Abstract
Product platforms are assets that are shared by multiple products. We study the optimal investment in platform flexibility. Each platform type is characterized by its functionality that determines its R&D investment and unit production cost, as well as the customization cost to produce the end products from the platform. The firm can invest in a portfolio of specialized platforms that align with the functionalities of a specific product and flexible platforms that cover the functionalities of a product range at lower customization cost. We characterize the optimal platform portfolio strategy using an ex-ante investment versus ex-post production customization tradeoff curve and show comparative statics of these costs, demand forecast, and the decision maker's regret and risk attitude. Flexible platforms provide operational hedging for risk-averse decision makers who thus should invest more than risk-neutral counterparts. In contrast to manufacturing flexibility, the regret of sub-optimal investments increases as demand is more negatively correlated.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 475-486 |
| Number of pages | 12 |
| Journal | European Journal of Operational Research |
| Volume | 270 |
| Issue number | 2 |
| DOIs | |
| State | Published - Oct 16 2018 |
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Keywords
- Flexibility
- Manufacturing
- Newsvendor networks
- Platform
- Product development
ASJC Scopus subject areas
- Computer Science(all)
- Modeling and Simulation
- Management Science and Operations Research
- Information Systems and Management
Cite this
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Platform flexibility strategies : R&D investment versus production customization tradeoff. / Van den Broeke, Maud M.; Boute, Robert N.; Van Mieghem, Jan.
In: European Journal of Operational Research, Vol. 270, No. 2, 16.10.2018, p. 475-486.Research output: Contribution to journal › Article
TY - JOUR
T1 - Platform flexibility strategies
T2 - R&D investment versus production customization tradeoff
AU - Van den Broeke, Maud M.
AU - Boute, Robert N.
AU - Van Mieghem, Jan
PY - 2018/10/16
Y1 - 2018/10/16
N2 - Product platforms are assets that are shared by multiple products. We study the optimal investment in platform flexibility. Each platform type is characterized by its functionality that determines its R&D investment and unit production cost, as well as the customization cost to produce the end products from the platform. The firm can invest in a portfolio of specialized platforms that align with the functionalities of a specific product and flexible platforms that cover the functionalities of a product range at lower customization cost. We characterize the optimal platform portfolio strategy using an ex-ante investment versus ex-post production customization tradeoff curve and show comparative statics of these costs, demand forecast, and the decision maker's regret and risk attitude. Flexible platforms provide operational hedging for risk-averse decision makers who thus should invest more than risk-neutral counterparts. In contrast to manufacturing flexibility, the regret of sub-optimal investments increases as demand is more negatively correlated.
AB - Product platforms are assets that are shared by multiple products. We study the optimal investment in platform flexibility. Each platform type is characterized by its functionality that determines its R&D investment and unit production cost, as well as the customization cost to produce the end products from the platform. The firm can invest in a portfolio of specialized platforms that align with the functionalities of a specific product and flexible platforms that cover the functionalities of a product range at lower customization cost. We characterize the optimal platform portfolio strategy using an ex-ante investment versus ex-post production customization tradeoff curve and show comparative statics of these costs, demand forecast, and the decision maker's regret and risk attitude. Flexible platforms provide operational hedging for risk-averse decision makers who thus should invest more than risk-neutral counterparts. In contrast to manufacturing flexibility, the regret of sub-optimal investments increases as demand is more negatively correlated.
KW - Flexibility
KW - Manufacturing
KW - Newsvendor networks
KW - Platform
KW - Product development
UR - http://www.scopus.com/inward/record.url?scp=85045547677&partnerID=8YFLogxK
UR - http://www.scopus.com/inward/citedby.url?scp=85045547677&partnerID=8YFLogxK
U2 - 10.1016/j.ejor.2018.03.032
DO - 10.1016/j.ejor.2018.03.032
M3 - Article
VL - 270
SP - 475
EP - 486
JO - European Journal of Operational Research
JF - European Journal of Operational Research
SN - 0377-2217
IS - 2
ER -