Strategies and Definitions of Postponement

Get Complete Project Material File(s) Now! »

Empirical Findings

In this chapter, the authors will present the empirical data collected during the interviews. The data was col-lected from four Swedish retailers, all applying e-commerce, with the respondents having distinct positions within the companies.

Company A

Company A is a Swedish fashion retailer, with three associated companies. The head office is located in the southwest of Sweden. They started their business as a mail order company, but later on merged into the e-commerce business. The three associated companies, later on referred to as brands, have very different target groups. Brand 1 focuses on mature women in their 50s, while brand 2 focuses on mature women but have also a younger sense to the clothes. Finally, brand 3 differs from the other two as it targets the young and fashionable females through more high fashion garments. The three brands are closely connected using the same supply chain, suppliers and warehouse. Brand 1 and 2 sell clothes mainly designed and produced by the company, while brand 3 purchases most of the clothes from more known brand such as Acne, B-young, Benetton, Hugo Boss etc.
Company A’s respondent was interviewed on 10 April 2012, the respondent was the supply chain manager for the company, responsible for two of the company’s brands mostly. The respondent had been in the posi-tion for one year at the time, but worked before for the company in other positions. Also, the respondent had previously worked for another Swedish retailer in the mid 2000, giving at times some comparison between the two companies. The interview was conducted face-to-face, at the company head office in the southwest of Sweden, and lasted approximately 1 hour 20 minutes. After the interview, the researchers were given a tour of the company’s warehouse, and explained how the company handled the inbound logistics-picking and packing-outbound logistics.

The Product Features

The respondent stressed the company had a large number of different products, clothes, home electronics, home decorations, workout equipment. The respondent is in charge of the clothing part of the products the company sells. The clothes the company sells are highly standardized, and no customization is available to the customer. The products are available in different models, sizes and colors.
When the company introduces a new product for the season or into their basic assortment, they will try and purchase the product in a small volume. This means that the company will try and push the minimum quantity limit downwards. This can, however, be hard to achieve, and the company will have to fulfill a minimum quantity, which usually is around 400-600 pieces of each color, with all sizes. The purchaser will at times be pushed towards a decision, and have to make a guess, or “dare” as the respondent put it. The company will then have to replenish the products that are successful during the season. For a product that is not selling well, the company will take actions before the season is over, and try to sell with discounts.
For a product that is in the growth or mature stage, the company will look at past sales his-tory, and will forecast accordingly the amount they believe will sell. The products in the growth and mature stages have a higher buying volume in the beginning of the season, as the company believes the product will sell well, given their forecasts. When the product then reaches the decline stage, either being a dying product or at the end of the season, the product will no longer be replenished. The company keeps track of each product line dur-ing the season, and if they can identify a dying product they will mark it in their system. Another department will then look into the matter, and sees if the product has a chance of being sold out without discounts. Otherwise, they will have midseason sales, or end of sea-son sales. The declining products will be bought in low volumes, or no volumes at all, after the initial purchase has been placed at the beginning of the season.
The respondent emphasized that when the purchasing is done, it is to a large extent a dia-logue between the buyer/purchaser and its suppliers. The products value is exploited at the beginning of the manufacturing processes, and the value does not increase after the CODP. The products monetary value is low, and therefore the company ships in bulk.

