Journal of Operations Management 23 (2005) 267–290

www.elsevier.com/locate/dsw

Towards integrated optimal configuration of platform

products, manufacturing processes, and supply chains
George Q. Huanga,*, X.Y. Zhanga, L. Liangb
a
Department of Industrial and Manufacturing Systems Engineering, The University of Hong Kong,
Pokfulam Road, Hong Kong, PR China
b
Business School, University of Science and Technology of China, PR China

Available online 2 December 2004

Abstract

This paper seeks to address the challenge of designing effective supply chain systems that integrate platform product
decisions, manufacturing process decisions, and supply sourcing decisions. Specifically, this paper considers the specific
scenario of optimizing the configuration of the supply chain system given commonality among platform products. The paper
uses and extends the concept of Generic Bills of Materials (GBOM) of a product family as a unified framework for qualitatively
capturing and representing the structure of its supply chain. This qualitative model is then enhanced by a mathematical model
developed to quantify the relationships among various design decisions. Endeavoring to solve the mathematical model more
efficiently, we propose an effective heuristic method using Genetic Algorithm (GA). Although GA generally does not guarantee
the optimal solution, the best heuristic solutions obtained in this study are consistent with the optimal solutions obtained using
Dynamic Programming. The resulting mathematical model and solution algorithm are then used to investigate the mutual impact
between the design decisions of platform products and of processes in the supply chain through sensitivity analyses. Several
useful managerial insights are generated and discussed.
# 2004 Elsevier B.V. All rights reserved.

Keywords: Platform product development; Supply chain configuration; Commonality; Modularity; Genetic Algorithm

1. Introduction products to target customers to the provision of

Generally speaking, a supply chain is a network of
nodes. These nodes can be contracted enterprises
engaged in activities ranging from the supply of the
raw materials to the production and delivery of end-
* Corresponding author. Tel.: +852 28592591;
fax: +852 28586535.
E-mail address: gqhuang@hku.hk (G.Q. Huang).
technical support and customer services. However,
more narrowly, for a single manufacturing firm, these
nodes can be organizational units that perform
functions such as the procurement of raw materials,
the fabrication of parts, the assembly of components
and end-products, and the delivery of finished
products to regional distribution centres/customers,
etc. Each node in the supply chain network often has
several alternative options for accomplishing its

