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Decoupling Point and the Product Differentiation Point

             The product differentiation point is the point where the firm's product is configured and it takes on specific features.
             Product Postponement.
             It is defined as the process of doing the final set of manufacture or customization closer on the supply chain to the end-user. This implies that any firm would ideally like to postpone the product differentiation point as further up the supply chain as possible, the objective being to keep the inventory in generic form for as long as possible. In order to be responsive to the customer's needs and demands of the market place for greater variety and customization the firm attempts to set the product differentiation point as close to the customer as possible.
             Decoupling Point.
             A major problem in all supply chains is that they have little visibility of "real" demand. Since large supply chains often tend to be extended with multiple echelons of inventory between the point of production and the final market place they tend to be forecast driven rather than demand driven. In other words decisions on production and distribution are based upon forecasts or orders (which themselves do not necessarily reflect demand but rather tend to be based on arbitrary "rules" such as re-order points and re-order quantities).
             The point at which real demand penetrates upstream in a supply chain is termed the decoupling point. These decoupling points also tend to dictate the form in which inventory is held. The Decoupling Point can also be defined as the point in the supply chain where the customer is known i.e. the customer penetrates the supply chain. Also referred to as the Order Penetration Point it is the point between the "Production to Stock" and "Production to Order". The supply chain is divided into 2 by the decoupling point.
             Another way to look at the decoupling point is in terms of "push" (initiates production in anticipation of future demand) and "pull" (initiates production as a response to present demand).

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