Evaluation of supply chain structures through modularization and postponement

This paper introduces a conceptual framework for evaluating different supply chain structures in the context of modularization and postponement. In our analysis, modularization is linked to inbound logistics as the combination of different components (or modules) allow for the assembly of the final product. Postponement, however, corresponds with the outbound logistics since it is through the distribution function that customers' specific demand is satisfied. Given this perspective, we introduce a taxonomy and develop a corresponding framework for the characterization of four supply chain structures, defined according to the combined levels of modularization and postponement: Rigid, Postponed, Modularized and Flexible. We also illustrate the applicability of the resulting framework through quantifying the total cost differential for utilizing a particular supply chain structure. By quantifying the total cost for employing a particular supply chain structure we can numerically illustrate structural results that allow for an objective comparison among them. As such, our findings substantiate the empirical evidence that vertical integration along the supply chain is not always desirable. A point of emphasis in this paper is the notion that firms may be better off making combined modularization (outsourcing) and postponement decisions as opposed to separate ones (as they currently do). This also suggests that modularization and postponement decisions need not be independent and that their joint consideration extends operational advantages worthy of contemplation.