The Role of Decoupling Points in Value Chain
Management
Jan Olhager
Abstract All supply chains are not the same. A key factor that affects the design and management of a value chain is the position of the customer order decoupling point; some products are produced to order (e.g. configured to particular customer needs) while others are produced to stock (typically standard products). The customer order decoupling point (CODP) identifies the point in the material flow where the product is linked to a specific customer. This paper discusses the impact of having the decoupling point at different positions, and the distinguishing features for value chain operations upstream the decoupling point (i.e. towards the supplier) versus those downstream the decoupling point (i.e. towards the ultimate customer).
Based on these differences, we explore the implication of the CODP on the modelling of value.
Keywords Decoupling point • Value • Value chain management
1 Introduction
In order to compete successfully, operations in any type of firm need to be strategically aligned to the market requirements. This concerns all aspects and operations of the value chain. The customer order decoupling point (CODP) is gaining attention as an important factor in the design and management of manufacturing operations as well as supply chains. The CODP is the point in the material flow where the product is tied to a specific customer order; the basic choices being make-to-stock, assemble-to-order, make-to-order, and engineer-toorder. As a rule, the CODP coincides with the most important stock point, from where the customer order process starts. From the value chain perspective, there is
J. Olhager (*)
Department of Management and Engineering, Link€ oping University, Link€ oping, Sweden e-mail: jan.olhager@liu.se
H. Jodlbauer et al. (eds.), Modelling Value, Contributions to Management Science,
DOI 10.1007/978-3-7908-2747-7_2, # Springer-Verlag Berlin Heidelberg 2012
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J. Olhager
typically one dominant CODP along the material flow of the value chain. From a company perspective, the CODP can be positioned inside their manufacturing operations or it can be positioned at the suppliers (first tier or even further upstream in the value chain), at the interface with the supplier (raw material inventory), at the border towards the customers (at some finished goods inventory), or even further downstream in the supply chain.
This paper investigates the role of the CODP in value chain management. First, the related literature is reviewed. Then, some distinguishing features are summarized. These two sections serve to establish the fundamental differences between upstream and downstream operations relative to the CODP. Finally, we explore the implications of the CODP on the modelling of value.
2 Related Literature
2.1
The Customer Order Decoupling Point
The CODP is traditionally defined as the point in the value chain for a product, where the product is linked to a specific customer order. Sometimes the CODP is called the order penetration point; cf. Sharman (1984) and Olhager (2003). Different manufacturing situations such as make-to-stock (MTS), assemble-to-order
(ATO), make-to-order (MTO) and engineer-to-order (ETO) all relate to different positions of the CODP; cf. Fig. 1. The CODP thus divides the operations stages that are forecast-driven (upstream of the CODP) from those that are customer orderdriven (the CODP and downstream). The CODP is also the last point at which inventory is held (Sharman 1984). Thus, the inventory at the CODP is a strategic stock-point since delivery promises are based on the stock availability at the CODP and the lead times and capacity availability for the customer order-driven activities downstream the CODP (Olhager 2003).
The literature on CODP is growing (Olhager 2010). There is a strong consensus among the literature on CODP in that the operations upstream are significantly different than those downstream, based on the
