Abstract
Redesign of a multi-product production system to delay product differentiation to final stages of the production is a planning problem. We propose two nonlinear binary optimisation models for determining the optimal stage for differentiating each product. The first model maximises the expected value of profit and the second model maximises the value of options to postpone product differentiation. We use the results from financial basket options pricing theory to formulate and solve the second model. We devise an efficient tabu-constrained randomised search algorithm to obtain models solution, and use parametric analysis of a numerical example to verify the models and gain insight into the product differentiation problem.
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