The Market and Demand

The products of Company A do not have a high demand uncertainty. Therefore, last year sales coupled with other variables, help the company develop their forecasts. Before a sea-son collection is purchased, the company will have discussions with its suppliers, look at market trends, and for some brands they will even visit specific locations.
The company buys the products from its suppliers, and the products are shipped in bulk to Sweden. The transportation takes up to 35 days, by boat. The company does most of the purchasing way before the season starts. It takes between 4 to 6 months before the prod-ucts arrive from the supplier at the warehouse in Sweden. The company is involved in the production with many of its suppliers, conducting quality tests regularly and at each of the steps of the supply chain. For brand 3, the company does usually not produce the products, and therefore its purchasing process differs compared to the one for the other two brands. For brand 3, the purchasing is done later, closer to the actual season, once the company has received the suppliers’ ‘items of the season’. This can be done because Brand 3 does not have to deal with potential production problems.
When a customer places an order, the system registers it, and at 10pm the order batch runs. When the batch has run, the floor personnel will start moving products from the buffer ar-ea into the picking area. Then the personnel will pick up the product, and sort it according to regions. This described order process will usually be done the next day, provided that the customer has placed the order before 10pm. Otherwise, one more day is required. If an order contains a product that is not in stock, the customer can still order it without being notified it is actually not at the warehouse. At the same time, the system would calculate, based on several variables, whether or not the entire order should be postponed until the item arrives, or if the available products should be shipped separately. The product(s) will be delivered to the customer within 2-3 days, depending on the mail service. The package weight and its size will determine if it can be delivered to the customer home address, or at pick-up place. For some of the company’s markets, the customer is able to choose between different carriers.

The Manufacturing and Logistics

Most of the products are sourced from Asia, namely 90% from China and 10% from India, Bangladesh and Pakistan. At times, the company had sourced products from Europe, mainly in Turkey. With products being produced in Asia, and the company using sea as the main mean of transportation, lead-times are long. The time for the products to travel by boat goes from 35 days and up. The company has decided to use sea transportation in or-der to keep costs down. Given that the product is finished, it therefore can be shipped in bulk with sea at a low rate. At times, if the company sees a sudden need for a replenish-ment of a product, they use air transport, however it is rare. In addition, choosing sea transportation is also in relation with the company’s environmental responsibility policies, where they look for both cost efficiency, and low environmental impacts. A third mode of transportation that the company has used in the past, though not that much in recent times, is a combination of air and sea, namely air-sea. With this mode, the products are transported by boat on one part of the route (i.e. Asia-north Africa), and then by air for the remaining distance (i.e. Sweden). However, this has not been used recently, due to the low-er airfreight rates that exist today, which would make air-sea more expensive than air.
When the products arrive in Gothenburg, Sweden, they are transported by truck(s) to the company’s warehouse. At the warehouse, the company stores the product line for approx-imately 18 weeks. The warehouse is an important resource for the company as the products arrive in a finished state, and they are shipped from there. The warehouse is a “tullsäkert”, which means that the company pays its custom fees only when the products leave the warehouse, and not before that. This has a huge impact on the company’s financial flow. The company also has a warehouse in Czech Republic, from where they supply the Central and Eastern Europe market (CEE-market). All the purchasing is done at the head office.
The company weighs and measures the products to record it in the system. This is im-portant because they need to have an approximate weight and size for the final packaging. The company’s personnel then put the product(s) in plastic bags or paper cartons (for de-livery), depending on the value and the type of product(s). Some commercial flyers, or giveaway products may be added to the order when it is being packed with no product al-terations. The company has the possibility to do labeling on the products, but has chosen not to do this. However, this can be done if a product has been labeled incorrectly. The company performs the change, and sends an invoice to the responsible supplier.
Since a product line is stored for approximately 18 weeks, the amount stored differs be-tween seasonal and basic products. Seasonal products have less stable demand, and there-fore they are bought in lower volumes, which means less quantities are “buffered” at the company’s warehouse. Basic products, which have a more stable demand, are available for several seasons. They are bought in higher volumes, and the buffer at the warehouse is higher. Basic products are thereby also stored for more than 18 weeks in general.
The company tries to apply economies of scale as much as possible. The same product(s) can be sold for the three brands the company has. This increases purchased volumes, and it also minimizes the number of products that the company needs to store. Another way through which they achieve economies of scale is the sea bulk shipment. This lowers the purchasing price of the product(s). Nevertheless, an offset exists between price and time.
The respondent did not mention any special capabilities that were needed or apparent for their supply chain or logistics handling.

The E-commerce Specificities

According to the respondent, the company does not have any specificities of e-commerce impacting its logistics system. The company has been working with some of its suppliers for a long time. Besides, the company uses a similar distribution system compared to the one they were using before entering the e-commerce sector. The company still provides its mail order service. Customers are able to place order either through the company’ web store, catalogue or phone.