0272-6963/$ – see front matter # 2004 Elsevier B.V. All rights reserved.
doi:10.1016/j.jom.2004.10.014
268 G.Q. Huang et al. / Journal of Operations Management 23 (2005) 267–290
function and is a potential stock-point for inventory.
Deciding what option should be used at each node and
deciding where inventory should be placed among
these nodes is what Graves and Willems (2001) refer
to as Supply Chain Configuration (SCC).
The scope of SCC, as defined, covers the
configuration of manufacturing processes both within
and beyond a particular manufacturer. Accordingly,
SCC decisions include not only what alternative
supplier and delivery mode to select and where and
how much inventory to hold at different levels of the
given Bill of Material (BOM) of end-products but also
such manufacturing process aspects as processing
method to use, manufacturing lead-time or time to
market, setups and changeovers. These SCC decisions
should differ when the features of end-products
change. Likewise, the availability of alternative
manufacturing processes and supply sources could
in turn affect the design decisions of the product and/
or product family.
The challenge is therefore how to generate the
optimal configuration of the products, manufacturing
processes and supply sources in order to form an
effective and efficient supply chain in a simultaneous
and integrated manner. This challenge is further
complicated by the fact that multiple products are
often involved in a supply chain. Different products
often share significant similarity in terms of the
components, characteristics, and associated manufac-
turing processes despite distinctive features in terms of
marketability and functionality. Such similarity and
dissimilarity, also known as commonality and
differentiability respectively, across the product range
have significant impact on the optimal configuration of
the supply chain.
In this paper, we address the challenge of designing
effective supply chain systems that integrate platform
product decisions, manufacturing process decisions and
supply sourcing decisions using a mathematical model.
More specifically, we use the mathematical model to
answer the following questions: (1) What are the
optimal supply chain configurations for a product family
with and without commonality? (2) What are the
differences between the optimal configurations for a
product family with and without commonality? (3)
What is the impact (i.e., benefits and costs) of product
platform commonality on supply chain performance?
(4) What factors contribute most to such differences and
impact? (5) Under what circumstances would the impact
of platform commonality become more significant?
This paper is organized as follows. We first review,
in Section 2, the literature related to supply chain
configuration, product line design, platform product
development, and their combinations. We then
describe, in Section 3, the research problem using a
specific application case and extending the concept of
Generic Bills of Materials as a qualitative model to
represent both the platform product and its supply
chain structure. In Section 4, we develop and
formulate a mathematical model to enhance the
qualitative model. Section 5 explains the use of a
heuristic algorithm, Genetic Algorithm, for solving
the proposed mathematical model. We devote Section
6 to report and analyse the case simulation results and
to discuss managerial implications for these results.
We conclude, in Section 7, by identifying directions
for further investigation.
2. Literature review
The performance of a supply chain configured for a
product or a product family is determined by design
decisions of the products, manufacturing processes
and supply chains. Supply chains are often modeled as
a multi-stage production and inventory network under
a periodically reviewed base-stock policy (Graves and
Willems, 2001; Garg, 1999). Graves and Willems
(2001), for example, developed a SCC optimization
model that minimizes the total supply chain cost
including safety stock cost, pipeline stock cost and
cost of goods sold. Solved using a Dynamic
Programming algorithm, their model included such
decision variables as option selection and service time
for each stage. Garg (1999), as another example,
described a Supply Chain Modelling and Analysis
Tool (SCMAT) for designing products and processes
in the supply chain of a large electronics manufac-
turer—a tool that can be generalized to conduct
analyses at the strategic level for other supply chains.
Decisions considered in this tool include inventory-
service level, sourcing, location, transportation,
capacity, and lot size.
Like Graves and Willems (2001), we also consider
two specific supply chain decision variables, namely,
option selection and service time. The first variable is
 G.Q. Huang et al. / Journal of Operations Management 23 (2005) 267–290
a sourcing decision. The second decision variable,
service time, can be equated to an inventory location
decision or, more specifically, the Average On-Hand
(AOH) inventory at particular nodes in the supply
chain and can be used to analyse the aggregate effects
of safety stock level, stock holding cost rate and
service time. Details are given in Section 3.
In this paper, we are particularly interested in
investigating the mutual impact between SCC
decisions and product design decisions related to
product variety. Chong et al. (1998) maintain that
product variety is determined by market competition.
The ever-increasing trend of globalization and product
variety causes product proliferation, in turn leading to
