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Beyond Retail Stores: Managing Product Proliferation along the Supply Chain

Bicer, I., Lucker, F. ORCID: 0000-0003-4930-9773 and Boyaci, T. (2021). Beyond Retail Stores: Managing Product Proliferation along the Supply Chain. Production and Operations Management, doi: 10.1111/poms.13598

Abstract

Product proliferation occurs in supply chains when manufacturers respond to diverse market needs by trying to produce a range of products from a limited variety of raw materials. In such a setting, manufacturers can establish market responsiveness and/or cost efficiency in alternative ways. Delaying the point of the proliferation helps manufacturers improve their responsiveness by postponing the ordering decisions of the final products until there is partial or full resolution of the demand uncertainty. This strategy can be implemented in two different ways: (1) redesigning the operations so that the point of proliferation is swapped with a downstream operation or (2) reducing the lead times. To establish cost efficiency, manufacturers can systematically reduce their operational costs or postpone the high-cost operations. We consider a multi-echelon and multi-product newsvendor problem with demand forecast evolution to analyze the value of each operational lever of the responsiveness and the efficiency. We use a generalized forecast-evolution model to characterize the demand-up dating process, and develop a dynamic optimization model to determine the optimal order quantities at different echelons. Using anonymized data of Kordsa Inc., a global manufacturer of advanced composites and reinforcement materials, we show that our model outperforms a theoretical benchmark of the repetitive newsvendor model. We demonstrate that reducing the lead time of a downstream operation is more beneficial to manufacturers than reducing the lead time of an upstream operation by the same amount, whereas reducing the upstream operational costs is more favorable than reducing the downstream operational costs. We also indicate that delaying the proliferation may cause a loss of profit, even if it can be achieved with no additional costs. Finally, a decision typology is developed, which shows effective operational strategies depending on product/market characteristics and process flexibility.

Publication Type: Article
Additional Information: This is the peer reviewed version of the following article: Bicer, I., Lucker, F. and Boyaci, T. (2021). Beyond Retail Stores: Managing Product Proliferation along the Supply Chain. Production and Operations Management, which will be published in final form at https://doi.org/10.1111/poms.13598. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Use of Self-Archived Versions. This article may not be enhanced, enriched or otherwise transformed into a derivative work, without express permission from Wiley or by statutory rights under applicable legislation. Copyright notices must not be removed, obscured or modified. The article must be linked to Wiley’s version of record on Wiley Online Library and any embedding, framing or otherwise making available the article or pages thereof by third parties from platforms, services and websites other than Wiley Online Library must be prohibited
Publisher Keywords: Product proliferation; lead-time reduction; process redesign; delayed differentiation
Subjects: H Social Sciences > HB Economic Theory
H Social Sciences > HD Industries. Land use. Labor > HD28 Management. Industrial Management
Departments: Bayes Business School > Management
Date available in CRO: 16 Sep 2021 09:52
Date deposited: 16 September 2021
Date of acceptance: 15 September 2021
Date of first online publication: 8 October 2021
URI: https://openaccess.city.ac.uk/id/eprint/26770
[img] Text - Accepted Version
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