Variety Management in Assemble-to-order Supply Chains

Assemble-to-order refers to a supply chain strategy in which products are not assembled until customer order arrives. It is based on the so-called form postponement that is to hold components at a generic form and to delay the point of product differentiation. The performance of an assemble-to-order supply chain depends on two main dimensions, which are responsiveness and achievement level of scale economies. Responsiveness refers to the capability of fulfilling cus­ tomer requirements in a fast-paced manner, whereas the achievement of scale economies reflects the degree of operations efficiency. Assemble-to-order supply chains induce high product variety, which has adverse effects on per­ formance. We use demand volumes as a proxy for scale economies and lead times as a proxy for responsiveness. A matrix that consists of both dimensions can be defined, in which we distin­ guish between short/long lead times and low/high demand volumes. This matrix is called per­ formance matrix. On the other hand, the consequence that results from product variety is a high demand variability of end products, which also affects the demand variability of components. An analysis of component demand variability enables one to identify the components with low/high demand variability. These components can further be classified into supplied and in-house made components. Thus, a second matrix (called component matrix) with two dimensions, namely variability (low/high) and supply source (in-house/supplier) can be defined. Due to the supply source dimension in the component matrix, the supply chain perspective is also taken into account. The combination of both matrixes into a single one provides the performance/component matrix for assemble-to-order supply chains. To use the final matrix, it is necessary to compute lead times, demand volumes and demand vari­ ability of the supplied and in-house made components. By plotting the components in the matrix, one can determine the problems induced by variety. In order to improve the performance of the assemble-to-order supply chain, the implementation of variety management strategies is neces­ sary. The identified strategies are: commonality, component families, modularity, and platforms. Based on the performance/component matrix, we discuss how these strategies or a combination of them can contribute to derive recommendations that aim to alleviate variety impacts on the assemble-to-order supply chain.