USING AHM APPROACH TO POSITION CODP
Mladen Velev, Ognyan Andreev
Faculty of Management, Technical University of Sofia, 8, Kl. Ochridski Blv., Sofia, Bulgaria
Tanya Panayotova
Department of Economics and Management, Technical University of Varna, 1, Studentska Str., Varna, Bulgaria
Keywords: Customer order decoupling point, Analytical hierarchy process, Mass customization, Co-creation, Co-
development.
Abstract: The concept of Customer Order Decoupling Point/CODP is a popular approach to increasing the diversity of
end items, while taking advantage of standardization/unification due to increased repetitiveness of opera-
tions devoted to components and/or subassemblies manufacturing. CODP marks the place (the operation,
the phase of the process etc.) where customer intervention occurs, in order to define, according to his/her
wishes, the final mode of the end item (product or service). An underlying issue here is to make an econom-
ically motivated decision about the exact CODP position (1) among different end items of the company’s
product mix, and (2) inside a particular product/service line. Inside the operations process, before CODP,
forecasts are usually used (Make-To-Stock), and after it – Make-To-Order. Consequently, the opportunities
to achieve economies of scale are different before and after CODP. Therefore, the opportunities for optimiz-
ing the total operating costs are different as well. In the present paper, an approach is suggested for applying
the Analytical Hierarchy Process/AHP in solving such a problem. Some examples of criteria are also pre-
sented to give reasons for the “pros” and “cons” during the decision making process about CODP position.
1 INTRODUCTION
CODP stands for “Customer Order Decoupling
Point”. Often, for the same meaning, many authors
use different terms and abbreviations, like “Custo-
mization Point/CP” (Ramachandran at. al, 2002)
“Delay of Product Differentiation” (Gupta & Ben-
jaafar, 2004), “Point of Postponement/ PP” (Feitzin-
ger & Lee, 1997) etc.
CODP is a widely used tool in the process of ap-
plying Mass Customization and Co-Creation. It is a
popular approach to increase the diversity of end
items, while using the advantages of the standardiza-
tion/modularization due to an increased repetitive-
ness of operations devoted to manufacturing of
components and/or subassemblies. CODP defines
the stage in the manufacturing value chain, where a
particular product is linked to a specific customer
order. In fact, it marks the place (the operation, the
process phase etc.) where the customer’s interven-
tion occurs, in order to define the final mode and
appearance of the end item (no mater a product or a
service), according to his/her wishes and prefe-
rences.
In general, the idea of CODP is presented in the
Figure 1 (Andreev, 2009). On the top of the figure, a
simplified view is used to depict the sequence of
operations and supplier-client relationships. It is
represented by the subsequent steps of the whole
supply chain – from the suppliers of raw materials
downstream to the end client – the customer. Ac-
cording to the position of CODP, the customer is
“allowed to penetrate” through the operational
process, by the act of his/her order, using different
options to choose at the CODP itself. Thus, the cus-
tomer could define one or more particular sub-
assemblies/components of the end item to be used in
the final assembly, or the components of any par-
ticular subassembly, or a given combination of both,
as well as to define certain component parts, and so
on – upstream to the beginning of the process.
In fact, each of the end items built this way is a
different customized product/service assembled
according to the choice/preferences of the particular
80
Velev M., Andreev O. and Panayotova T.
USING AHM APPROACH TO POSITION CODP.
DOI: 10.5220/0004458800800087
In Proceedings of the First International Symposium on Business Modeling and Software Design (BMSD 2011), pages 80-87
ISBN: 978-989-8425-68-3
Copyright
c
 2011 by SCITEPRESS – Science and Technology Publications, Lda. All rights reserved

Figure 1: Variety of possibilities to position Customer Order Decoupling Point (Andreev, 2009).
customer. Moreover, the customer could be involved
not only in choosing component options, but in
performing some of the operations as well, likewise
the case of home assembled furniture etc.
