The Role of Component Commonality in Product Assortment Decisions

Fernando Bernstein (), A. Gürhan Kök () and Lei Xie ()
Additional contact information
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

Manufacturing & Service Operations Management, 2011, vol. 13, issue 2, 261-270

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.

Keywords: supply chain management; OM-marketing interface; product variety; consumer choice; inventory management (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://dx.doi.org/10.1287/msom.1100.0317 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inm:ormsom:v:13:y:2011:i:2:p:261-270

Access Statistics for this article

More articles in Manufacturing & Service Operations Management from INFORMS Contact information at EDIRC.
Bibliographic data for series maintained by Chris Asher ().