Integral Logistics Management — Operations Management and Supply Chain Management Within and Across Companies

1.3.3 Customer Order Penetration Point (OPP), or Customer Order Decoupling Point (CODP), and Coordination with Product and Process Design

Intended learning outcomes: Explain the determination of the (customer) order penetration point, or customer order decoupling point, and the stocking level. Describe the modular product concept, the concepts of customization and late customization as well as the postponement approach.



Resolving the problem of the conflicting objectives of “high fill rate” versus “low costs for inventory on stock and in process” is one of the main tasks of logistics, operations, and supply chain management. This problem is equivalent to the basic problem of temporal synchronization between supply and demand described in Section 1.1.3.

The (customer) order penetration point (OPP) is a key variable in a logistics configuration; it is the point in time at which a product becomes earmarked for a particular customer. Downstream from this point, the system is driven by customer orders; upstream processes are driven by forecasts and plans ([APIC16]).

Figure 1.3.3.1 shows the situation applied to the process plan of Figure 1.2.3.3, reduced to the product structure in the time axis. The issue here is the relation of customer tolerance time, which is a result of the market situation, to cumulative lead time.

Fig. 1.3.3.1        The (customer) order penetration point.

If the customer tolerance time is at least as long as the cumulative lead time, the product can be engineered, procured, produced, or delivered when actual demand in the form of a customer order is placed. Other­wise, all goods (such as semifinished goods, single parts, raw materials, and information) from which the end product cannot be manufactured and delivered within the customer tolerance time must be ordered on the basis of forecast. If the customer toleran­ce time is zero, even the end product must be ordered and, if need be, stocked before demand is known. The OPP corresponds to the level in the product structure where a buffer of inventory should be located.

The stocking level defines that level in the bill of material above which a product can be engineered, procured, produced, or delivered within the customer tolerance time. For goods below and at the stocking level, no exact demand is known. Demand forecast is required.

Therefore, the OPP entails decoupling points, each with its decoupling inventory. In general, decoupling points in the product structure are items downstream from or at the OPP with at least one direct component upstream from the OPP. In the example in Figure 1.3.3.1, item A is the only decoupling point. It is downstream from the OPP, whereas its direct components C, D, and E are upstream from the OPP. The necessary inventory at the stocking level (in the example, of item A) is determined by estimation of the opportunity costs according to the required fill rate.

In general, the customer order decoupling point (CODP) is defined synonymously to the OPP. [note 116]

Figure 1.3.3.1 already points in the direction of SCIs. Many SCIs require close coordination with product and process design. Here some examples:

  • Reduction of cumulative lead time at all levels. In this way, the stocking level can be set lower and thus carry­ing cost reduced. Short lead times are a topic in lean-/just-in-time concepts (lean/JIT), which are covered in Chapter
  • modular product concept is based on standardizing the compo­nents and operati­ons and on commonality and building product families. Product variants are decided on the basis of a concept already defined in marketing and product design.
  • Customization is a concept in product design that produces products tailored to customer requirements. In late customization, product modules are characterized by commonality up to high level of product structure, so that the many variants can be produced as much as possible within the customer tolerance time. This reduces the supply chain risks of too high inventory and shelf warmers upstream from or at the (customer) OPP. Here, the number of significantly different process variants should be kept small. On customization, see the variant-oriented concept in Chapter 7.
  • Postponement is an approach in product design. It shifts product differentiation closer to the customer by postponing identity changes, such as assem­b­ly (finish-to-order) or packaging (package to order), to the last possible supply chain position ([APIC16]). Post­po­ne­ment makes sense, if, for example, longer transport distances from the producer to the customer can be resolved through lower-value semifinished items. Efficient postponement can also support the ability for late customization. See here also [SwLe03].

Quiz on Chapter 1.3.1.-1.3.3: not yet available

Potential for conflicting entrepreneurial objectives[kml_flashembed movie="https://opess.ethz.ch/wp-content/uploads/elements/Q_131.swf" height="75%" width="100%" /]




Course section 1.3: Subsections and their intended learning outcomes

  • 1.3 Strategies in the Entrepreneurial Context

    Intended learning outcomes: Differentiate between various entrepreneurial objectives in a company and in a supply chain. Explain resolving conflicting entrepreneurial objectives. Describe the customer order penetration point (OPP) and the coordination with product and process design. Produce an overview on the target area flexibility: investments in enabling organizations, processes, basic technologies, and technologies toward personalized production.

  • 1.3.1 QCDF — Entrepreneurial Objectives in a Company and in a Supply Chain

    Intended learning outcomes: Produce an overview on company performance, or supply chain performance. Identify entrepreneurial objectives affected by logistics, operations, and supply chain management in the target areas of quality, costs, delivery, and flexibility (QCDF). Describe target areas in supply chain performance across companies.

  • 1.3.2 RONA — Resolving Conflicting QCDF Objectives

    Intended learning outcomes: Produce an overview on the supply chain strategy and the business plan. Explain opportunity, opportunity cost, and the potential for conflicting QCDF objectives. Present terms such as return on net assets, net income, profit after tax, net working capital (RONA), and primary entrepreneurial objective. Disclose the objective of a supply chain initiative (SCI).

  • 1.3.3 Customer Order Penetration Point (OPP), or Customer Order Decoupling Point (CODP), and Coordination with Product and Process Design

    Intended learning outcomes: Explain the determination of the (customer) order penetration point, or customer order decoupling point, and the stocking level. Describe the modular product concept, the concepts of customization and late customization as well as the postponement approach.