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 |
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
