On the Effect of Product Variety in Production–Inventory Systems

Saif Benjaafar (), Joon-Seok Kim and N. Vishwanadham ()

Annals of Operations Research, 2004, vol. 126, issue 1, 101 pages

Abstract: In this paper, we examine the effect of product variety on inventory costs in a production–inventory system with finite capacity where products are made to stock and share the same manufacturing facility. The facility incurs a setup time whenever it switches from producing one product type to another. The production facility has a finite production rate and stochastic production times. In order to mitigate the effect of setups, products are produced in batches. In contrast to inventory systems with exogenous lead times, we show that inventory costs increase almost linearly in the number of products. More importantly, we show that the rate of increase is sensitive to system parameters including demand and process variability, demand and capacity levels, and setup times. The effect of these parameters can be counterintuitive. For example, we show that the relative increase in cost due to higher product variety is decreasing in demand and process variability. We also show that it is decreasing in expected production time. On the other hand, we find that the relative cost is increasing in expected setup time, setup time variability and aggregate demand rate. Furthermore, we show that the effect of product variety on optimal base stock levels is not monotonic. We use the model to draw several managerial insights regarding the value of variety-reducing strategies such as product consolidation and delayed differentiation. Copyright Kluwer Academic Publishers 2004

Keywords: production/inventory systems; product variety; delayed differentiation; queueing systems (search for similar items in EconPapers)
Date: 2004
References: Add references at CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
http://hdl.handle.net/10.1023/B:ANOR.0000012276.87248.c7 (text/html)
Access to full text is restricted to subscribers.

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:spr:annopr:v:126:y:2004:i:1:p:71-101:10.1023/b:anor.0000012276.87248.c7

Ordering information: This journal article can be ordered from
http://www.springer.com/journal/10479

DOI: 10.1023/B:ANOR.0000012276.87248.c7

Access Statistics for this article

Annals of Operations Research is currently edited by Endre Boros

More articles in Annals of Operations Research from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().