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Towards integrated optimal con\ufb01guration of platform
products, manufacturing processes, and supply chains
George Q. Huanga,*, X.Y. Zhanga, L. Liangb
aDepartment of Industrial and Manufacturing Systems Engineering, The University of Hong Kong,
Pokfulam Road, Hong Kong, PR China
bBusiness School, University of Science and Technology of China, PR China
Available online 2 December 2004

This paper seeks to address the challenge of designing effective supply chain systems that integrate platform product decisions, manufacturing process decisions, and supply sourcing decisions. Speci\ufb01cally, this paper considers the speci\ufb01c scenario of optimizing the con\ufb01guration of the supply chain system given commonality among platform products. The paper uses and extends the concept of Generic Bills of Materials (GBOM) of a product family as a uni\ufb01ed framework for qualitatively capturing and representing the structure of its supply chain. This qualitative model is then enhanced by a mathematical model developed to quantify the relationships among various design decisions. Endeavoring to solve the mathematical model more ef\ufb01ciently, we propose an effective heuristic method using Genetic Algorithm (GA). Although GA generally does not guarantee the optimal solution, the best heuristic solutions obtained in this study are consistent with the optimal solutions obtained using Dynamic Programming. The resulting mathematical model and solution algorithm are then used to investigate the mutual impact between the design decisions of platform products and of processes in the supply chain through sensitivity analyses. Several useful managerial insights are generated and discussed.

#2004 Elsevier B.V. All rights reserved.
Keywords:Platform product development; Supply chain con\ufb01guration; Commonality; Modularity; Genetic Algorithm
1. Introduction

Generally speaking, a supply chain is a network of nodes. These nodes can be contracted enterprises engaged in activities ranging from the supply of the raw materials to the production and delivery of end-

products to target customers to the provision of technical support and customer services. However, more narrowly, for a single manufacturing \ufb01rm, these nodes can be organizational units that perform functions such as the procurement of raw materials, the fabrication of parts, the assembly of components and end-products, and the delivery of \ufb01nished products to regional distribution centres/customers, etc. Each node in the supply chain network often has several alternative options for accomplishing its

Journal of Operations Management 23 (2005) 267\u2013290
* Corresponding author. Tel.: +852 28592591;
fax: +852 28586535.
E-mail address:gqhuang@hku.hk (G.Q. Huang).
0272-6963/$ \u2013 see front matter# 2004 Elsevier B.V. All rights reserved.

function and is a potential stock-point for inventory. Deciding what option should be used at each node and deciding where inventory should be placed among these nodes is whatGraves and Willems (2001) refer to as Supply Chain Con\ufb01guration (SCC).

The scope of SCC, as de\ufb01ned, covers the con\ufb01guration of manufacturing processes both within and beyond a particular manufacturer. Accordingly, SCC decisions include not only what alternative supplier and delivery mode to select and where and how much inventory to hold at different levels of the given Bill of Material (BOM) of end-products but also such manufacturing process aspects as processing method to use, manufacturing lead-time or time to market, setups and changeovers. These SCC decisions should differ when the features of end-products change. Likewise, the availability of alternative manufacturing processes and supply sources could in turn affect the design decisions of the product and/ or product family.

The challenge is therefore how to generate the optimal con\ufb01guration of the products, manufacturing processes and supply sources in order to form an effective and ef\ufb01cient supply chain in a simultaneous and integrated manner. This challenge is further complicated by the fact that multiple products are often involved in a supply chain. Different products often share signi\ufb01cant similarity in terms of the components, characteristics, and associated manufac- turing processes despite distinctive features in terms of marketability and functionality. Such similarity and dissimilarity, also known as commonality and differentiability respectively, across the product range have signi\ufb01cant impact on the optimal con\ufb01guration of the supply chain.

In this paper, we address the challenge of designing effective supply chain systems that integrate platform product decisions, manufacturing process decisions and supply sourcing decisions using a mathematical model. More speci\ufb01cally, we use the mathematical model to answer the following questions: (1) What are the optimal supply chain con\ufb01gurations for a product family with and without commonality? (2) What are the differences between the optimal con\ufb01gurations for a product family with and without commonality? (3) What is the impact (i.e., bene\ufb01ts and costs) of product platform commonality on supply chain performance? (4) What factors contribute most to such differences and

impact? (5) Under what circumstances would the impact
of platform commonality become more signi\ufb01cant?

This paper is organized as follows. We\ufb01rst review, in Section2, the literature related to supply chain con\ufb01guration, product line design, platform product development, and their combinations. We then describe, in Section3, the research problem using a speci\ufb01c application case and extending the concept of Generic Bills of Materials as a qualitative model to represent both the platform product and its supply chain structure. In Section4, we develop and formulate a mathematical model to enhance the qualitative model. Section5 explains the use of a heuristic algorithm, Genetic Algorithm, for solving the proposed mathematical model. We devote Section

6to report and analyse the case simulation results and

to discuss managerial implications for these results. We conclude, in Section7, by identifying directions for further investigation.

