Postponement and localization

3 Postponement and localization

Although the trend to global brands and products continues, it should

be recognized that there are still significant local differences in cus- tomer and consumer requirements. Even within a relatively compact market like western Europe there are

Although the trend to global brands

major differences in consumer tastes

and products continues, it should

and, of course, languages. Hence

be recognized that there are still

there are a large number of markets

significant local differences in

where standard, global products

customer and consumer

would not be successful. Take, for

requirements.

example, the differences in prefer- ence for domestic appliances such as

refrigerators and washing machines. Northern Europeans prefer larger refrigerators because they shop once a week rather than daily, whilst southern Europeans, shopping more frequently, prefer smaller ones. Similarly, Britons consume more frozen foods than most other European countries and thus require more freezer space.

In the case of washing machines, there are differences in preference for top-loading versus front-loading machines – in the UK almost all the machines purchased are front loaders whilst in France the reverse is true.

How is it possible to reconcile the need to meet local requirements whilst seeking to organize logistics on a global basis? Ideally organiza- tions would like to achieve the benefits of standardization in terms of cost reduction whilst maximizing their marketing success through localization.

One strategy that is increasingly being adopted is the idea of post- ponement. Postponement, or delayed configuration, is based on the principle of seeking to design products using common platforms, com- ponents or modules but where the final assembly or customization does not take place until the final market destination and/or customer requirement is known.

The advantages of the strategy of postponement are several. Firstly, inventory can be held at a generic level so that there will be fewer stock keeping variants and hence less inventory in total. Secondly, because the inventory is generic, its flexibility is greater, meaning that the same components, modules or platforms can be embodied in a variety of end products. Thirdly, forecasting is easier at the generic level than at the level of the finished item. This last point is particularly relevant in

7MANAGING THE GLOBAL PIPELINE

global markets where local forecasts will be less accurate than a fore- cast for worldwide volume. Furthermore the ability to customize products locally means that a higher level of variety may be offered at lower total cost – this is the principle of ‘mass customization’.

To take full advantage of the possibilities offered by postponement often requires a ‘design for localization’ philosophy. Products and processes must be designed and engineered in such a way that semi- finished product can be assembled, configured and finished to provide the highest level of variety to customers based upon the smallest number of standard modules or components. In many cases the final finishing will take place in the local market, perhaps at a distribution centre, and, increasingly, the physical activity outsourced to a third- party logistics service provider.