2 SPECIFICS OF CODP ISSUES
It can easily be seen from Figure 1 that moving
CODP rightwards leads to a decrease in the end
product diversity, and vice-versa. Also the opportun-
ities for increasing product diversity by moving
CODP leftwards are enhanced by, so to say, a kind
of geometrical progression, due to the nature of the
product breakdown structure, which “explodes” in
quantity of generic items shifting down to the lower
levels (Figure 2).
Acting this way, the company could combine the
advantages of the Economies of Scope (a relatively
rich diversity in the product mix, defined by the cus-
tomer after CODP) with the ones of the Economies
of Scale (aggregating and consolidating in batches as
big as possible before CODP) with an aim to achieve
a higher degree of customized variety of end prod-
ucts/services (Pine, 1992).
One can also see that both “boundary cases” are
represented respectively: the upper one – 100%
Sale-to-Forecast, and the one in the bottom – 100%
Engineer-to-Order. In between, hybrids are possible
to be performed that complement mutually each
other, so that CODP sets their share (Figure 1):
 Distribution/Shipment to Order
 Packaging/Labeling to Order
 Assembly to Order
 Make to Order
 Purchase to Order
The problem of deciding on the right position of
CODP for different product families, as well as for
the products inside the product families arises pe-
riodically in the companies not only in connection
with the continuously changing environment – both
outside the company (new market conditions) and
inside (new technologies, materials, operations etc.),
but also because of the pursuit of continuously im-
proving their competitiveness.
However, from an economic point of view, the
companies aim to such a CODP position, which is
not only going to help them take a competitive mar-
ket advantage, but to provide also maximum bene-
fits/profits.
USING AHM APPROACH TO POSITION CODP
81

Figure 2: An example of a Product Breakdown Structure.
In determining the position of CODP, enterprises
take into account the effect of a range of internal and
external factors, which perform the role of selection
criteria. These criteria build up a system and each of
them can have its sub-criteria too. The simultaneous
use of the whole range of criteria and their sub-
criteria ensures a greater precision in the final esti-
mates, but makes it quite difficult to determine them.
In their operations, enterprises are confronted
with two major problems in determining CODP po-
sition: the first one is related to the correct estab-
lishment of the assessment criteria (influence fac-
tors) and their sub-criteria, and the second one – to
the simultaneous taking into account of their effect.
Although several papers have discussed the con-
ception of CODP, little work has been done on its
influence factors and positioning (Olhager, 2001).
Most often, it is noted that in the capacity of CODP
it is possible to point out almost every component in
the product breakdown structure (Figure 2), pro-
vided the enterprise is capable of suggesting alterna-
tive options for that component. Here, a modular
design and structure of the end item is presumed so
that it is possible to use any of the options in the
further realization of the process at random (Velev
& Tsvetanova, 2010). That also means that the ca-
pacity, which has to meet such a demand, should be
extremely flexible and, as is most often the case, it
will be to a great extent ineffectively utilized.
Our analysis of the publications points to the
conclusion that it is necessary to suggest (1) a way
of building up a complete system of criteria for deci-
sion making about CODP position and (2) a method/
set of tools, by means of which the decision will be
based on a relatively large number of such criteria.
3 DECISION MAKING CRITERIA
FOR CODP POSITIONING
In order to solve the first problem we suggest a sys-
tem of criteria for assessment and selection. Their
particular meanings, which take into account the
impact of the internal and external factors, depend
on the specifics of the activities of the enterprises
and the conditions of the environment, in which they
are carried out. The system includes a hierarchical
decomposing of the criteria into sub-criteria, etc.:
3.1 Degree of Conformity with the
Specifics of the Products/Services
3.1.1 Degree of Compliance with Customer
Requirements
A higher degree of compliance with the characteris-
tics of the products, provided with the customer re-
quirements, presupposes a greater shift of CODP
BMSD 2011 - First International Symposium on Business Modeling and Software Design
82

leftwards. The less standard and the better the prod-
uct suits the requirements of the customers, the more
profitable it is for the company. With standard prod-
ucts the need to meet these requirements is de-
creased. The degree of necessary interaction with the
customers is different and it depends on whether the
enterprise provides a tangible product or a service.
