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Supply Chain Integration


  • Embraces and links all of the Internal and External PARTNERS in the chain.

  • Integrates, Coordinates and Monitor the flow of Materials, Information, and Funds

  1. SCM Physical and Virtual Integration

    Physical Integration

  • Ownership of various elements of supply chain

  • eg, Ford and General Motors

Virtual Integration

  • Use of IT to link and coordinate various partners

  • Outsourcing and franchising

  • Allows control without actual ownership


a. Push-based supply chain (build-to-stock)

  • Production and Distribution decisions are based on long-term forecasts.

  • It takes some time to react to a changing marketplace.

  • Inability to meet changing demand patterns

  • There are some basic principles of all forecasts

    • The forecast is always wrong -  you will never be completely accurate.

    • The longer the forecast horizon, the worse the forecast 

  • Data updates lead to forecast updates, and aggregate forecasts are more accurate - but it may cause  traditional inventory management to experience the bullwhip effect, this leads to:

    • excessive inventory due to the need for large safety stock;

    • large and more variable production batches;

    • unacceptable service levels;

    • product obsolesce as demand for certain products disappears; and

    • inability to manage resources effectively

  • The problems of the bullwhip effect led many companies to go to the other extreme: a pure pull supply chain.

b. Pull Supply Chains (build-to-demand)

  • Production and distribution are demand driven and are based on actual customer demand

  • In a pure pull system, the firm does not hold any inventory and only produces to order.

  • These systems are very attractive since they allow the firm to :

    • eliminate inventory,

    • reduce the bullwhip effect,

    • increase service levels and

    • generally react quickly to a changing market.

  • There are many industries in which it is very difficult to implement a pull supply chain strategy. For example, production lead times of furniture are too long

  • It is frequently more difficult to take advantage of economies of scale since

  • These advantages and disadvantages of push and pull supply chains have led companies to look for a hybrid of the two systems: 

c. Push/Pull Supply Chains

  • The Initial Stages of the supply chain employ a Push-based strategy while the End stages are operated in a Pull-based manner.

  • The Push part

    • is applied to the portion of the supply chain where long-term forecasts have small uncertainty and variability and can be reasonably predicted.

    • In the first stages of a supply chain deals with manufacturing of components. Aggregation of demand for a component used in the finished product is more accurate and less market sensitive.

    • Service level is not a critical issue and accordingly batch production could be applied.

    • The focus of this portion of the supply chain is on cost minimization. (Lean Principles)

    • This can be achieved through minimizing inventory, efficient utilization of resources and employing an effective production planning systems, e.g.., MRPII or ERPII.

  • Lean production is originally designed for a just-in-time or pull system

  • Meanwhile for a supply chain leanness is required for push-based portion of the supply chain.

  • However, an individual firm within the push-based portion can internally apply the pull strategy.

  • The Pull part

    • is applied to the portion of the supply chain where uncertainty and variability are high, with a short cycle time, and therefore, decisions are made only in response to realized demand.

    •  The focus of this portion is on Service Level rather than on cost minimization.

    • A supply chain can only achieve a high service level if it becomes Agile and then responsive to a volatile market.

  • Decoupling Point (Push-Pull boundary) - Customer Order Decoupling Point (CODP)

    • The two portions of the supply chain interact at the push-bull boundary or Decoupling Point

    • Decoupling Point  is the point at which real demand penetrates upstream in a supply chain .

    • It is the point at which market ``pull'’ meets upstream ``push''.

    • It separates that part of the supply chain geared towards directly satisfying customers' orders from that part of the supply chain based on planning

    • At this point there is an adequate Buffer Inventory that results from the coordination of the two parts of the supply chain.

    • Buffer inventory is the output generated via push strategy but, at the same time, forms an input to the order fulfillment of push-based portion of the supply chain.

    • In real-world supply chains there are actually Two Decoupling Points:

      • The ``Material'’ decoupling point where strategic inventory is held in as generic a form as possible. This point ideally should lie as far downstream in the supply chain and as close to the final marketplace as possible

      • The ``Information'’ decoupling point is the point to which information on real final demand penetrates. It should lie as far as possible upstream in the supply chain .


Characteristics of the Push and Pull Parts of he Supply Chain





Min. Cost

Max. Service Level





Resource Allocation


Lead Time




Supply Chain Planning

Order Fulfillment


  • Dell Computers is an excellent example of the impact the push-pull system has on supply chain performance. Dell keeps an inventory of components and assembles only when there is an actual order.

Dell’s Direct-to-Customer & Configure -to-Order system


00:00  Query on options and price

00:20 Configuration to requirement

00:24  Order acknowledged

00:26 Credit check complete

00:30 Configuration relayed for mfg.

06:30   Manufacture complete

07:00   Ready for dispatch

24:00   Received at site

 7 x 24 Availability

d. Postponement, or Delayed Product Differentiation, Strategy

  • Also known as differed Differentiation Strategy, End of Line Configuration, Late Point Differentiation Strategy

  • The manufacturing process starts by producing a generic or family product, which eventually is modified to a specific end product as ordered.

  • The generic product is built and shipped according to long-term forecasts. Since demand for the generic product is an aggregation of demand for all its corresponding end products, forecasts are more accurate, and thus, inventory levels are reduced.

