COMPONENT SHARING IN THE MANAGEMENT OF PRODUCT VARIETY

Audience: Academics
Abstract
Product variety in many industries has increased steadily throughout this century. Component sharing-- using the same version of a component across multiple products-- is increasingly viewed by companies as a way to offer high variety in the marketplace while retaining low variety in their plants. Yet despite the popularity of component sharing in industry, little is known about how to design an effective component sharing strategy or about the factors that influence the success of such a strategy. In this paper we critically examine component sharing using automotive front brakes as an example. We consider three basic questions: (1) What are the key drivers and trade-offs of component sharing decisions? (2) How much variation exists in actual component sharing practice? and (3) How can this variation be explained? To answer these questions, we develop an analytic model of component sharing and show through empirical testing that this model explains much of the variation in sharing practice for automotive braking systems. We find that the optimal number of brake rotors is a function of the range of vehicle weights, sales volume, fixed component design and tooling costs, variable costs, and the variation in production volume across the models of the product line. We conclude with a discussion of the general managerial implications of our findings.