An Approach to Integrate Commonality and Product Family Design With Inventory Decisions

Abstract

Commonality, or the use of the same components among products in a product family, has been considered an effective approach to design a product family. By implementing commonality, a firm can reduce the number of distinct components, component inventory, and inventory cost. However, product design may change and product cost may increase due to using common components that may require different interface conditions and be more expensive than the initially considered components. While the benefits and challenges are well recognized, simultaneous optimization of commonality, product family design, and inventory decisions has not been comprehensively studied. In this paper, we present an approach to integrate commonality, product family design, and inventory decisions by incorporating inventory-related costs in the profit formula. In the proposed approach, (1) commonality matrix is defined to assign product demands to components and component costs to products, (2) continuous inventory review policy is used to calculate safety inventory, (3) joint ordering is implemented to calculate inventory-replenishment lot size and cycle inventory, and (4) cycle service level (CSL) and expected number of component shortage per replenishment cycle (ESC) are utilized to calculate inventory-understock costs. The design of three beverage containers is used as an illustrative example to demonstrate the proposed approach, and sensitivity analysis is performed to contrast commonality and product family design of the three beverage containers with and without incorporating inventory decisions.