  • In contrast, customer demand for a customized end product has a high level of uncertainty, so product differentiation occurs only in response to individual demand. The portion of the supply chain starting from the time of differentiation (customization) is a pull-based supply chain.

  • The more the push-pull boundary is pushed toward the end of the supply chain, the better the cost reduction which can be achieved as a result of application of lean production principles.

  • Postponement Strategy tends to move the inventories upstream, because raw material inventories are cheaper than end item inventories.

  • Moreover, the agility of a supply chain pull-based portion depends on the position of the push-pull boundary along the supply chain and on the amount of buffer inventory.


The fundamental tradeoff in supply chain management & Postponement Strategy

Improving customer service levels with no increase in inventory by reduce lead times through Postponement, or Risk Pooling Strategy





e. The Framework of Postponed Manufacturing

  • Delay Operations

    • Delaying operations associated with configuration and shipping, like labeling and packaging,is the most prominent application of postponement largely through logistics at the present time.

    • Retailers are increasingly found to process some postponed operations (usually the finalform).

    • Even customers can configure the product by themselves when they have received it.

  • Re-sequence Processes

    • Postponed manufacturing can be achieved by re-sequencing processes each of which is associated with a separate attribute.

    • Re-sequencing processes based on the location of the customer order decoupling point (CODP).

    • CODP is used to separate postponable activities from non-postponable ones.

    • Are all existing processes behind CODP closely linked with the customer order?

    • If not, can we possibly move them before CODP?

    • Let us look at old and new manufacturing processes in Benetton

    • Their marketing and product processing is based essentially on colour and thus CODP is really positioned at the dyeing process. We can find that Benetton change their technology and relocate some processes


  • Standard and Modular Design

    • Standard design is about using common components and processes from initial stages, so that products assume their unique attributes as late as possible.

    • It may invoke re-engineering changes to substitute a group of given parts or subassemblies by common ones.

    • Modularity means building a complex product or process from smaller subsystems that can be designed independently yet function together as a whole

    • Modular design can potentially enable postponed manufacturing. Through process modular design, a process is divided into sub-processes and those associated with specific attributes might be delayed until a later

    • Through product modular design, semi-finished products can be assembled, configured and finished to provide the high level of variety to customers.

  • Technological Advances

    • With the development of technology, especially transportations technology,
      information technology and manufacturing technology, postponed manufacturing is increasing appealing and available.

f. Impact of Postponed Manufacturing on Global Competitive Performance

  • Centralized and Decentralized Production

    • Through a strong centralization of assets at a global level companies are able to achieve a mass scale in production, ensuring efficiency and cost leadership.

    • HP redesigned their printers so that that all components that differ regionally are add-ons to the basic printers and centralized their manufacture of printers to one facility in Holland that supplies all of Europe and North Africa

    • Local production and de-centralized final manufacturing downstream into multiple market areas

  • Network Organization

    • The network structure avoids the problem of duplication of effort,
      inefficiency, and resistance to ideas developed elsewhere.

    • Headquarters considers each unit as a source of skills, capabilities, and knowledge that can be utilized for the benefit of the entire organization.

    • Network organizations can effectively respond to local markets, while at the same time achieving global efficiency through integrating and coordinating operations and allowing for the transfer of learning from operations in one part of the world to another.

    • It can be expected that the application of postponed manufacturing will contribute to the adoption of network organization structure in that it leads to the decoupling of centralized production and decentralized production, manufacturing in a transparent operating system in which secondary manufacturing can directly be done by others like vendors. 

  • Co-ordination

    • To take advantage of postponed manufacturing, companies must be able to exchange information frequently and reliably with customers and partners.

    • The coordination also takes place between customer services in multiple markets.

    • For example, if sales in one region were down somewhat, then semi-finished products could be routed to another region where sales might exceed normal expectations.

  • Outsourcing

    • A company should concentrate on its core competencies and utilize outsourcing to capitalize on others expertise.

    • When a supplier provides goods or services to many customers, this supplier may achieve greater economies of scale.

    • The postponed final manufacturing might be secondary operations (such as packaging, labeling) and to outsource those operations is a logical extension of the relation with service offering.

g. Obstacles to Implementation

  • Need a broader perspective than just functionality and performance

  • Need constant communication between different departments

  • Initial costs in re-design to reduce number of parts and increase modularity

  • It might be problematic to postpone some operations to be done on a bottleneck capacity.

  • Also when utilization of the production system is high, the value of postponement is low



5. Effective supply chain integrators

  • They are customer centric

  • They are driven to improve asset efficiency.

  • They recognize inter-firm collaboration as critical

  • They focus on processes rather than functions

  • They view open communication as a must

  • They factor people into every decision

  • They invest in information technology as an enabler

  • They are obsessed with performance measurement

  • Social Factor

  • Ineffective and irregular communication

  • Inconsistent operating goals

  • Organizational culture and structure

  • Resistance to change – lack of trust

  • Lack of managerial commitment

  • Technical Factor

  • Inadequate information systems

  • Constrained resources

    • Technical

    • Financial

Supply Chain Alignment, Module 5.2, Presentation for: Summer 2004

Lean/Six Sigma Systems MIT Leaders for Manufacturing Program (LFM)