Lead times, component costs and allocation rules in the value of component commonality
Component commonality has been widely recognized as a key factor in achieving product variety at low cost. Yet, the theory on the value of component commonality is rather limited in the operations management literature. The existing results were built primarily on single-period models or multi-period models with zero lead times. In this paper, we consider dynamic systems with positive lead times. We find that several previous findings based on simpler models may not necessarily hold here. In particular, component sharing alone need not yield inventory benefits. Component costs, lead times and component allocation rules all play significant roles in determining the value of common components. We also show how to evaluate systems under a new allocation rule, a modified version of the standard FIFO rule.
