumileds has injected large sums of capital into its business unit to cater for the high demand from the market. Sales and marketing department receives more and more orders every month, especially when year-end holiday seasons is near the corner. Even though the business seems prosperous, problems start to surface when customer demands cannot be fulfilled on time. Sometimes, in order to cater deliveries for those long-term relationship customers, new customers are being neglected (Edward 2002). The customer service department receives more feedbacks and complaints than before.
Eventually, part of the business is being loss out to other competitors in the market who can deliver and supply to their needs on time. Besides these, raw material pricing are increasing, which results in lower revenue returned (Mangan Lalawani & Butcher 2008). Overstocking of inventory may cause some items such as epoxy, tapes, chemicals, etc to be expired as they have a period of shelf-life availability to meet. Therefore, even if the customer demand is high, with available raw materials in the warehouse pending for production usage, production group is still unable to produce enough products to cater for the demand (Edward 2002).
Intention
A major meeting was called for by the President of Philips Lumileds. A cross-functional team of people from different functional expertise such as the sales and marketing department, planning department, purchasing department, production department and warehouse and logistics department was formed to resolve this issue (Edward 2002). Based on the annual history trend, during the period of March to July, the customer volume demand was at the lowest point where the production run rate is low. The team came up with postponement strategy plan to overcome the problem faced.
In order to keep the factory running 24 hours, forecasted production plan may be implemented to produce more than required for those high running products in semi-finished goods form. As such, during the high demand period, sufficient products will be catered to fulfill the customer requirements. On top of this, the standard production lead time to produce the products may also be reduced (Mangan Lalawani & Butcher 2008). Hence, customers will be impressed by the supply efficiency. Besides this, production operators do not have to work over time during the peak period and the production run rate is kept flowing smoothly throughout the year (Wadhwa Bhoon & Chan 2006).
Postponement Strategy
In supply chain, postponement strategy helps to maximize the possible benefits and minimize the risks by delaying or holding the product being built into finished good form (Boone Craighead & Hanna 2007). It is usually in the semi-finished good form until the last possible moment when customer has the intention to purchase the product (Mangan Lalawani & Butcher 2008). It will then be assembled and packed as per requirement and complete the last build process into finished good form and shipped to customer (Cavinato Flynn & Kauffman 2006). For example, Benetton which is in the clothing industry postpone the dying of clothing at a later stage in order to cope with the changing of colour fashion trend and the lead time of producing the clothing. In this way, Benetton has better control of fulfilling customers demand on time without overstocking or keeping stocks that may be obsolete in the near future in their warehouse (Boone Craighead & Hanna 2007).
Advantages of Postponement Strategy
There are many advantages where postponement strategy can help to maximize the possible benefits for an organization. For instance, postponement helps to ease the capital being injected to purchase excessive inventory to keep the production running (Collin & Lorenzin 2006). This will help to reduce the chances of over-stocking of inventory and sometimes by over-stocking, the inventory may have a risk of becoming obsolete over some time (Appelqvist & Gubi 2005). With postponement strategy implemented, the response time to the customer demand will then be reduced, thus, making customer satisfy with the service and support provided to them (Cavinato Flynn & Kauffman 2006). Trust and confidence level between both parties will be stronger. This will also help to improve the branding in the competitive market (Boone Craighead & Hanna 2007).
Roles of Cross-Functional Team
During the discussion of overcoming the problems faced on not fulfilling customer demand on time during the peak period, the cross functional team has come up plans using their expertise roles and responsibilities in order to resolve the problems (Cavinato Flynn & Kauffman 2006).
Sales and marketing department
With reference back to the customers' past ordering demand, sales and marketing department is to come out with a realistic forecast plan of the upcoming demand from the current customers (Mangan Lalawani & Butcher 2008). Besides these, doing research of the current trend and the competitors' latest innovation will also help to forecast the demand.
Planning department
With reference to the forecast plan of the product range from the sales and marketing department, planning department is to plan the production run and set the monthly average target for the production to meet during the off-peak period in March to July (Mangan Lalawani & Butcher 2008). This is to ensure smooth flow of production run throughout the year, especially during the off-peak period (Cavinato Flynn & Kauffman 2006).
Purchasing department
With reference to the forecast plan provided by the planners, buyers' responsibilities is to order raw materials in order to cater for the production run during the off-peak period in March to July. Good coordination between the deliveries and service support from the suppliers helps to ensure sufficient materials are cater for the production run (Mangan Lalawani & Butcher 2008). Besides these, the risk of obsolescence and expired of goods will be reduced.
Production department
With the target plans and sufficient materials on hand, as usual, the production supervisors will plan for the daily target based on the monthly target plan from the planners (Mangan Lalawani & Butcher 2008). Producing in advance will help to cater for the high demand during the period of August to December.
Warehouse and logistics department - plays the biggest role
Warehouse is the core competency which helps to enhance the competitive position of an organization. The functions of a warehouse is to receive goods from the production floor, store the goods until they are required, picking the goods when they are required and shipping the goods to the appropriate customers (Cavinato Flynn & Kauffman 2006). By storing the semi-finished goods in the warehouse before the final stage of shipping the goods out to the customers is part of the postponement strategy. Warehouse is the area where the final stage of assembling, labeling and packaging of the goods are carrying out before shipping out to the customers (Wu & Closs 2009).
