Comex, a pool of paint.
COMEX reduces costs and improves customer satisfaction by postponing differentiation and pooling safety stock.
COMEX is the biggest paint producer, distributor and retailer in México. COMEX is a highly effective organization at aligning the company’s business and operational models. It offers to consumers all over Mexico a standardized quality and an unparalleled product variety in the paint industry, including great variety in color and in types of paint. And COMEX offers all of these premium aspects while keeping their prices competitive against the rest of the market. These competitive advantages caused COMEX to quickly become the costumers go to brand when seeking paint.
COMEX produces, transports, stores and sells paint. In order to satisfy the end consumer COMEX had to keep safety stock of their products on all of their retail stores. COMEX also has to have an extremely efficient replenishment system, in which it can allocate resources to each store depending on each stores sales. This model, while effective when properly operated, is difficult to maintain, and in order to have it running smoothly it requires greater inventory control, a deep understanding on consumer habits and advanced sales forecast. While this process is manageable for one or a couple of products, it becomes near impossible to manage at a low cost when dealing with more than thousands of possible combinations of paint type and paint color.
When a company has such a large product offering at its retail stores it causes a need for a huge amount of inventory to be held on location. This is caused by the fact that the company needs to maintain in stock the amount of paint estimated to be sold before the next replenishment round plus a safety stock for each variation. The amount of safety stock one needs to keep depends on the product variability, the replenishment lead time and ones desired cycle service level (cycle service level refers to the percentage of replenishment cycles that satisfy all of the customers’ orders)..
This immense inventory results in extremely high costs, giving retailers three traditional options: pricing at a premium to account for the high inventory cost, reducing the product variety offered to reduce the safety stock required, or having a low cycle service level (CSL).
Nevertheless COMEX was able to tackle this problem through a fourth option, reducing the total amount of safety stock required. They were able to do this by delaying differentiation to the final step in their retailer (the final step in the final step of the supply chain). COMEX does not hold inventory for every color they sell, but instead they hold inventory for all paint in the form of white paint and the chemicals needed to turn that white paint into any color. So the color differentiation takes place after a costumer asks for a specific color at the store, when the store employee will mix the requested color chemicals with the white paint. 
This delayed differentiation produces a pooling effect in the forecast variability. Where instead of forecasting the sales of thousands of different products, they only need to forecast the total sale of each type of paint. This pooled forecast reduces total variability which in turn reduces the amount of required safety stock in each distributor. In the graph to the right one can see the effect pooling can have on variability, where A, B, and C each have extremely variable demands, but the aggregated demand behaves very consistent.
COMEX was able to identify two core variables important for consumers (having a variety of options and low prices) which were though to be mutually exclusive and make them compatible by linking its operational model to its business model, specifically delaying differentiation until they know exactly what the customer wants.
Resources:
Chopra, Sunil, and Peter Meindl. Supply Chain Management: Strategy, Planning, and Operation. 6. Ed., Global ed. Boston: Pearson, 2016. Print.
COMEX México. Web. http://www.comex.com.mx/comex-industrial
“Comex Y PPG Firman Contrato De Compra-venta.” El Financiero. Web. http://www.elfinanciero.com.mx/empresas/comex-y-ppg-firman-contrato-de-compra-venta.html
“PPG Industries Steps Up to Buy Mexican Paint Maker Comex.” Wall Street Journal. WSJ. Web. 9 Dec. 2015. http://www.wsj.com/articles/ppg-to-acquire-mexico-city-based-coatings-company-for-2-3-billion-1404131789
Very interesting technical innovation to serve an operational need. I wonder if there is an impact on perceived quality or consistency and how easy this would be for other companies to replicate. Models like these lend credibility to innovations like the 3-D make up printer we read about in marketing. Perhaps we will see many more delayed differentiation concepts in the near future!
THis is an amazing business idea. I wonder whether this is also applicable to other areas in chemicals. Do you have any knowledge how this has been copied?