An Approach to Assess Value of Component Commonality by Integrating Product Design and Supply Chain Decisions

Abstract

Delayed differentiation enables firms to cost effectively offer a large variation of the same product by using common components until the products need to be differentiated for regional requirements. Using the same components in different product models (component commonality) is the key to enabling delayed differentiation. The objective of this paper is to propose an approach to evaluate the value of component commonality by integrating product design decisions and supply chain decisions. We propose an approach to assess the value of component commonality by simultaneously optimizing product design (i.e., component commonality) and supply chain decisions including supplier selection (replenishment lead time) and inventory policy. The proposed approach is illustrated in motor commonality decisions for electric bicycles. The optimum component commonality and supply chain decisions are investigated under various conditions including different demand variabilities, component costs, inventory tracking costs, and inventory ordering costs.