Company A Within-Case Analysis

Company A can be described as a company that uses the full speculation strategy. The products the company offers are standardized, with a narrow range, as well as MTS. Econ-omies of scales is used at all levels of the supply chain, from production to shipping and storing. The products have a low demand uncertainty, and they can be bought in high vol-umes given forecasts based on past sales data. The value of the product is added in the very beginning of the process, long before the customer receives the product. The only post-ponement opportunity available to the company would be through the strategic location of its warehouse. In this sense, it could be argued that the company applies logistics post-ponement. However, the authors chose to classify it as a company that applies a full specu-lation strategy, because most of the determinants are inline with this strategy, rather than with the logistics postponement strategy.

Company B

Company B is a Swedish retailer focusing exclusively on e-commerce. The company was founded in 2003, and has its head office in the south of Sweden. In the company’s so far short life, it has been recognized as a successful e-tailer. The company focuses on selling clothes, mainly shirts, chinos, ties, polo shirts and accesso-ries. The company tailors everything according to the customers’ wishes, and therefore all products are cus-tomized.
The respondent representing this company was interviewed on 11 April 2012. The respondent is the found-er/business developer/financial director. The respondent has worked for the company since its start in 2003. The interview was made over E-mail, due to the respondent’s busy schedule. The answers were slight-ly less thorough, due to the inability of asking multiple sub-questions and to elaborate on the answers. How-ever, the authors were satisfied with the answers provided.

The Product Features

The company provides a type of clothes that could be sold in any store, but without the enormous amount of options the customer is given with the online design tool. The orders are completely different since each customer is able to customize the product in so many ways. The same level of customization would be hard, not to say impossible to achieve of-fline without having to increase the costs, and consequently the final price. In the respond-ent’s opinion, the company does not have any seasonal products.
The products that the company provides have been in fashion for quite some time, such as shirts, chinos and polo shirts. The product changes in color from season to season, but the product itself has moved past the introduction stage a long time ago. It varies between growth (new colors) and maturation. When the company feels a need to innovate, they simply provide changes to the existing product, such as colors, buttons or cuttings. Since the entire production is customer-initiated, the only thing that will be pre-produced is the fabric and the stand-alone parts (i.e. button). Hence, it is easy and quick for the company to introduce a new product/style since just an assembly between fabric and stand-alone parts is needed. In general, the raw materials are bought in low volumes. As a CODP is placed really upstream in the supply chain, it leaves no room for economies of scale. Simply no production process can be performed prior to receiving a customer order.
The value of the product increases at the end of the manufacturing process as the raw ma-terials unassembled, meaning prior to the CODP, are of low value. Once the order has been received, the parts can be put together and assembled. Then the value increases all along the production line. The monetary value is low to medium.

The Market and Demand

The products have a high uncertainty in demand, due to the high level of customization. The company uses past data to develop forecasts, and then to polish it given the trends they can identify on the market. The respondent states that “>99% of all products are custom-ized”, and therefore no or very little production can be performed prior to the decoupling point. The company buys the fabric in advance and all the parts that are needed to produce a finished product. The company stores its raw materials in Sri Lanka, prior to sending them to the production facility, which is also located in Sri Lanka.
The respondent provided the authors with a table of delivery history for the past 15 weeks, with a focus on 13 key numbers. The numbers were presented as a medium value of all the orders of the week. The key aspects can be seen in the appendix B. In average, the total time from order to customer delivery was between 10.7 days and 17.2 days. The company assumes the flight time to be 3 days.

