Supply chain focus dependent sensitivity of the point of product differentiation

Abstract

Customer preferences for variety in the product(s) with improved customer service and lower prices are forcing the supply chains to overhaul the current practices from design to operational level. Postponement or delayed differentiation of the products is one such strategy, primarily deployed in mass customisation settings. Life cycles are shrinking not only for individual products but for product families as well. In this context, supply chain responsiveness becomes one of the crucial factors that need to be effectively managed to succeed in the present day competitive markets. Our model, that considers inventory costs and the supply chain responsiveness costs would aid a supply chain manager to make informed decisions with regard to the ideal location for the point of differentiation (POD), while striking the right balance between holding costs and the supply chain responsiveness costs. We also make use of a dimensionless parameter called the ‘coefficient of inverse responsiveness’ that not only facilitates the introduction of responsiveness related costs into the model but also improves the scalability and simplifies the analysis and interpretation of the results. Based on the strategic model developed, we offer some context-specific counter-intuitive managerial insights with respect to the sensitivity of the location of the POD in a supply chain.