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Platform flexibility strategies: R&D investment versus production customization tradeoff

Author

Listed:
  • Maud van den Broeke

    (LEM - Lille économie management - UMR 9221 - UA - Université d'Artois - UCL - Université catholique de Lille - Université de Lille - CNRS - Centre National de la Recherche Scientifique)

  • Robert Boute
  • Jan van Mieghem

Abstract

Product platforms are assets that are shared by multiple products. We study the optimal investment in platform flexibility. Each platform type is characterized by its functionality that determines its R&D investment and unit production cost, as well as the customization cost to produce the end products from the platform. The firm can invest in a portfolio of specialized platforms that align with the functionalities of a specific product and flexible platforms that cover the functionalities of a product range at lower customization cost. We characterize the optimal platform portfolio strategy using an ex-ante investment versus ex-post production customization tradeoff curve and show comparative statics of these costs, demand forecast, and the decision maker's regret and risk attitude. Flexible platforms provide operational hedging for risk-averse decision makers who thus should invest more than risk-neutral counterparts. In contrast to manufacturing flexibility, the regret of sub-optimal investments increases as demand is more negatively correlated.

Suggested Citation

  • Maud van den Broeke & Robert Boute & Jan van Mieghem, 2018. "Platform flexibility strategies: R&D investment versus production customization tradeoff," Post-Print hal-02570884, HAL.
    • Handle: RePEc:hal:journl:hal-02570884
    DOI: 10.1016/j.ejor.2018.03.032
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    Cited by:

    1. Jingbo Hu & Taohua Ouyang & William X. Wei & Jiawei Cai, 2020. "How Do Manufacturing Enterprises Construct E-Commerce Platforms for Sustainable Development? A Case Study of Resource Orchestration," Sustainability, MDPI, vol. 12(16), pages 1-18, August.
    2. Van den Broeke, Maud & Paparoidamis, Nicholas, 2021. "Engaging in or escaping co-creation? An analytical model," International Journal of Production Economics, Elsevier, vol. 231(C).

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