On the effect of product variety in production–inventory systems

Benjaafar, Saif ; Kim, Joon-Seok ; Vishwanadham, N. (2004) On the effect of product variety in production–inventory systems Annals of Operations Research, 126 (1-4). pp. 71-101. ISSN 0254-5330

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Official URL: http://link.springer.com/article/10.1023/B:ANOR.00...

Related URL: http://dx.doi.org/10.1023/B:ANOR.0000012276.87248.c7


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.

Item Type:Article
Source:Copyright of this article belongs to Springer-Verlag.
Keywords:Production/inventory Systems; Product Variety; Delayed Differentiation; Queueing Systems
ID Code:97771
Deposited On:08 Nov 2013 12:21
Last Modified:08 Nov 2013 12:21

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