In the 1990’s, and with the rise of the concept of Supply Chain Management, supply chains have gone global. This has largely been enabled through information technology (the subject of a separate article). Globalization has included suppliers in many different countries, setting up warehouses to serve global customers, creating transportation systems to move goods around the world and moving production facilities to best-cost countries. Examples of best cost countries are Germany and Japan for machinery, the USA for sophisticated hardware and software design, China for high labor content products and large heavy industry, Korea for ship building and large heavy industry, India for lower-value software design, France and Italy for fashion luxury goods, and others.
Supply Chain researchers have documented 15 choices you make when designing a global supply chain; whether you do it explicitly or by default. This article will briefly explain these 15 choices to help you optimize your global supply chain (minimize cost and maximize customer service). The 15 choices are:
- Consolidation
- Postponement
- Responsiveness
- Lean-ness
- Agility
- Adaptability
- Flexibility
- Speed
- Value Contribution
- Core Competency
- Differentiation
- Collaboration
- Hedging
- Redundancy
- Diversification
Consolidation is the combining of assets to take advantage of economies of scale. You can consolidate production facilities into larger facilities, warehouses into larger warehouses, shipments by using larger vehicles or ships, suppliers and even software systems by replacing multiple systems with one ERP package. Consolidation has negative aspects as well. Typically consolidation creates IT Equipment Supplies greater inventory, increases distance to customers and can reduce the ability to be responsive to customers’ needs.
Postponement is a form of consolidation. HP made postponement famous by producing printers in a single facility worldwide, shipping to regional distribution centers and letting the DCs customize each printer by putting in the appropriate power supply and packaging. By postponing the final form of the product, a company can produce fewer stock keeping units (SKUs), and therefore take advantage of economies of scale in production. Shipping costs can be lower because products can be bulk packaged, getting more in a container. Postponement also reduces SKUs, reducing inventory investment. The reduction in inventory investment occurs, not because there are fewer SKUs to stock, because demand is still the final demand, but because the postponed SKU is essentially aggregating variation of the final customized product, which reduces the safety stock built into most inventory reorder point systems. Postponement is a great strategy if your product can be designed for this type of modular production. In other words, there is no downside to using the postponement strategy in your product development planning.