What is a customer order decoupling point? Why is it important?

Thecustomer decoupling point is the point at which the inventory position is determined, i.e., the consumer triggers the manufacturing activity. The closer this point is to the consumer, the quicker the consumer can be served. Selecting a customer order decoupling point is a strategic decision as it determines the time required to serve the customer and influences the inventory investment.

The importance/significance of this point is that it determines the buffer stock of materials, goods, and parts that a supplier will keep with them. The fulfillment of consumer demand in the quickest way possible requires heavy inventory investment. The inventory investment made on ultimate goods is costlier than the investment made on raw material inventory.