Component commonality in multiple-period, assemble-to-order systems

Abstract

It has been clearly demonstrated in the literature that introducing a common component that replaces a number of unique components reduces the overall level of safety stock required to meet service level requirements. Recent work utilizing single-period models has investigated the cost savings (or losses) from doing so. This paper uses a very general multiple-period model, with general demand distributions, any number of products and components, and the objective of minimizing production, holding, and shortage costs. Two scenarios are considered - one that utilizes component commonality and one that does not. Prior results utilizing single-period models indicate that even if the common component is more expensive than the components it replaces, there are many circumstances under which it is still worthwhile to employ it. The surprising results from this paper indicate that this is often not the case in a multiple-period model.