An Approach to Evaluate the Profitability of Component Commonality

Abstract

Commonality or the use of same components (parts, assemblies, or subsystems) among multiple products can reduce component inventory and simplify processes and logistics while accommodating variations in product demand. Excessive commonality, however, causes some products to use high-performance components and increase product cost. This paper presents an approach for evaluating profitability of component commonality by integrating commonality and supply chain decisions. The proposed approach is demonstrated using commonality of electric-bicycle motors as an illustrative example. This paper presents a sensitivity analysis of the optimum commonality with respect to motor cost, demand variability, inventory-tracking cost, and inventory-ordering cost.