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Managing Variety for Assembled Products: Modeling Component Systems Sharing

  • Kamalini Ramdas

    ()

    (Darden Graduate School of Business, University of Virginia, Charlottesville, Virginia 22906)

  • Marshall Fisher

    ()

    (The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104-6302)

  • Karl Ulrich

    ()

    (The Wharton School, University of Pennsylvania, Philadelphia, Pennsylvania 19104-6302)

Registered author(s):

    Component sharingÔusing the same version of a component across multiple productsÔis an approach adopted by many assembled-product manufacturers to achieve high final product variety with lower component variety and cost. This paper presents a methodology for determining which versions of a set of related components should be offered to optimally support a defined finished product portfolio. We develop optimization models that determine which versions of each component should be introduced and which of these versions each product should use to minimize design and production costs. This approach is appropriate for components with a relatively low impact on consumersÙ perceptions about product differentiation, which can be shared across a set of products if they meet the most stringent performance requirements in the set. We illustrate our procedure on automotive braking systems, but also discuss its applicability to other components and industries. We identify three conceptually different organizational approaches to component sharing: a coordinated projects approach that requires higher-level organizational echelons above the individual project, a project-by-project approach that does not, and a hybrid partially coordinated approach. We use our model to examine how the gain from the coordinated projects approach relative to the project-by-project approach varies with the number of component versions in consideration, warranty costs, complexity costs, and demand variability. Further, we use our model to highlight the risk of using simplistic heuristics to determine design sequence within a component system in a partially coordinated approach.

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    File URL: http://dx.doi.org/10.1287/msom.5.2.142.16073
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    Article provided by INFORMS in its journal Manufacturing & Service Operations Management.

    Volume (Year): 5 (2003)
    Issue (Month): 2 (November)
    Pages: 142-156

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    Handle: RePEc:inm:ormsom:v:5:y:2003:i:2:p:142-156
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    1. Preyas Desai & Sunder Kekre & Suresh Radhakrishnan & Kannan Srinivasan, 2001. "Product Differentiation and Commonality in Design: Balancing Revenue and Cost Drivers," Management Science, INFORMS, vol. 47(1), pages 37-51, January.
    2. Ulrich, Karl, 1995. "The role of product architecture in the manufacturing firm," Research Policy, Elsevier, vol. 24(3), pages 419-440, May.
    3. V. Krishnan & Karl T. Ulrich, 2001. "Product Development Decisions: A Review of the Literature," Management Science, INFORMS, vol. 47(1), pages 1-21, January.
    4. Kamalini Ramdas & Mohanbir S. Sawhney, 2001. "A Cross-Functional Approach to Evaluating Multiple Line Extensions for Assembled Products," Management Science, INFORMS, vol. 47(1), pages 22-36, January.
    5. Marshall Fisher & Kamalini Ramdas & Karl Ulrich, 1999. "Component Sharing in the Management of Product Variety: A Study of Automotive Braking Systems," Management Science, INFORMS, vol. 45(3), pages 297-315, March.
    6. Kelvin Lancaster, 1990. "The Economics of Product Variety: A Survey," Marketing Science, INFORMS, vol. 9(3), pages 189-206.
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