In case that services are provided the degree of inte-
raction with the customers is generally greater,
which causes a shift of CODP leftwards.
3.1.2 Strength of Technological Ties with
Customers
The greater technological commitment to the cus-
tomers requires a better co-ordination with them –
for example, manufacturing of components to be
assembled by the customer. On the opposite, when
end products are manufactured, the technological
ties are low and CODP shifts rightwards.
3.1.3 Mode of Contacts with Customers
When industrial products are being produced and
delivered (i.e. machinery), the contacts with the
buyers are much closer and direct. Most often, prod-
ucts are made to order by agreed specifications. No
intermediaries are used in delivery, which facilitates
the shift of CODP leftwards. However, that is not
the usual case with consumer products.
3.1.4 Degree of Technical Complexity of the
Product/Service
The technical complexity of the product/service re-
quires greater involvement of the customer in devel-
oping, manufacturing and delivery of the product. It
is necessary to have better interaction with the pro-
ducer and that leads to a shift of CODP leftwards.
3.1.5 Degree of Diversity of the Product
Variants
The greater degree of diversity of the product va-
riants and the product quality characteristics require
a greater degree of conformity and closer interaction
with the customer requirements. Thus, opportunities
for the realization of Co-Creation and Co-Develop-
ment arise and CODP shifts leftwards.
3.2 Degree of Compliance with Market
Conditions
3.2.1 Degree of Market Turbulence
The fast-changing customer requirements and the
intensifying market fragmentation, which makes it
necessary to satisfy the specific requirements of
small groups of customers, have provoked imme-
diate responses from the manufacturers. Modern
business strategies have been employed, at the basis
of which a shift of CODP towards the left is laid.
3.2.2 Degree, to which Competitors Make
Use of the Practice to Involve Clients
in the Process of Manufacturing and
Delivering Products/Services
On the one hand, the practices of the competitors
reflect the collective experience of the companies,
which are active on the respective market, and the
company must take them into consideration. On the
other hand, the introduction of new business strate-
gies by the competitors, related to the use of Co-
Creation and Co-Development and a shift of CODP
leftwards, forces the enterprise to react accordingly.
Otherwise, it will lose its competitive edge.
3.2.3 Degree of Intensity of Market
Competition
The strong competitive pressure forces enterprises to
look for new ways of increasing their competitive-
ness. By shifting CODP leftwards, a greater degree
of product customization is achieved, as well as a
closer interaction with the customers and therefore –
an improvement of competitive position. Usually,
there is reduction in the manufacturing and market-
ing costs, and achievement of better business results.
3.2.4 Degree, to which Customers are
Looking for Opportunities to
participate in the process of
manufacturing and delivering
the product/service
3.2.5 Technological Opportunities for the
Customers to participate in the process
of manufacturing and delivering the
product/service
3.3 Degree of Conformity with
Enterprise Goals and Strategies
3.3.1 Expected Increase of Sales due to the
CODP position in consideration
3.3.2 Expected Reduction of Costs due to the
CODP position in consideration
USING AHM APPROACH TO POSITION CODP
83

3.3.3 Expected Increase of Profit due to the
CODP position in consideration
3.3.4 Expected Return on Additional In-
vestment needed to position CODP at
the location under consideration
3.3.5 Degree of Conformity with the
Company Strategies
The outcomes from a particular CODP position must
fit into the company strategic choices and goals.
3.4 Degree of Conformity with the
Production Capacity of Enterprise
3.4.1 Technical / Technological Capabilities
of Enterprise, needed to provide the per-
formance required
3.4.2 Innovative Capabilities of the Enter-
prise to meet customer requirements
3.4.3 Degree of Product Modularity
Greater modularity of the products presupposes
greater variability of end items and higher degree of
customization. It presupposes also easier realization
of the Co-Creation and Co-Development practices.
