Product design with multiple suppliers for component variants

The issue of vendor choice has traditionally not been considered in determining the optimal set of products to produce. That is, component purchase has typically been considered only at the MRP explosion stage, well after the set of products to produce and their production quantities has been decided. This decoupling of roles may sometimes result in high acquisition cost of components. To control costs, it is crucial that unit prices of component variants, fixed costs of doing business with vendors, and their capabilities to supply different component variants be assessed before deciding which set of models to include in a product line. In our analysis, we have explicitly provided for this coupling between product choice and vendor selection, and have gone a step further by bringing in customers to determine the sales potential of the different models of a product that may be produced. We use our analysis to study the following issues: (1) how can a manufacturer decide which product models to offer and which vendors to select to offer components for these models, (2) under what situations are general vendors (who offer a larger variety of component variants) preferred to more focused vendors, (3) how much discount do focused vendors need to offer to compensate for their lack of versatility, (4) how does the fixed cost of vendor relationships influence the vendor selection decision, (5) how does the intensity of market competitiveness influence this decision, (6) how can a manufacturer work with a general vendor to exploit new market opportunities, and (7) how much incentive can a manufacturer offer focused vendors to get them to become more versatile in their capabilities. For each problem scenario, the output of our procedure tells us the set of models that should be chosen for a product line, production quantities of each model, specific vendors front whom component variants needed to produce these models should be procured, and profits to the manufacturer and each vendor selected. (C) 2007 Elsevier B.V. All rights reserved.