Managing inventory in customizable multi-echelon assembly systems

Abstract

We consider a general assembly system that produces variations on a single product. Customers can choose to customize any aspect of the product which corresponds to one or more stages of the assembly system. We assume that demand for the original product and the demand for any customization at any stage are all random with known probability distributions. We model this problem as a multi-echelon inventory management problem. This problem has not been studied before. Allowing for customization at any stage in an assembly system makes this problem significantly more complex than similar problems considered in the past. To solve this problem, we ‘split' the assembly line into two parallel assembly lines which we call uncommitted and committed lines. We show that the usual method of reducing the assembly system to a series is not possible in general. We develop a heuristic policy which can be used to then reduce the system into a series system. We also present numerical calculations which highlight the efficacy of the heuristic policy.