increased supply chain complexity, unacceptably high
production and inventory costs, and long time to
market. Thonemann and Bradley (2002) have inves-
tigated the impact of product variety on supply chain
performance from several different perspectives. Their
analyses showed that product variety has significant
effect on supply chain lead-time especially when setup
times are significant. It therefore becomes important to
adjust the decision variables and parameters related to
manufacturing processes and supply chains in order to
improve performance under high product variety.
In order to overcome the cost concerns of increased
product variety, various models have been devised for
extending and designing the product line instead of a
single product. Related literature has been reviewed
by Yano and Dobson (1998). Kohli and Sukumar
(1990) formulated a joint problem of designing a set of
candidate products by choosing the attribute levels for
individual products and then choosing a subset among
them to maximize the manufacturer’s profit margin.
As indicated by Morgan et al. (2001), the product line
design problem has typically been discussed from a
marketing perspective focusing on how alternative
sets of products interact and compete in the market-
place. They proposed a mathematical formulation
including both marketing and manufacturing elements
for identifying a profit-maximizing mix of products.
With the model, they also investigated the impact of
alternative manufacturing environment characteristics
on the composition of the optimal product line. Raman
and Chhajed (1995) formulated a more complicated
problem—one that involved (a) choosing not only one
or several products but also the appropriate manu-
facturing processes and (b) setting product prices.
269
Both models by Kohli and Sukumar (1990) and
Raman and Chhajed (1995) are formulated for
multiple products within the product line. However,
these studies should ideally be extended in two
directions. Firstly, their scope should be extended
beyond that of the manufacturing environment to
include supply chain decisions. Secondly, they should
address the issue of sharing manufacturing resources
and supply sources by taking advantage of common
components and modular product structure shared
across the individual products.
The shared common components, product structure
and manufacturing assets are often defined as the
platform of a product family or line (Wheelwright and
Clark, 1992; Meyer, 1997; Meyer and Lehnerd, 1997;
Robertson and Ulrich, 1998; Sawhney, 1998).
Commonality is a measure of the extent to which
product variants share the resources and assets. The
approach to developing new products based on the
platform concept is therefore referred to as Platform
Product Development (PPD). PPD is one of the most
important means of realizing the Mass Customization
(MC) strategy for creating necessary product variety
for competitive success in the marketplace (Meyer and
Lehnerd, 1997; Salvador et al., 2000). On the other
hand, PPD dramatically controls and often reduces not
only the cost but also the time to market to a
competitive level. Leading manufacturers such as
Black and Decker and Hewlett-Packard have applied
some PPD strategies and techniques to rationalize
their product lines (Meyer and Lehnerd, 1997). As a
result, they have been able to increase the scope/
variety of the end-products while reducing the variety
of the constituent components and raw materials.
Rutenberg (1969) and Collier (1981) theoretically
demonstrated the positive impact of platform (com-
ponent) commonality on the component demand
patterns, work-centre load, work-in-progress inven-
tory, and delivery performance.
Ramdas and Sawhney (2001) presented a cross-
functional approach to evaluating multiple line
extensions that simultaneously considers revenue
implications of component sharing at the product
level and cost implications at the component level.
Their activity-based costing procedure for estimat-
ing the life-cycle costs of line extensions that
share components can be generalized to consider
supply costs. They demonstrate that their proposed
270 G.Q. Huang et al. / Journal of Operations Management 23 (2005) 267–290
approach is most valuable when cannibalization
dominates competitive draw as a source of volume,
and discuss its relative merits under low and high
parts-sharing.
Having recognized and advocated the benefits of
PPD, Krishnan and Gupta (2001) formulated a
mathematical model for studying the appropriateness
(costs and benefits) of PPD. Their results showed that
PPD is not appropriate for extreme levels of market
diversity or at high levels of non-platform scale
economies. They have also shown that product
platform has significant impact on the planning and
the sequence of introducing multiple products to the
market. In another effort, Gupta and Krishnan (1999)
setup a model of component sharing to include
multiple component types, with economies of scale in
procuring one unique component type instead of
multiple component types from a single supplier due
to reduced vendor management.
In the SCM literature, one of the most noticeable
effects of platform (component) commonality of a
product family or line is known as the ‘‘risk pooling’’
effect—the inventory levels of the common modules
are generally reduced. Increased commonality gener-
ally encourages the risk pooling effect and then further
improves material availability and reduces system
complexity. High commonality results in simplified
planning and scheduling (Berry et al., 1992), lower
