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A set-covering model for optimizing selection of portfolio of microcontrollers in an automotive supplier company

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  • Nepal, Bimal
  • Lassan, Gregg
  • Drow, Baba
  • Chelst, Kenneth
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    Abstract

    The sourcing decisions of microcontrollers in automotive industries are complex to manage largely due to the increasing complexity of products requirements, multiple suppliers, and the nature of microcontroller pricing structures. This paper presents a set-covering model that allows the user to select the most economical microcontrollers that meet all the critical product requirements while minimizing the total cost. The optimization process is carried out in two phases. The first phase deals with the construction of a buildable combination matrix by mapping out the critical product requirements against the microcontroller specifications. In the second phase, the model makes an optimal assignment of microcontrollers to each feasible or buildable product by utilizing economies of scales offered by large microcontroller volumes. Lot size constraints are used to handle the step function in the microcontrollers pricing structure. A case study from Visteon Corporation is used to demonstrate the application of the model. Pilot implementation of the model shows a potential saving of nearly two millions over a 4-year planning horizon.

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    Bibliographic Info

    Article provided by Elsevier in its journal European Journal of Operational Research.

    Volume (Year): 193 (2009)
    Issue (Month): 1 (February)
    Pages: 272-281

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    Handle: RePEc:eee:ejores:v:193:y:2009:i:1:p:272-281

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    Web page: http://www.elsevier.com/locate/eor

    Related research

    Keywords: Large scale optimization Strategy planning Case study Set-covering model;

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    1. Harry Markowitz, 1952. "Portfolio Selection," Journal of Finance, American Finance Association, vol. 7(1), pages 77-91, 03.
    2. Rajan Batta & Narasimha R. Mannur, 1990. "Covering-Location Models for Emergency Situations That Require Multiple Response Units," Management Science, INFORMS, INFORMS, vol. 36(1), pages 16-23, January.
    3. Marshall Fisher & Kamalini Ramdas & Karl Ulrich, 1999. "Component Sharing in the Management of Product Variety: A Study of Automotive Braking Systems," Management Science, INFORMS, INFORMS, vol. 45(3), pages 297-315, March.
    4. Marshall L. Fisher & Pradeep Kedia, 1990. "Optimal Solution of Set Covering/Partitioning Problems Using Dual Heuristics," Management Science, INFORMS, INFORMS, vol. 36(6), pages 674-688, June.
    5. Kamalini Ramdas & Marshall Fisher & Karl Ulrich, 2003. "Managing Variety for Assembled Products: Modeling Component Systems Sharing," Manufacturing & Service Operations Management, INFORMS, INFORMS, vol. 5(2), pages 142-156, November.
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