Commonality and postponement in multistage assembly systems

Postponement of the point of differentiation and the use of common components for different products (commonality) are important methodologies for managing product variety and maintaining competitiveness in the age of mass customization and supply chain competition. This paper focuses on the dynamics between the processing time and the component procurement leadtime and its impact on commonality and postponement decisions. We formulate a multi-period and multistage assembly network model with multiple products and stochastic demands, and propose a scheme to express the desired base-stock level at each stocking point as a function of the corresponding achieved fill rate. By requiring high component availability, as commonly practiced in industry, stages can be ‘de-coupled’ and closed-form results for the base-stock levels and inventory costs can then be derived. We can then demonstrate analytically whether introducing commonality at a particular stage or delaying the point of differentiation by one more stage can be justified. We found that a key factor for commonality and postponement decisions is the interactions between processing and procurement leadtimes. This leadtime factor is unique to multistage systems. Although a number of simplifying assumptions are made in our model, our analysis indicates that some important observations regarding the pooling effect and leadtime dynamics should still be true for more general systems.