A partial-postponement decision cost model

Document Type

Article

Publication Date

2-16-2010

Department

College of Business

Abstract

A number of factors, including product proliferation and increased customer service-level requirements, have led many companies to consider adopting postponement as a supply chain strategy. Packaging postponement is the process of delaying packaging of a common item into a final product configuration until the customer order is received. For a given product, a portion of demand is known with a high level of certainty and would not benefit from postponement. The remaining portion of demand is known with little certainty and would benefit from delaying the differentiating stage of the operation until demand is known. We develop a single-period, two-product, order-up-to cost model to aid in setting the levels of finished-goods inventory and postponement capacity. Minimum-cost optimal solutions to inventory levels and capacity are obtained by solving the derived analytical expressions using a non-linear programming formulation. We examine the sensitivity of the model to different levels of the model parameters to generate managerial insights beyond those of previous work. We show that changing product value, packaging cost, cost of postponement, holding cost, fill rate, and demand correlation can decrease expected total cost and increase postponement capacity.

Publication Title

European Journal of Operational Research

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