Increasing Supply Chain Profitability with Postponement

Input
This worksheet calculates the value of
Mean demand for each color=
1000
example in Cell K24. Cell E22 contains
Standard Deviation of Demand =
500
postponement. Cell K22 contains the ex
Cost per unit without potsponement, c =
$
20.00
postponement. Change the SD of dema
$
22.00
Cost per unit with postponement, c =
the value of postponement (Cell K24). C
postponement in Cell E6 to see its impa
Retail price, p =
$
50.00
Change the correlation coefficient in Ce
Salvage Value, s =
$
10.00
value of postponement.
Correlation Coefficient
$
Product Colors/Styles
4
No Postponement
With Postponement
$
10.00
Aggregate mean demand
Cost of overstocking per unit, Co =
Cost of understocking per unit, Cu =
$
30.00
Standard Deviation of Dema
Expected overstock units (eqn 13.4) =
412 Cost of overstocking per uni
Expected understock units (eqn 13.5) =
75 Cost of understocking per u
Optimal Order quanity, O* (eqn 13.2) =
1,337
Expected overstock units (e
Optimal cycle service level, CSL* (eqn 13.1
0.75
Expected understock units (
Expected Profit (eqn 13.3) =
#NAME? Total Expected Cost of Over
Total Expected Cost of Overstock Units
$
16,473
Total Expected Cost of Unde
Total Expected Cost of Understock Units
$
8,949
Optimal cycle service level,
Total Order Quantity
5,349
Optimal Order quanity, O* (e
Total Expected Profit
#NAME? Expected Profit (eqn 13.3)
Value of Postponement

calculates the value of postponement for the Benetton

K24. Cell E22 contains the expected profits without
Cell K22 contains the expected profits with
Change the SD of demand in Cell E4 to see its impact on
stponement (Cell K24). Change the cost per unit with
in Cell E6 to see its impact on the value of postponement.
relation coefficient in Cell E9 to see its impact on the
nement.

Postponement
gate mean demand
ard Deviation of Demand
f overstocking per unit, Co =
f understocking per unit, Cu =
ed overstock units (eqn 13.4) =
ed understock units (eqn 13.5) =
xpected Cost of Overstock Units
xpected Cost of Understock Units
al cycle service level, CSL* (eqn 13.1)=
al Order quanity, O* (eqn 13.2) =
ted Profit (eqn 13.3) =

of Postponement

$
$

$
$

4,000
1,000
12.00
28.00
715
190
8,577
5,330
0.70
4,524
#NAME?
#NAME?

Complete postponement with dominant product

Input
mean
SD
color 1 (Red)
3100
color 2
300
color 3
300
color 4
300
Option 1 Cost per unit, c =
$ 20.00
Option 2 Cost per unit, c =
$ 22.00
Retail price, p =
$ 50.00
Salvage Value, s =
$ 10.00
Product Colors/Styles
4
No Postponement
$ 10.00
Cost of overstocking per unit, Co =
Cost of understocking per unit, Cu =
$ 30.00
CSL*
O*
E(Profit)
color 1 0.75
3,640
#NAME?
color 2 0.75
435
color 3 0.75
435
color 4 0.75
435
Total Expected Profit
#NAME?

This
800 worksheet calculates the value of
is a diminant product (red in our exam
200
demand in Cell E3 and SD of demand
200
of
values in Cells E3:F4 (Cells E5:F6 wi
complete
postponement is valuable.
200

Complete Postponement
Aggregate mean demand
Standard Deviation of Deman
Cost of overstocking per unit,
Cost of understocking per unit
Expected overstock units (eqn
Expected understock units (eq
Optimal cycle service level, CS
Optimal Order quanity, O* (eq
Expected Profit (eqn 13.3) =
Value of Postponement

t calculates the value of postponement (Cell K23) when there

roduct (red in our example). The dominant color has mean
E3 and SD of demand in Cell F3. Try different combinations
lls E3:F4 (Cells E5:F6 will adjust automatically) to see when
ponement is valuable.

e Postponement
e mean demand
Deviation of Demand
verstocking per unit, Co =
nderstocking per unit, Cu =
d overstock units (eqn 13.4) =
d understock units (eqn 13.5) =
cycle service level, CSL* (eqn 13.1)=
Order quanity, O* (eqn 13.2) =
d Profit (eqn 13.3) =
Postponement

4,000
872
$
12.00
$
28.00
623
166
0.70
4,457
#NAME?
#NAME?

Value of Tailored Postponement

Input
mean
SD
color 1 (Red)
3100
This
800worksheet calculates the value of t
is
a dominant product (red in our examp
color 2
300
200
between tailored postponement and no
color 3
300
200
demand
in Cell E3 and SD of demand in
color 4
300
200
dominant
product is not postponed but
of
values
in
Cells E3:F4 (Cells E5:F6 will
Option 1 Cost per unit, c =
$ 20.00
tailored potsponement is valuable. The
Option 2 Cost per unit, c =
$ 22.00
postponement are shown in Cell K23.
$ 50.00
Retail price, p =
Salvage Value, s =
$ 10.00
Product Colors/Styles
4
No Postponement
Complete Postponement
Cost of overstocking per unit, Co =
$ 10.00
Aggregate mean demand
Cost of understocking per unit, Cu =
$ 30.00
Standard Deviation of Demand
CSL*
O*
E(Profit)
Cost of overstocking per unit, C
color 1 0.75
3,640
#NAME?
Cost of understocking per unit,
color 2 0.75
435
Expected overstock units (eqn
color 3 0.75
435
Expected understock units (eqn
color 4 0.75
435
Optimal cycle service level, CS
Total Expected Profit
#NAME?
Optimal Order quanity, O* (eqn
Expected Profit (eqn 13.3) =

Value of Complete Postponem

et calculates the value of tailored postponement (Cell Q23) when there

product (red in our example). Cell Q23 gives the difference in profits
red postponement and no postponement. The dominant color has mean
ell E3 and SD of demand in Cell F3. In tailored postponement, the
duct is not postponed but the others are. Try different combinations
ells E3:F4 (Cells E5:F6 will adjust automatically) to see when
ponement is valuable. The gains (or losses) from complete
t are shown in Cell K23.

ete Postponement
ate mean demand
rd Deviation of Demand
overstocking per unit, Co =
understocking per unit, Cu =
ed overstock units (eqn 13.4) =
ed understock units (eqn 13.5) =
l cycle service level, CSL* (eqn 13.1)=
l Order quanity, O* (eqn 13.2) =
ed Profit (eqn 13.3) =

of Complete Postponement

4,000
872
$
12.00
$
28.00
623
166
0.70
4,457
#NAME?
#NAME?

Tailored Postponement (no postponem

Aggregate mean demand of non-dominan
Standard Deviation of Demand
Cost of overstocking per unit, Co =
Cost of understocking per unit,
Expected overstock units (eqn 13.4) =
Expected understock units (eqn 13.5) =
Optimal cycle service level, CSL* (eqn 13.
Optimal Order quanity, O* (eqn 13.2) =
Expected Profit from tailored postpone
Value of Tailored Postponement

ponement (no postponement of dominant product)

n demand of non-dominant products
900
ation of Demand
346
cking per unit, Co =
$
12.00
ocking per unit, Cu =
$
28.00
stock units (eqn 13.4) =
248
rstock units (eqn 13.5) =
66
ervice level, CSL* (eqn 13.1)=
0.70
quanity, O* (eqn 13.2) =
1,082
it from tailored postponement(eqn 1
#NAME?

ed Postponement

#NAME?