Developing Heuristics to Estimate the Impact of Postponement on Safety Stock

The Principle of Postponement suggests that the final configuration of a Product be delayed until a customer order is received, thus reducing a firm's need to forecast demand for every product variation in its product line. Four heuristics which facilitate the identification of postponement opportunities are developed in this paper. These heuristics estimate percent safety stock saving from postponement. The analysis shows that these savings are explained by the correlation of sales among items in the firm's product line, the number of items in the product line, and magnitude, which is the ratio of standard deviations for every pair of items in the product line. An actual example of the application of these heuristics is presented at the end of the paper.