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The Value of Component Commonality in a Dynamic Inventory System with Lead Times

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  • Jing-Sheng Song

    () (Fuqua School of Business, Duke University, Durham, North Carolina 27708, and Antai College of Economics and Management, Jiao Tong University, Shanghai, 200052 China)

  • Yao Zhao

    () (Department of Supply Chain Management and Marketing Sciences, Rutgers University, Newark, New Jersey 07102)

Abstract

Component commonality has been widely recognized as a key factor in achieving product variety at low cost. Yet the theory on the value of component commonality is rather limited in the inventory literature. The existing results were built primarily on single-period models or periodic-review models with zero lead times. In this paper, we consider a continuous-review system with positive lead times. We find that although component commonality is in general beneficial, its value depends strongly on component costs, lead times, and dynamic allocation rules. Under certain conditions, several previous findings based on static models do not hold. In particular, component commonality does not always generate inventory benefits under certain commonly used allocation rules. We provide insight on when component commonality generates inventory benefits and when it may not. We further establish some asymptotic properties that connect component lead times and costs to the impact of component commonality. Through numerical studies, we demonstrate the value of commonality and its sensitivity to various system parameters in between the asymptotic limits. In addition, we show how to evaluate the system under a new allocation rule, a modified version of the standard first-in-first-out rule.

Suggested Citation

  • Jing-Sheng Song & Yao Zhao, 2009. "The Value of Component Commonality in a Dynamic Inventory System with Lead Times," Manufacturing & Service Operations Management, INFORMS, vol. 11(3), pages 493-508, March.
  • Handle: RePEc:inm:ormsom:v:11:y:2009:i:3:p:493-508
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    File URL: http://dx.doi.org/10.1287/msom.1080.0235
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    References listed on IDEAS

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    Cited by:

    1. van Jaarsveld, Willem & Dollevoet, Twan & Dekker, Rommert, 2015. "Improving spare parts inventory control at a repair shop," Omega, Elsevier, vol. 57(PB), pages 217-229.
    2. Wenyuan Wang & Daniel Y. Mo & Yue Wang & Mitchell M. Tseng, 0. "Assessing the cost structure of component reuse in a product family for remanufacturing," Journal of Intelligent Manufacturing, Springer, vol. 0, pages 1-13.
    3. Albrecht, Martin, 2014. "Determining near optimal base-stock levels in two-stage general inventory systems," European Journal of Operational Research, Elsevier, vol. 232(2), pages 342-349.
    4. Hong, Yoo Suk & Huh, Woonghee Tim & Kang, Changmuk, 2017. "Sourcing assemble-to-order inventories under supplier risk uncertainty," Omega, Elsevier, vol. 66(PA), pages 1-14.
    5. repec:spr:annopr:v:265:y:2018:i:1:d:10.1007_s10479-017-2507-2 is not listed on IDEAS
    6. repec:eee:ejores:v:261:y:2017:i:3:p:866-879 is not listed on IDEAS
    7. Fernando Bernstein & Gregory A. DeCroix & Yulan Wang, 2011. "The Impact of Demand Aggregation Through Delayed Component Allocation in an Assemble-to-Order System," Management Science, INFORMS, vol. 57(6), pages 1154-1171, June.

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