Managing Variety for Assembled Products: Modeling Component Systems Sharing

Component sharing--using the same version of a component across multiple products--is an approach adopted by many assembled-product manufacturers to achieve high final product variety with lower component variety and cost. This paper presents a methodology for determining which versions of a set of related components should be offered to optimally support a defined finished product portfolio. We develop optimization models that determine which versions of each component should be introduced and which of these versions each product should use to minimize design and production costs. This approach is appropriate for components with a relatively low impact on consumers' perceptions about product differentiation, which can be shared across a set of products if they meet the most stringent performance requirements in the set. We illustrate our procedure on automotive braking systems, but also discuss its applicability to other components and industries. We identify three conceptually different organizational approaches to component sharing: a coordinated projects approach that requires higher-level organizational echelons above the individual project, a project-by-project approach that does not, and a hybrid partially coordinated approach. We use our model to examine how the gain from the coordinated projects approach relative to the project-by-project approach varies with the number of component versions in consideration, warranty costs, complexity costs, and demand variability. Further, we use our model to highlight the risk of using simplistic heuristics to determine design sequence within a component system in a partially coordinated approach.