3.4.4 Degree of Processes Flexibility
Flexibility of product development processes is yet
another condition for greater variability and indivi-
dualization. It presupposes a CODP shift leftwards.
3.4.5 Information and Communication
Opportunities
ICT availability and status is vital in applying the
practice of customer participation in manufacturing
and delivering the products.
3.4.6 Degree of Integration with
Intermediaries
The higher degree of integration of the enterprise
with the intermediaries in the supply chain, such as
suppliers or distributors, is a prerequisite for a shift
of CODP rightwards.
3.4.7 Reputation of the Enterprise as a
Loyal Partner
The positive reputation of the enterprise as a loyal
partner, and one that maintains good quality is a
prerequisite for increased customer commitment,
leading to possibilities to shift CODP leftwards.
The above mentioned criteria can be changed
and complemented depending on the particular con-
ditions in which the particular enterprise operates.
4 METHODOLOGY FOR
ASSESSING THE IMPACT OF
DIFERENT CRITERIA
The second major problem related to determining
the CODP position is connected with the simultane-
ous consideration of the whole system of criteria and
sub-criteria, being used. In order to solve it, it is
necessary to assess how strong the impact of each of
the criteria and sub-criteria is, to evaluate their im-
portance for obtaining desired final results, and to
use an appropriate method for calculating the results
according to various alternative positions of CODP.
In addition, the method of assessment should avert
or keep to a minimum the possibilities of errors and
subjectivity in taking the final decision. The selec-
tion of CODP position should include a sequence of
judgments and decisions, which have a hierarchical
structure, as it is indicated in Figure 3.
In order to facilitate the procedure of choosing a
position and to avoid or at least reduce subjectivity
in taking the final decisions for the CODP location,
it is recommended that the right assessment methods
and software are used. An appropriate method for
that purpose here is the Analytical Hierarchy Proc-
ess/АНР (Saaty, 1980). АНР is a useful tool for
choosing an option to be used out of a whole range
of criteria, especially where there are sub-criteria to
the criteria, sub-sub-criteria etc. Using that method,
a choice is made based on the relative importance of
the criteria and sub-criteria for achieving the aims
set by the company strategy, and the capabilities of
the operations to fulfil them.
The present paper aims at demonstrating, by us-
ing a simple example, the applicability of the АНР
method in determining the position of CODP.
4.1 Determining the Relative Impor-
tance of the Selection Criteria
The criteria have different importance in maximiz-
ing the profits of the enterprise and for responding to
the priorities of the customer. Thus, they carry dif-
ferent relative weights in making the decision about
the choice of an option for CODP position.
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Figure 3: Decision hierarchy in choosing CODP position.
According to the AHP procedure, determining
the relative weight of the selection criteria starts
with their comparative assessment in pairs. This is
done by a group of experts who use the assessment
scale shown in Table 1 (Stevenson & Ozgur, 2007).
Table 1: Scale for determining the importance (priority)
Degree of Relative Importance Score
Equal Importance 1
Between Equal and Moderate Great Importance 2
Moderate Great Importance 3
Between Moderate Great and Great Importance 4
Great Importance 5
Between Great and Very Great Importance 6
Very Great Importance 7
Between Very Great and Extremely Great Impor-
tance
8
Extremely Great Importance 9
The comparison stands for the relative impor-
tance of a certain criterion in relation to another one,
in order to achieve that specific aim or in relation to
another criterion at a higher level.
The levels of relative importance determined by
the experts should be checked for inconsistency. If
there is an inconsistency out of permitted bounda-
ries, then the estimates should be reviewed. This is
done by calculating the following ratio (Saaty, 1980)
RI
CI
CR 
(1)
 CR – Consistency Ratio,
 CI – Consistency Index,
 RI – Random Index – defined according to the
number (n) of objects compared in the following
table (Panayotova, 2004):
n
2 3 4 5 6 7 8 9 10
RI
0 0,58 0,90 1,12 1,24 1,32 1,41 1,45 1,49
1n
n
CI



(2)
 λ – Largest Eigen Value
The comparisons are considered to be consistent,
when CI<0,10. (Handfield at al., 2002).
