Product-Customization and Payment Policy with Postponement Strategy

Abstract

Manufacturers adopting postponement strategy can lower operational cost and quickly respond customers’ personalized demands. Adopting postponement strategy, however, has often led manufacturers to situations of higher risk of holding exclusive material in the customization stage. For example, customers prefer to order flexibly from manufacturers so as to be able to respond flexibly to their custom changes. Manufacturers, on the other hand, prefer customers to place full orders as early as possible so that they can hedge against the risks of under-production, especially in the customer order decoupling point (CODP) downstream. Motivated by this problem, we model a dynamic cost model in this paper to evaluate the risks and benefits. Using the Logistic curve, we develop a payment policy for manufacturer adopting postponement strategy in the CODP downstream. Our research demonstrates that, compared with the payment policy of product completed, payment in stages according to product-customization can coordinate conflict between manufacturers and customers in the process of adopting postponement strategy manufacturing system. We also discuss variation of CODP positioning, total cost and payment when rate of return changes.