The value of component commonality in a dynamic inventory system with lead times

Jing Sheng Song, Yao Zhao

Research output: Contribution to journalArticlepeer-review

36 Scopus citations

Abstract

Component commonality has been widely recognized as a key factor in achieving product variety at low cost. Yet the theory on the value of component commonality is rather limited in the inventory literature. The existing results were built primarily on single-period models or periodic-review models with zero lead times. In this paper, we consider a continuous-review system with positive lead times. We find that although component commonality is in general beneficial, its value depends strongly on component costs, lead times, and dynamic allocation rules. Under certain conditions, several previous findings based on static models do not hold. In particular, component commonality does not always generate inventory benefits under certain commonly used allocation rules. We provide insight on when component commonality generates inventory benefits and when it may not. We further establish some asymptotic properties that connect component lead times and costs to the impact of component commonality. Through numerical studies, we demonstrate the value of commonality and its sensitivity to various system parameters in between the asymptotic limits. In addition, we show how to evaluate the system under a new allocation rule, a modified version of the standard first-in-first-out rule.

Original languageEnglish (US)
Pages (from-to)493-508
Number of pages16
JournalManufacturing and Service Operations Management
Volume11
Issue number3
DOIs
StatePublished - Jun 2009

All Science Journal Classification (ASJC) codes

  • Strategy and Management
  • Management Science and Operations Research

Keywords

  • Allocation rules
  • Assemble-to-order systems
  • Component commonality
  • Dynamic model
  • Lead times

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