The Manufacturing and Logistics

When a customer order has been completed, in regards to manufacturing, the product will be stored in Sri Lanka until the next shipping occasion. The company has chosen to use airfreight for its products. According to the respondent, other shipping methods would re-sult in too long lead-times, and it would consequently affect the business negatively. The company ships products from the plant in Sri Lanka twice a week, usually on Tuesdays and Thursdays. When the product arrives in the south of Sweden, it will be stored at the distri-bution center for one to two days, before it is shipped to the customer. The company aims at having a two-day shipping time from the distribution center for national shipping, and a four-day shipping time for international shipping.
The company does not apply economies of scale in any major extent. The company tries to have several suppliers, so that those suppliers compete against each other while prices competition decreases prices. At the same time, the company keeps this base of suppliers as low as possible. As the respondent states it “ the higher volumes we purchase from a supplier, the better price we can achieve”.
Special capabilities that are required for the company’s products are, according to the re-spondent, not obvious. The products are produced and distributed in a way that does not require any special knowledge or skills that differ, compared to normal production process-es for this type of products.

The E-commerce Specificities

The company is very special regarding the way it operates. For instance, the large variation of products is possible due to the e-commerce website. The website is able to guide the customer through the necessary steps to purchase the product, while also providing the customer with a visual picture of how the finished product will look like. All these options and customizations would not be possible in a non e-commerce environment.
Another important part of the business is the carrier selection. The company has tried mul-tiple airfreight providers. Flight routes, rates as well as lead-times are important as they af-fect the whole business. At the moment, the company feels that they have found a route and a carrier that satisfies its needs. According to the respondent, other means of transpor-tation are excluded since it would result in too long lead-times, unless the production facili-ties could be moved closer to the customer market.

Company B Within-Case Analysis

The company is classified as one using a full postponement strategy. The products are so customized that the company is unable to do anything before the COPD. This is reflected throughout a wide range of products, and also through the value that is added in the final stages. The company cannot apply economies of scale in any major form, except for raw materials. The wide range and high customization level result in an extremely high uncer-tainty of demand. The company is very reliant on the Information technology that captures the customer orders.

Company C

The company is a Swedish retailer that mainly focuses on e-commerce as its main market. However, the company also has a physical store. The company is located in the southwest of Sweden, and was mainly providing clothes for sport clubs previously, but then expanded its market on e-commerce under another name. The store sells T-shirts, sweaters, soft pants, bags and others.
The respondent representing the company was interviewed on 12 April 2012, and was responsible for both the e-commerce store and the physical store the company owned. The respondent has worked for the company for a bit over one year. The interview was conducted over Skype and lasted for 30 minutes.

The Product Features

The respondent representing company C stressed the company offers a high customization level. On the one hand, the product width is rather narrow (since only seven types of gar-ments are at the customers’ disposal, namely t-shirt, polo, hoodie, pants, beanie, scarf and bag), whereas on the other hand, its depth is quite long, not to say endless, thanks to the high level of customization offered.
The way the company handles the different stages of the product life cycle is as follows: new products are at first produced in small quantities. Afterwards, sales are analyzed and compared to previous trends, so that a decision can be made concerning a potential in-crease in production. All blank products are first purchased in Lebanon from their main supplier, and then they are shipped to Sweden so that they can be customized. Products that have been selling good for quite some time are customized at the manufacturing prem-ises in Sweden, and then stocked. This means that those products are in the growth or maturation stage. These processes are done in advance, on a MTS strategy.
Volume is not a determinant that comes into play, as all garments supplied are both rela-tively light and easy to move. Orders are transported by air given the low number of total items they may hold.
Furthermore, it must be noted that value occurs within Sweden, since non-customized products are of no/low value. Value is only created when the CODP occurs, once the cus-tomized product is ordered.

The Market and Demand

Given the high level of customization offered, this characteristic remains portrayed throughout the high level of demand uncertainty surrounding company C. While the inter-view was conducted, the respondent emphasized several times that “it is not possible for us to actually build any kind of forecasts”. Therefore, the company finds itself in a “waiting and stand-ing” position, where the only step, within the manufacturing process that can be processed before the CODP, is the purchasing of the blank products.
In terms of delivery time, and in spite of its high level of customization, products are deliv-ered quite rapidly. An order is processed, produced, packed and delivered to the customer within 2 weeks at maximum. Carrier selection is possible, though not exempt from charges that must be paid by the customer himself. However, blank products are ordered in differ-ent colors and sizes directly from suppliers based in Lebanon. A lead-time oscillating be-tween six and eight weeks is necessary, from the time the supplier order is placed until the merchandise is delivered to the company’s warehouse.

