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Product Line Design with Component Commonality and Cost-Reduction Effort


  • Hans Sebastian Heese

    () (Kelley School of Business, Indiana University, Bloomington, Indiana 47405)

  • Jayashankar M. Swaminathan

    () (Kenan-Flagler Business School, University of North Carolina at Chapel Hill, Chapel Hill, North Carolina 27599-3490)


Market pressure for low prices paired with customer demand for high product variety presents a considerable dilemma for many manufacturers. Industry practice and research to date suggest that approaches based on component commonality can substantially lower the costs of proliferated product lines, but at the cost of reducing product differentiation and revenues. We analyze a stylized model of a manufacturer who designs a product line consisting of two products for sale to two market segments with different valuations of quality. The manufacturer determines the component quality levels, the amount of effort to reduce production costs, and whether to use common or different components for the two products. Explicitly considering potential interdependencies between cost-reduction effort and quality decisions, we characterize environments where the optimal product line involving component commonality features products of higher quality and yields higher revenues. Counter to earlier research we show that it can be preferable to make those components common that, relative to their production cost, are attributed a higher importance by customers. Disregarding the interactions between commonality, production cost, quality, and effort decisions can lead manufacturers to offer product lines with excessive differentiation and inefficiently low quality.

Suggested Citation

  • Hans Sebastian Heese & Jayashankar M. Swaminathan, 2006. "Product Line Design with Component Commonality and Cost-Reduction Effort," Manufacturing & Service Operations Management, INFORMS, vol. 8(2), pages 206-219, May.
  • Handle: RePEc:inm:ormsom:v:8:y:2006:i:2:p:206-219

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    References listed on IDEAS

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    Cited by:

    1. Yenipazarli, A. & Vakharia, A., 2015. "Pricing, market coverage and capacity: Can green and brown products co-exist?," European Journal of Operational Research, Elsevier, vol. 242(1), pages 304-315.
    2. Jonnalagedda, Sreelata & Saranga, Haritha, 2017. "Commonality decisions when designing for multiple markets," European Journal of Operational Research, Elsevier, vol. 258(3), pages 902-911.
    3. Bernstein, Fernando & Gürhan Kök, A. & Meca, Ana, 2015. "Cooperation in assembly systems: The role of knowledge sharing networks," European Journal of Operational Research, Elsevier, vol. 240(1), pages 160-171.
    4. Nils Boysen & Armin Scholl, 2008. "A general solution framework for component commonality problems," Jena Research Papers in Business and Economics - Working and Discussion Papers (Expired!) 12/2008, Friedrich-Schiller-University Jena, School of Economics and Business Administration.
    5. Li, Guo & Zhang, Lijun & Guan, Xu & Zheng, Junjun, 2016. "Impact of decision sequence on reliability enhancement with supply disruption risks," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 90(C), pages 25-38.
    6. repec:spr:custns:v:4:y:2017:i:1:d:10.1007_s40547-017-0074-y is not listed on IDEAS
    7. Fernando Bernstein & A. Gürhan Kök, 2009. "Dynamic Cost Reduction Through Process Improvement in Assembly Networks," Management Science, INFORMS, vol. 55(4), pages 552-567, April.
    8. Israelsen, Poul & Jørgensen, Brian, 2011. "Decentralizing decision making in modularization strategies: Overcoming barriers from dysfunctional accounting systems," International Journal of Production Economics, Elsevier, vol. 131(2), pages 453-462, June.
    9. Serguei Netessine & Terry A. Taylor, 2007. "Product Line Design and Production Technology," Marketing Science, INFORMS, vol. 26(1), pages 101-117, 01-02.
    10. repec:gam:jsusta:v:9:y:2017:i:12:p:2261-:d:122077 is not listed on IDEAS
    11. Hua, Zhongsheng & Zhang, Xuemei & Xu, Xiaoyan, 2011. "Product design strategies in a manufacturer-retailer distribution channel," Omega, Elsevier, vol. 39(1), pages 23-32, January.
    12. Palsule-Desai, Omkar D. & Tirupati, Devanath & Shah, Janat, 2015. "Product line design and positioning using add-on services," International Journal of Production Economics, Elsevier, vol. 163(C), pages 16-33.
    13. DeYong, Gregory D. & Pun, Hubert, 2015. "Is dishonesty the best policy? Supplier behaviour in a multi-tier supply chain," International Journal of Production Economics, Elsevier, vol. 170(PA), pages 1-13.
    14. repec:spr:annopr:v:250:y:2017:i:2:d:10.1007_s10479-014-1781-5 is not listed on IDEAS
    15. repec:eee:ejores:v:266:y:2018:i:3:p:1025-1037 is not listed on IDEAS
    16. Pun, Hubert & Ghamat, Salar, 2016. "The value of partnership under competition: When competitors may be R&D joint-venture and supply-chain partners for a critical component," International Journal of Production Economics, Elsevier, vol. 177(C), pages 1-11.


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