In order to demonstrate the applicability of АНР
in CODP positioning we suggest the following ex-
ample:
A choice must be made among three alternatives
for CODP: P
OSITION 1 (situated in the left part of
Figure 1), POSITION 3 (situated in the right part),
and P
OSITION 2 – situated in the middle.
As a result of the expert group discussions on
criteria 3.1 to 3.4, the following matrix for compar-
ing their importance pair wise is suggested:
CHOOSING THE POSITION OF CODP
CRITERION 3.1 CRITERION 3.2 CRITERION 3.3 CRITERION 3.4
Sub-criterion 3.1.1
Sub-criterion 3.1.2
Sub-criterion 3.1.3
Sub-criterion 3.1.4
Sub-criterion 3.1.5
Sub-criterion 3.2.1
Sub-criterion 3.2.2
Sub-criterion 3.2.3
Sub-criterion 3.2.4
Sub-criterion 3.2.5
Sub-criterion 3.3.1
Sub-criterion 3.3.2
Sub-criterion 3.3.3
Sub-criterion 3.3.4
Sub-criterion 3.3.5
Sub-criterion 3.4.1
Sub-criterion 3.4.2
Sub-criterion 3.4.3
Sub-criterion 3.4.4
Sub-criterion 3.4.5
Sub-criterion 3.4.4
Sub-criterion 3.4.5
POSITION 1 POSITION 2 POSITION 3
USING AHM APPROACH TO POSITION CODP
85

Table 2: Comparing criteria pair wise with respect to the
objective.
Criterion 3.1 3.2 3.3 3.4
3.1
1 1,000 0,333 2,000
3.2
1,000 1 0,500 2,000
3.3
3,000 2,000 1 4,000
3.4
0,500 0,500 0,250 1
After normalizing and calculating the first nor-
malized principal Eigen vector, we come to the fol-
lowing distribution of priorities of the criteria:
Table 3: Calculating criteria priorities with respect to the
objective.
Criterion 2.1 2.2 2.3 2.4 Priority
2.1
0,182 0,222 0,160 0,222
0,197
2.2
0,182 0,222 0,240 0,222
0,217
2.3
0,545 0,444 0,480 0,444
0,479
2.4
0,091 0,111 0,120 0,111
0,108
Calculations show that Consistency Ratio is
within the limit: CR = 0.0076 < 0.1
What follows is to determine the relative impor-
tance among the pairs of sub-criteria for each crite-
rion. A view on the present example is shown in
Tables 4 to 7:
Table 4: Comparing sub-criteria 2.1.1 – 2.1.5 pair wise
with respect to the criterion 2.1. Inconsistency: 0.071.
Sub-
Criteria
2.1.1 2.1.2 2.1.3 2.1.4 2.1.5 Priority
2.1.1
1 3,000 4,000 3,000 4,000
0,433
2.1.2
0,333 1 2,000 2,000 3,000
0,208
2.1.3
0,250 0,500 1 2,000 3,000
0,156
2.1.4
0,333 0,500 0,500 1 4,000
0,140
2.1.5
0,250 0,333 0,333 0,250 1
0,063
Table 5: Comparing sub-criteria 2.2.1 – 2.2.5 pair wise
with respect to the criterion 2.2. Inconsistency: 0.049.
Sub-
Criteria
2.2.1 2.2.2 2.2.3 2.2.4 2.2.5 Priority
2.2.1
1 2,000 4,000 3,000 5,000
0,410
2.2.2
0,500 1 3,000 2,000 4,000
0,258
2.2.3
0,250 0,333 1 2,000 4,000
0,158
2.2.4
0,333 0,500 0,500 1 2,000
0,114
2.2.5
0,200 0,250 0,250 0,500 1
0,060
Table 6: Comparing sub-criteria 2.3.1 – 2.3.5 pair wise
with respect to the criterion 2.3. Inconsistency: 0.042.