The Manufacturing and Logistics

The respondent responding on behalf of company C underlined they handle their logistics operations in a very specific manner. A central warehouse centralizes every purchase, which as a matter of fact manages as well the shipping of the final products to the customers. Firstly, the company places an order of blank products of different sizes and colors to its suppliers based in Lebanon, which usually takes six to eight weeks to get delivered to the company’s warehouse in Sweden. Transportation by air is used. A ratio of one order per month, of a minimum of 600 items for each Stock-Keeping-Unit (SKU), is regular. Addi-tional orders are placed in case of a sudden rise in demand. Nevertheless, the warehouse always holds a certain amount of non-customized/blank products that can be used any time. This can be assimilated to a buffer.
The next step, namely the decoupling point, is the previously described “standing and wait-ing” position. The company has to wait until a customer places an order: the order can be either for one of their MTS products, or for a customized product. In the first case, ship-ping and delivery processes usually occur within two to three days. The customization of a product engenders a longer manufacturing process. The customer has two options: select a pattern present in the company’s catalogue, or send his own pattern directly to the compa-ny, in a specific electronic format. However, this personal pattern has to be approved. Once the approval is given, the company sends an electronic draft to the customer of what the final product will look like for customer approval. Then, the production of the custom-ized garment can be launched. A two-week lead-time is expected, although most of the time customers receive their personalized garment within one week. Additionally, custom-ers are able of enquiring a special carrier, instead of using the regular Swedish postal ser-vice.
Given the high level of customization the company provides, it is uneasy for them to apply and benefit from any economies of scale. The demand being truly uncertain, the only economies of scale they can use concern the purchasing of the blank products. Lastly, in regards to the special capabilities, it has to be highlighted none were found.

The E-commerce Specificities

As an e-commerce company, this company stands out through: a high level of customiza-tion, a preview of the final product, and the capability to meet various customer requests in terms of design. Additionally, it must be put forward the company obtain a wide product depth without having a wide product width.

Company C Within-Case Analysis

The findings suggest that the company uses a manufacturing postponement strategy. On the one hand, the level of customization offered is rather high, with a level of demand that is quit uncertain and uneasily foreseeable. On the other hand, no economies of scale are used, except for the blank products that receive not customization treatment. An ATO strategy is applied, coupled with a CODP that occurs upstream in the supply chain.

Company D

The company is a Swedish retailer with the head office located in the southwest of Sweden. The company started its business as a mail order company, and has since moved towards e-commerce. The company is a medium to large sized-company, and focuses on providing fashionable clothes at a reasonable price. The company does not have any physical stores. Its online store allows the company to be active in eight countries.
The respondent representing company D was interviewed on 19 April 2012. The respondent was the pur-chasing manager for the company. The respondent has been working for the company for thirty years, with a few years at the company’s affiliated company. The interview was conducted over phone, and lasted for 45 minutes.

The Product Features

The respondent representing Company D highlighted that the company provides its cus-tomers with a wide range of garments. The company makes use of a MTS strategy since products are bought and sold as so.
Product life cycle constraints are dodged through a wise use of a reverse planning. Items are bought months ahead of their actual distribution. Heavy advertisement is used for new products, whereas light advertisement is used for products at a growth or maturity stage. The products that are dying are put on the outlet section of the company’s website. The company differentiates between initial orders and repeats orders, rather than using the dif-ferent stages of the life cycle. The respondent therefore states that the life cycle does not impact the way the products are sourced, stored or distributed. The initial orders are pur-chased in general in lower volumes, while the repeat can be in medium-high volumes.
The company has a wide product width, while the product depth remains narrow. For the customer, this is reflected through a wide product choice. However, the product depth is narrow, offering products that are very similar. As orders tend to contain a high number of total items, sea transportation is prioritized. Therefore, volume is an element that comes in-to play. Value is created early in the supply chain process, since it intervenes right after the product is produced.

