Leadtime-Variety Tradeoff in Product Differentiation

Leadtime-Variety Tradeoff in Product Differentiation

0.00 Avg rating0 Votes
Article ID: iaor20107411
Volume: 12
Issue: 4
Start Page Number: 569
End Page Number: 582
Publication Date: Sep 2010
Journal: Manufacturing & Service Operations Management
Authors: ,
Keywords: programming: dynamic
Abstract:

The literature on mass customization generally focuses on the tradeoff between higher revenues from better matching customer preferences with product specifications, and higher costs of offering a broader–possibly fully customized–product line. Less well understood is the tradeoff between the increased ability to precisely meet customer preferences and the increased leadtime from order placement to delivery often associated with customized products. In this paper, we use a locational customer choice model to formulate a firm's integrated product line design problem that involves variety, leadtime (or inventory), and pricing decisions. We propose a dynamic programming based solution procedure that amounts to solving a shortest path problem on an acyclic network, and derive some structural results on the optimal product line design. We find that unimodal preferences generally result in hybrid product lines, with standard products clustering around the mode and custom products covering the tails, in contrast with the all-custom or all-standard product lines that are optimal under uniform preferences. We also numerically examine how the firm should adjust its leadtime and variety in response to changes in parameters such as customer dispersion and operational scale. We find that the tradeoff between leadtime and variety is sometimes nonintuitive and complex.

Reviews

Required fields are marked *. Your email address will not be published.