Notes on delayed product differentiation in the supply chain

Delayed Product Differentiation in the supply chain

Tackling or forecasting demand accurately has alwys been a problem in effective supply chain functioning. Inaccurate forecasts lead to holding excess inventory or running short of inventory. Excess inventory leads to wastage, obsolescence, downward pricing and loss of profits. Shortage of inventory leads to loss of profit and loss of goodwill.

When a product is assembled, the moment the differentiation of the assembly happens into a different product is important. This is the instant when the product has a specific value to a specific end user. The further assembly of this product depends on the final demand for this product. If this demand changes, it is likely to result in the product remaining on the shelf unsold or being sold earlier than when it is actually to be sold. If the product is sold earlier than when it is actually to be sold, it is beneficial for the organization as it realises the monetary value of the product earlier. But if the product remains unsold and remains on the shelf, it leads to deterioration of the product and subsequent loss.

The duration the product remains on the shelf is inversely proportional to the value that can be realised from the product. i.e. the more time the product remains differentiated and remains on the shelf, the less it's value and vice versa. Let the time the product remains differentiated (t1) and on the shelf (t2) be given by T (=t1 + t2) and value V1 at beginning of T and V2 at the end of t1 and V3 at the end of t2. ie. T = k/(V1 -V3), ie T.V = k, (t1 + t2).(V1-V3)= k.

V1 - V2 is the loss of value on the asembly line and V2 - V3 is the loss of value on the shelf. (V1 - V2) > (V2 - V3)

If the time the product remains on the shelf (t2) is greater than the time it remains being differentiated on the assembly line (t1), the loss in value (V1 - V2) is less than (V2 - V3).