The Market and Demand

The delivery time to get the merchandise from its point of production to its point of desti-nation, namely from Asia to Sweden, usually varies between five to six weeks. However, it only takes between three to five days for the customer to receive his order. Company D of-fers two value-added services: the selection of the mean of transportation, namely the speed of transportation, and also where the package can be collected. The order can either be collected at the nearest customer’s pick up place, or be delivered directly to his house, depending on the packages size and weight. As mentioned earlier, the company uses a re-verse planning that provides a precise view of the orders. Usually products are all pur-chased three to six months in advance. As an example, the summer season will be ordered in winter, so that the products are at company’s disposal on time.
Concerning the demand, since no customization processes are involved into the manufac-turing of the products, every item is purchased based on previous trends and/or similar trends. A certain uncertainty margin is used concerning the order of new products. Past sales of similar product are analyzed and used for developing forecasts. Products that are already present in the assortment can be sourced more accurately thanks to available sales history.

The Manufacturing and Logistics

All products are transported through sea from Asia (mainly China) to Sweden, where they are then discharged and transported by truck to the company’s warehouse. Different sup-pliers located in Asia handle the sourcing part. A distinction is made between new products and regularly ordered ones: the new ones will tend to be produced by new suppliers, alt-hough the company tries as much as possible to keep its partners unchanged. However, suppliers that produce “repeat orders” do not usually differ. In that way, this eases the company’s situation since a repeat order is placed to a partner who already knows all the requirements.
In regards to the economies of scale, and given the high level of speculation the company relies on, economies of scale are used at three levels: at the sourcing level first, where the company tries to maximize its amount of products purchased so that the demand is met accurately. Then at the transportation level, where cost per item decrease as the quantity of transported items increase. And finally, at the storing level, an economy of scale is also used since it results from the sourcing and the transportation part.
The company uses no special capabilities. However, it is relevant to stress the key partner-ships created over the year in Asia play an important role into the way the company han-dles its repeat orders.

The E-commerce Specificities

The company is capable of delivering quickly a large number of items to its customers all over Sweden. Images of all items are available on the company’s website. In addition, items can be delivered, for most of them with an average delivery time of five days. A wide prod-uct width range is available, whereas quite a narrow product depth is present. This is largely due to the low, not to say non-present level of customization.

Company D Within-Case Analysis

The findings suggest that company D makes use of a full speculation strategy since they principally rely on economies of scale. A MTS strategy is used as the main method of pro-duction. Therefore, this prevents the company from offering customization options to its customers. Hence, the level of uncertainty can be presented as quite low, compared to companies that offer high level of customization.

Table of Contents
Acknowledgement
1 Introduction to Postponement and E-commerce
1.1 Postponement and E-commerce: Background
1.2 Problem
1.3 Research Purpose
1.4 Structure
2 Frame Of Reference
2.1 Strategies and Definitions of Postponement
2.2 Pagh and Cooper’s Framework
2.3 Postponement and The Customer Order Decoupling Point
2.4 E-commerce and Distribution Channels
2.5 Synthesis – Research Model
2.6 Research Questions
3 Methodology
3.1 Research Approach
3.2 Interview guide
3.3 Data Collection
3.4 Analysis Process
3.5 Evaluation
4 Empirical Findings
4.1 Company A
4.2 Company B
4.3 Company C
4.4 Company D
5 Analysis
5.1 Influence of The Product Features on The Choice of Postponement Strategy For E-commerce Companies
5.2 Influence of The Market and Demand on The Choice of Postponement Strategy for E-commerce Companies
5.3 Influence of Manufacturing and Logistics Systems on The Choice of Postponement Strategy for E-commerce companies
5.4 Influence of The E-commerce Specificities on The Choice of Postponement Strategy for E-commerce Companies
5.5 Findings Discussion
6 Conclusion
6.1 Theoretical Contributions
6.2 Managerial Implications
6.3 Final Reflections and Suggestions for Future Research
List of References
GET THE COMPLETE PROJECT