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The Role of Component Commonality in Product Assortment Decisions

Author

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  • Fernando Bernstein

    (Fuqua School of Business, Duke University, Durham, North Carolina 27708)

  • A. Gürhan Kök

    (Fuqua School of Business, Duke University, Durham, North Carolina 27708)

  • Lei Xie

    (Fuqua School of Business, Duke University, Durham, North Carolina 27708)

Abstract

We consider a firm that produces multiple variants of a product. Products are assembled using a combination of common and dedicated components. We characterize the optimal assortment and derive the optimal inventory levels for the common and dedicated components under various bill-of-material configurations. We investigate the effect of commonality on product variety and compare its benefits under different demand characteristics. Commonality always leads to increased profits, but its effect on the level of product variety depends on the type of commonality. If all common components are used for the production of the entire set of products, then the optimal variety level increases relative to the system with no commonality. However, if the common components are used by a subset of the final products, then the optimal variety level may decrease with commonality. We find that the effects of commonality on profit and variety level are stronger under a demand model in which product demands are more variable and exhibit pairwise negative correlation relative to a model with independent demands.

Suggested Citation

  • Fernando Bernstein & A. Gürhan Kök & Lei Xie, 2011. "The Role of Component Commonality in Product Assortment Decisions," Manufacturing & Service Operations Management, INFORMS, vol. 13(2), pages 261-270, August.
    • Handle: RePEc:inm:ormsom:v:13:y:2011:i:2:p:261-270
    DOI: 10.1287/msom.1100.0317
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    References listed on IDEAS

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    2. Ruiz-Hernández, Diego & Menezes, Mozart B.C. & Amrani, Aicha, 2019. "An information-content based measure of proliferation as a proxi for structural complexity," International Journal of Production Economics, Elsevier, vol. 212(C), pages 78-91.
    3. Kostas Bimpikis & Mihalis G. Markakis, 2016. "Inventory Pooling Under Heavy-Tailed Demand," Management Science, INFORMS, vol. 62(6), pages 1800-1813, June.
    4. Wenyuan Wang & Daniel Y. Mo & Yue Wang & Mitchell M. Tseng, 2019. "Assessing the cost structure of component reuse in a product family for remanufacturing," Journal of Intelligent Manufacturing, Springer, vol. 30(2), pages 575-587, February.
    5. Menezes, Mozart B.C. & Ruiz-Hernández, Diego & Guimaraes, Renato, 2016. "The component commonality problem in a real multidimensional space: An algorithmic approach," European Journal of Operational Research, Elsevier, vol. 249(1), pages 105-116.
    6. A. Gürhan Kök & Yi Xu, 2011. "Optimal and Competitive Assortments with Endogenous Pricing Under Hierarchical Consumer Choice Models," Management Science, INFORMS, vol. 57(9), pages 1546-1563, February.
    7. Santiago Gallino & Antonio Moreno & Ioannis Stamatopoulos, 2017. "Channel Integration, Sales Dispersion, and Inventory Management," Management Science, INFORMS, vol. 63(9), pages 2813-2831, September.

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