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October 01, 2015
Pumpkin Spice Latte and Postponement
By: Tim Kachur

With September’s arrival, come thoughts of cooler weather, the return of football, and kids going back to school. There is one new sure sign of the upcoming autumnal equinox: pumpkin. The multiplicity of pumpkin flavored muffins, ice cream, and beer can be consumed while enjoying the aroma of your pumpkin-scented candle. This recent explosion can be traced back to the phenomenon that arguably started it all: The Starbucks Pumpkin Spice Latte. It is the best-selling drink in Starbucks’ stable, and has over 100,000 Twitter followers. And I admit I that am among the millions of consumers who
cannot resist the spiced-up latte every fall.

Companies that make those other pumpkin products require additional ingredients for their recipes, but end up with a high amount of finished goods; there’s a risk that they will still be on shelves after the “pumpkin season” is over. [Name Redacted] doesn’t have this problem because they only need two additional ingredients – sauce and spice – to separate the drink from their base latte. Starbucks uses this strategy to its advantage year round to create new concoctions. Supply chain practitioners recognize their operations as a classic example of postponement.

Postponement, also called delayed differentiation, is about delaying the creation of the final product until the last possible moment. There are many supply chain benefits to postponement as they have been proven to reduce inventory and increase flexibility at all nodes of the supply chain. Many retailers have used postponement strategies for a while; two common examples are paint mixing and sandwich shops.

Still, customer expectations have shifted such that they expect a customized, personalized experience on-demand; enabling postponement until the customer reaps major rewards. Combining postponement with an additional value proposition has been very beneficial to companies and the end customer. Let’s look at some additional recent examples of this trend:

Long-time firms use postponement to combine nostalgia and innovation with effective supply chain practice. Soda aficionados had long been adding cherry syrup to their Cokes when Coca-Cola unveiled Cherry Coke in the mid-1980s. This flavor was the firm’s first venture away from the traditional flavor and was a global phenomenon. Success with this product led to additional flavors such as Vanilla Coke and further complexity with lime, raspberry, and other flavors.

Leveraging new technology called micro-dosing, Coca-Cola created an innovative machine in 2009 allowing the flavor decision to be made at the point of order. The “Freestyle” machine was a smashing success, and its presence is ubiquitous in restaurants across the country. With additional products such as Coke Zero and clear beverages there are now hundreds of combinations of products for the consumer. The machine regularly communicates accurate demand and inventory levels errors back to Coca-Cola and their bottling partners for improved supply chain management.

Tech companies can keep their innovative electronics overall complexity low through stylish accessories. It comes as no surprise that design king [Name Redacted]
leads the way here. [Name Redacted] Products have small differentiators such as memory and only come in a handful of colors. This strategy keeps complexity down, but has enabled smaller firms to earn high margins cheap accessories. [Name Redacted] upped their game through their Smart covers in 2011. This accessory combines personalization of color with additional features: glass protection, automatic activation when it opens, etc. Increasing complexity through postponement simplifies manufacturing process for the main item while allowing for flexibility to respond to the market. It’s easier to add new colors to your plastic covers than to your expensive metallic product.

Fast food assembly gradually changed from “make to order” to “make to stock” over the decades. It specialized in uniform hamburgers wrapped in paper sent down metal chutes for easy picking by cashiers. The recent growth in fast food has shifted back to a postponement strategy in order to cater to customer's unique requirements. The leaders of the pack combine postponement with transparency. Chains such as burrito specialist [Name Redacted] and salad assembler [Name Redacted] allow for large flexibility in ingredients and price points, while the customer watches the entire assembly process behind a protective layer of glass. These companies even share information about their entire supplier chain: where products are sourced, how their plants are grown, and how the animals are maintained.

Postponement is a key component of supply chain strategy – sometimes it is simple and at other times you need to use analytics tools to determine the best strategy for different products. One of the best tools for this is multi-echeon inventory optimization which helps determine the best locations for storing and assembling products.

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