On the placement of the customer order decoupling point

It is often suggested that supply chains should start working directly towards customer orders as far upstream as possible, mostly for inventory reduction reasons. However, the customer order decoupling point (CODP) cannot be pushed further upstream than customers are willing to wait. In this paper, we use a system dynamics model to show that the optimal placement of the CODP depends on the demand signal. Our findings indicate that placing the CODP downstream allows for short-term fluctuations in demand to be absorbed by the order book, leading to a stable production rate. This benefit must however be weighed against any additional safety stock a CODP placed far downstream may require.