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On the Effect of Product Variety in Production–Inventory Systems

Author

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  • Saif Benjaafar
  • Joon-Seok Kim
  • N. Vishwanadham

Abstract

In this paper, we examine the effect of product variety on inventory costs in a production–inventory system with finite capacity where products are made to stock and share the same manufacturing facility. The facility incurs a setup time whenever it switches from producing one product type to another. The production facility has a finite production rate and stochastic production times. In order to mitigate the effect of setups, products are produced in batches. In contrast to inventory systems with exogenous lead times, we show that inventory costs increase almost linearly in the number of products. More importantly, we show that the rate of increase is sensitive to system parameters including demand and process variability, demand and capacity levels, and setup times. The effect of these parameters can be counterintuitive. For example, we show that the relative increase in cost due to higher product variety is decreasing in demand and process variability. We also show that it is decreasing in expected production time. On the other hand, we find that the relative cost is increasing in expected setup time, setup time variability and aggregate demand rate. Furthermore, we show that the effect of product variety on optimal base stock levels is not monotonic. We use the model to draw several managerial insights regarding the value of variety-reducing strategies such as product consolidation and delayed differentiation. Copyright Kluwer Academic Publishers 2004

Suggested Citation

  • Saif Benjaafar & Joon-Seok Kim & N. Vishwanadham, 2004. "On the Effect of Product Variety in Production–Inventory Systems," Annals of Operations Research, Springer, vol. 126(1), pages 71-101, February.
    • Handle: RePEc:spr:annopr:v:126:y:2004:i:1:p:71-101:10.1023/b:anor.0000012276.87248.c7
    DOI: 10.1023/B:ANOR.0000012276.87248.c7
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    Citations

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    Cited by:

    1. Xiao, Tiaojun & Xu, Tiantian, 2014. "Pricing and product line strategy in a supply chain with risk-averse players," International Journal of Production Economics, Elsevier, vol. 156(C), pages 305-315.
    2. Robert N. Boute & Marc R. Lambrecht & Benny Van Houdt, 2007. "Performance evaluation of a production/inventory system with periodic review and endogenous lead times," Naval Research Logistics (NRL), John Wiley & Sons, vol. 54(4), pages 462-473, June.
    3. Van Nieuwenhuyse, Inneke & Vandaele, Nico & Rajaram, Kumar & Karmarkar, Uday S., 2007. "Buffer sizing in multi-product multi-reactor batch processes: Impact of allocation and campaign sizing policies," European Journal of Operational Research, Elsevier, vol. 179(2), pages 424-443, June.
    4. Noblesse, Ann M. & Boute, Robert N. & Lambrecht, Marc R. & Van Houdt, Benny, 2014. "Lot sizing and lead time decisions in production/inventory systems," International Journal of Production Economics, Elsevier, vol. 155(C), pages 351-360.
    5. Lyons, Andrew Charles & Um, Juneho & Sharifi, Hossein, 2020. "Product variety, customisation and business process performance: A mixed-methods approach to understanding their relationships," International Journal of Production Economics, Elsevier, vol. 221(C).
    6. Carlos Chaves & Abhijit Gosavi, 2022. "On general multi-server queues with non-poisson arrivals and medium traffic: a new approximation and a COVID-19 ventilator case study," Operational Research, Springer, vol. 22(5), pages 5205-5229, November.
    7. Menezes, Mozart B.C. & Jalali, Hamed & Lamas, Alejandro, 2021. "One too many: Product proliferation and the financial performance in manufacturing," International Journal of Production Economics, Elsevier, vol. 242(C).
    8. Huang, Shui-Mu & Su, Jack C.P., 2013. "Impact of product proliferation on the reverse supply chain," Omega, Elsevier, vol. 41(3), pages 626-639.

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