2. Literature review

The performance of a supply chain con\ufb01gured for a product or a product family is determined by design decisions of the products, manufacturing processes and supply chains. Supply chains are often modeled as a multi-stage production and inventory network under a periodically reviewed base-stock policy (Graves and

Willems, 2001; Garg, 1999). Graves and Willems
(2001), for example, developed a SCC optimization

model that minimizes the total supply chain cost including safety stock cost, pipeline stock cost and cost of goods sold. Solved using a Dynamic Programming algorithm, their model included such decision variables as option selection and service time for each stage.Garg (1999), as another example, described a Supply Chain Modelling and Analysis Tool (SCMAT) for designing products and processes in the supply chain of a large electronics manufac- turer\u2014a tool that can be generalized to conduct analyses at the strategic level for other supply chains. Decisions considered in this tool include inventory- service level, sourcing, location, transportation, capacity, and lot size.

LikeGraves and Willems (2001), we also consider two speci\ufb01c supply chain decision variables, namely, option selection and service time. The\ufb01rst variable is

G.Q. Huang et al. / Journal of Operations Management 23 (2005) 267\u2013290

a sourcing decision. The second decision variable, service time, can be equated to an inventory location decision or, more speci\ufb01cally, the Average On-Hand (AOH) inventory at particular nodes in the supply chain and can be used to analyse the aggregate effects of safety stock level, stock holding cost rate and service time. Details are given in Section3.

In this paper, we are particularly interested in investigating the mutual impact between SCC decisions and product design decisions related to product variety.Chong et al. (1998) maintain that product variety is determined by market competition. The ever-increasing trend of globalization and product variety causes product proliferation, in turn leading to increased supply chain complexity, unacceptably high production and inventory costs, and long time to market.Thonemann and Bradley (2002) have inves- tigated the impact of product variety on supply chain performance from several different perspectives. Their analyses showed that product variety has signi\ufb01cant effect on supply chain lead-time especially when setup times are signi\ufb01cant. It therefore becomes important to adjust the decision variables and parameters related to manufacturing processes and supply chains in order to improve performance under high product variety.

In order to overcome the cost concerns of increased product variety, various models have been devised for extending and designing the product line instead of a single product. Related literature has been reviewed byYano and Dobson (1998).Kohli and Sukumar

(1990)formulated a joint problem of designing a set of

candidate products by choosing the attribute levels for individual products and then choosing a subset among them to maximize the manufacturer\u2019s pro\ufb01t margin. As indicated byMorgan et al. (2001), the product line design problem has typically been discussed from a marketing perspective focusing on how alternative sets of products interact and compete in the market- place. They proposed a mathematical formulation including both marketing and manufacturing elements for identifying a pro\ufb01t-maximizing mix of products. With the model, they also investigated the impact of alternative manufacturing environment characteristics on the composition of the optimal product line.Raman

and Chhajed (1995)formulated a more complicated

problem\u2014one that involved (a) choosing not only one or several products but also the appropriate manu- facturing processes and (b) setting product prices.

Both models byKohli and Sukumar (1990) and
Raman and Chhajed (1995)are formulated for

multiple products within the product line. However, these studies should ideally be extended in two directions. Firstly, their scope should be extended beyond that of the manufacturing environment to include supply chain decisions. Secondly, they should address the issue of sharing manufacturing resources and supply sources by taking advantage of common components and modular product structure shared across the individual products.

The shared common components, product structure and manufacturing assets are often de\ufb01ned as the platform of a product family or line (Wheelwright and

Clark, 1992; Meyer, 1997; Meyer and Lehnerd, 1997;
Robertson and Ulrich, 1998; Sawhney, 1998).

Commonality is a measure of the extent to which product variants share the resources and assets. The approach to developing new products based on the platform concept is therefore referred to as Platform Product Development (PPD). PPD is one of the most important means of realizing the Mass Customization (MC) strategy for creating necessary product variety for competitive success in the marketplace (Meyer and

Lehnerd, 1997; Salvador et al., 2000). On the other

hand, PPD dramatically controls and often reduces not only the cost but also the time to market to a competitive level. Leading manufacturers such as Black and Decker and Hewlett-Packard have applied some PPD strategies and techniques to rationalize their product lines (Meyer and Lehnerd, 1997). As a result, they have been able to increase the scope/ variety of the end-products while reducing the variety of the constituent components and raw materials.

Rutenberg (1969)and Collier (1981)theoretically

demonstrated the positive impact of platform (com- ponent) commonality on the component demand patterns, work-centre load, work-in-progress inven- tory, and delivery performance.

Ramdas and Sawhney (2001)presented a cross-

functional approach to evaluating multiple line extensions that simultaneously considers revenue implications of component sharing at the product level and cost implications at the component level. Their activity-based costing procedure for estimat- ing the life-cycle costs of line extensions that share components can be generalized to consider supply costs. They demonstrate that their proposed

G.Q. Huang et al. / Journal of Operations Management 23 (2005) 267\u2013290

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