Leadtime-variety tradeoff in product differentiation

Aydin Alptekinoglu, Charles J. Corbett

Research output: Contribution to journalArticle

32 Scopus citations

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 derivesomestr uctural results on theoptimal product linede sign. Wefind that unimodal preferences generally result in hybrid product lines, with standard products clustering around the mode and custom products covering thetails, in contrast with theall-custom or all-standard product lines that areoptimal 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.

Original languageEnglish (US)
Pages (from-to)569-582
Number of pages14
JournalManufacturing and Service Operations Management
Volume12
Issue number4
DOIs
StatePublished - Sep 1 2010

All Science Journal Classification (ASJC) codes

  • Strategy and Management
  • Management Science and Operations Research

Fingerprint Dive into the research topics of 'Leadtime-variety tradeoff in product differentiation'. Together they form a unique fingerprint.

  • Cite this