For high-power LEDs, the four common colour is white, blue, red and green. The highest demand from the market of the high-power LEDs is called 'FLASH', which produces bright white lights, has the highest demand from the automotive industry, computer displays, LED televisions and mobile phone industries. With the information provided by the sales and marketing department, more FLASH are being produced to cater for customer demand. Of course, each customer's requirement is different; some may require the high-power LEDs to be packed in tube forms, reel tape forms, modules forms, etc. By keeping some semi-finished goods in advance in the warehouse helps to reduce the overall lead time upon received of a confirmation order from the customer (Wadhwa Bhoon & Chan 2006).
Types of Postponement in Warehouse
From the information flow down from the sales and marketing department to the production department, not much changes or arrangement is done as the work flow is still the same as before. The only difference is the production plan is planned ahead of the actual customer demand. When the semi-finished goods come to the last stage at warehouse and logistics department, appropriate storage and control systems must be handled with care, especially on the inventory accuracy (Tompkins & Smith 1998).
Before the semi-finished goods are ready to ship to the customers, warehouse plays an important role in ensuring the finished goods are packed according to the customer requirements (Turner & Williams 2005). There are four main types of postponement which will be carried out in the warehouse. From here, it clearly shows that the different types of postponement strategies have different costs and benefits associated with them.
Assembly Postponement
Postponement of the final assembly is an accepted strategy in most manufacturing company (Tompkins & Smith 1998). In Philips Lumileds the semi-finished goods of high-power LEDs are keep in frames before the assembly stage. This depends on the customer requires whether to be packed in tube forms, reel tape forms, modules forms, etc. Assembly of high-power LEDs is performed at the warehouse before shipping the finished product to the customer after demand is realized. For example, the Dell Computer which can be ordered online is based on personal preference to assembly and installs the software programs (Turner & Williams 2005). Another example, a manufacturer of office furniture may postpone the final assembly of desks or chairs until confirmed customer orders are received. Common components such as the desk pedestals, seat cushions, frames, and bolts and nuts can be produced in advance and held in stock at the warehouse. When a customer orders a desk or chair of a preferred style and color, the order information will be passed down to the assembly line to assemble and finish the common component. By doing this, the manufacturer avoids the risk of over-producing and over-stocking of certain styles and design which has low market demand (Graman & Magazine 2006).
Labeling Postponement
Labeling postponement is implemented before the actual items are being labeled according to the final customer order requirement (Wu & Closs 2009). Upon received of order confirmation, the goods are then labeled with the part number, product description, quantity, customers purchase order number based on the individual requirement of the customers (Wadhwa Bhoon & Chan 2006). Postponement in labeling gives the flexibility to sell the goods to whichever customer comes first, based on first come first serve basic. For example, canned tomatoes are one of the products which could use this type of postponement where the product is often sold under several different retailers' brands (Wu & Closs 2009). Another example our largest supermarket chain in Singapore, NTUC, has their own-house brand products on canned food too.
Packaging Postponement
Packaging postponement is where products are not pack into individual packs until final orders are received from the customers (Appelqvist & Gubi 2005). Each individual customer has different requirements on the packaging which need to comply accordingly. For example, with packaging postponement, the inventory costs are reduced due to stocking of one standard product instead. On the other hand, the packaging costs might cost higher since it is not done in one big lot, therefore it might be losing the economies of scale (Graman & Magazine 2006). For example, manufacturers of whiskey liquor move the product across the ocean in big bulk shipping containers, and then it is bottled in the country in which it is being sold to. The risk of breakage and pilferage of glass bottles is totally eliminated, and a more favorable customs duty applies in some instances. Besides these, shipping cost is also reduced.
Time Postponement
Time postponement refers to the concept of products are not shipped to the customers warehouses but are held at a central warehouse which is then shipped to the individual customers directly (Graman & Magazine 2006). Postponement can help to reduce freight costs, which are usually the largest factor of the physical distribution costs, whether by air, sea or land transportation mode. For example, in the automobile industry, the main motivation for local assembly factory has been to reduce freight costs is to ship components than finished cars which is much cheaper (Turner & Williams 2005).
Conclusion
Postponement strategy focuses on relative benefits of information sharing and delaying the product differentiation (Appelqvist & Gubi 2005). It helps to minimize the negative impact of variety on the available time and supply chain efficiency. Meeting the demands at the right time and reducing the risks associated with inventory accumulation is automatically reduced or eliminated (Manuj & Mentzer 2008). Basically, it generates the inventory turns and enable one semi-finish inventory to represent the whole lot of inventory will is required in the bill of materials (BOM) of the finished goods (Cavinato Flynn & Kauffman 2006). By implementing the application of postponement strategy helps to reduce the number of line items to be monitored in the warehouse, thus, increasing the warehouse efficiency and improvement in the service level (Manuj & Mentzer 2008).