Sub-
Criteria
2.3.1 2.3.2 2.3.3 2.3.4 2.3.5 Priority
2.3.1
1 2,000 2,000 2,000 3,000
0,331
2.3.2
0,500 1 2,000 2,000 4,000
0,263
2.3.3
0,500 0,500 1 2,000 3,000
0,190
2.3.4
0,500 0,500 0,500 1 3,000
0,146
2.3.5
0,333 0,250 0,333 0,333 1
0,070
Table 7: Comparing sub-criteria 2.4.1 – 2.4.7 pair wise
with respect to the criterion 2.4. Inconsistency: 0.086.
Sub-
Cr.
2.4.1 2.4.2 2.4.3 2.4.4 2.4.5 2.4.6 2.4.7
Prio-
rity
2.4.1
1 3,00 2,00 2,00 4,00 5,00 4,00
0,335
2.4.2
0,33 1 2,00 2,00 3,00 4,00 4,00
0,210
2.4.3
0,50 0,50 1 2,00 4,00 4,00 4,00
0,185
2.4.4
0,50 0,50 0,50 1 3,00 4,00 4,00
0,130
2.4.5
0,25 0,33 0,25 0,33 1 3,00 4,00
0,057
2.4.6
0,20 0,25 0,25 0,25 0,33 1 2,00
0,040
2.4.7
0,25 0,25 0,25 0,25 0,25 0,50 1
0,043
4.2 Determining the Relative
Importance of the Alternatives
for CODP Position
After defining specific weights for the particular
sub-criteria, a pair wise assessment of the three al-
ternatives for CODP position is made, according to
each sub-criterion. An example for the sub-criterion
2.1.1 is shown on the Table 8:
Table 8: Comparing three alternatives for CODP position
pair wise with respect to the sub-criterion 2.1.1.
Alt. Position 1 Position 2 Position 3 Priority
Position 1
1 2,000 4,000
0,571
Position 2
0,500 1 2,000
0,286
Position 3
0,250 0,500 1
0,143
In that particular case, the above calculation is
repeated 22 times with respect to each sub-criterion,
followed by weighting these estimates to the corres-
ponding weights of the main criteria. The summary
results are presented in Figure 4.
According to the results, the first alternative for
the position of CODP (the one on the left-hand side
of Figure 1) is most preferable and best fits the crite-
ria and considerations formulated in section 3!
5 CONCLUSIONS
In this paper, an approach to CODP positioning was
presented, using the Analytical Hierarchy Process/
AHP. We summarized different approaches and ex-
isting methods to solving the problem. An in-depth
analysis of some lacks in the literature in this direc-
tion enabled us to propose a different standpoint for
the way of considering and solving the problem. The
approach suggested here requires the decision to be
made into two stages: (1) to build up a complete
system of decision making criteria about CODP po-
sition and (2) to use the AHP in its capacity of a
method/set of tools, by means of which the decision
BMSD 2011 - First International Symposium on Business Modeling and Software Design
86

Figure 4: Comparing three positions with respect to the whole set of criteria and sub-criteria.
will be based on a large number of such criteria and
sub-criteria.
In order to illustrate the approach, a hypothetical
example was elaborated, based on the assumption of
having three alternatives for the position of CODP.
First, a system of criteria and sub-criteria was
build up, which reflects the particular circumstances
and conditions influencing the hypothetical object
under consideration, i.e. the specific branch of the
company, the specific product/service, the specific
competitive conditions at the market, financial con-
siderations etc. Secondly, by using the AHP, these
three alternative positions have been assessed with
respect to the whole set of criteria and sub-criteria,
and the one that fits best the criteria, was chosen.
Furthermore, it is necessary to make a vaster
study in order to develop a method, which can con-
sider the multi-positioning opportunities for CODP
in the same product breakdown structure, as well as
probabilistic behaviour of the units that manufac-
ture/supply corresponding components.
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