Suitable application situations of different postponement approaches: Standardization vs. modularization

Abstract

Although postponement benefits manufacturers by increasing flexibility and reducing inventory and product complexity, this strategy may not be suitable for all situations faced by manufacturers. This paper builds a cost model to examine the value of postponement for a firm with two products made in N stages and compares two different postponement approaches (that is, standardization and modularization) in terms of their costs in the presence of demand uncertainty. The considered trade-offs include processing costs, inventory costs, and the cost of product/process redesign. The analytical results provide two optimal decisions, the static decision and the dynamic decision, and suggest how firms choose a suitable postponement decision according their business environments. In addition, case studies with numerical examples are provided to illustrate the effectiveness of the model. The main contributions of this paper are: (1) the explanation of the effect of environment uncertainty on the decision to use a postponement strategy, (2) the definitions of some environmental circumstances that make postponement economical, and (3) the illustration of the cost structures under different postponement strategies.