setup and holding costs (Collier, 1981, 1982), lower
safety stock (Baker, 1985; Dogramaci, 1979), reduction
of vendor lead-time uncertainty (Benton and Kra-
jewski, 1990) and order quantity economies (Gerchak
and Henig, 1989; Gerchak et al., 1988).
Kim et al. (2002) developed a mathematical model
and a solution algorithm for assisting the manufacturer
to configure its supply chain for a mix of multiple
products sharing some common raw materials and/or
component parts. The model evaluates how much of
each raw material and/or component part to order from
which supplier (contract) under such constraints as the
supplier’s capacity limit. They, however, did not use
the model to investigate the impact of sharing common
raw materials and/or component parts across multiple
products although the model can be extended for this
purpose (e.g. simply through a sensitivity analysis
under different commonality levels).
Gupta and Krishnan (1999) presented a decision
support methodology for identifying and formalizing
the tradeoffs between the development costs and
benefits of product platforms. Their methodology
incorporated a supplier selection decision. An optimal
set of components are determined and then the set of
suppliers are chosen to supply them. Similarly,
Chakravarty and Balakrishnan (2001) developed a
mathematical model for investigating the tradeoffs in
product design between manufacturing and develop-
ment costs and the potential market value. Their model
determined (1) how many product varieties in a
product group should be best introduced in the market
and (2) what the minimum numbers of module options
are required to support the desired variety. They
studied two extreme scenarios where module suppliers
are independent enterprises whose module decisions
are not coordinated with the manufacturer and where
module suppliers are wholly owned subsidiaries of the
manufacturer.
At present, the literature dealing with product
platform strategies and supply chain management in a
comprehensive and systematic manner is limited.
Salvador et al. (2002) is perhaps one of the most
comprehensive studies dealing with the mutual
interactions between product platform strategies
(product modularity and variety), production processes
and supply sources. Their insights were obtained from
empirical case studies. While their findings play
important roles in providing general guidance for the
decision-making process, a quantitative decision is still
needed at the tactical decision-making level.
Park (2001) presented a comprehensive model of
integrated product platform and global supply chain
configuration with experimental simulations. This
model has ambitiously incorporated multiple platform
strategies and included a large number of supply chain
decision variables and parameters along the whole
product lifecycle, from the front-end global market
segmentation to product design and manufacturing
stages to raw material sourcing and transportation,
manufacturing plant location, and end-product dis-
tribution. The resulting model, as such, was very
sophisticated and presented difficulties in terms of
realistic simulation experiments. Even if meaningful
simulations were carried out, it would not be easy to
independently derive focused findings and insights for
decision parameters and variables of primary interest.
In conclusion, the above literature falls into three
categories. The first category includes studies related
 G.Q. Huang et al. / Journal of Operations Management 23 (2005) 267–290
to supply chain configuration covering product and
process design to some extent. These studies do not
normally consider the product platform concept. The
second category includes studies related to product
line extension and design. Most models consider
either upstream market attributes or downstream
lifecycle cost elements, but the scope of these
studies normally does not reach as far as the supply
sources. In addition, they do not explicitly consider
the product platform concept even if product family/
line is considered. The third category includes
studies relating the product platform concept and
supply chain performance. These studies often focus
on only one product platform strategy—component
commonality, although the scope of these studies
sometimes does reach the supply sources. Other
product platform strategies such as modularity,
postponement, and scalability are not considered.
Opportunities exist in all these three areas for further
rigorous research.
3. Problem description
In order to address the challenge of designing
effective supply chain systems that integrate platform
product decisions, manufacturing process decisions,
and supply sourcing decisions, we employ a specific
application case adapted from Graves and Willems
(2001). This application case is concerned with the
optimal configuration of different supply chains for a
Fig. 1. GBOM for representing platform commonality and modularity.
271
product family of two notebook computers, namely
Notebook A and Notebook B, which are produced/
assembled by a manufacturer. While Notebook A is
sold in both the US and European markets, Notebook
B is only sold in the US market. In this paper, we make
the assumption that the studied notebook computer
manufacturer has finished its product development
process, so that product development process/cost
need not be considered as part of the application case
context.
3.1. Representation of platform products using
Generic Bills of Materials
How to model and represent design decisions of
platform products and platform strategies (e.g.
commonality and modularity) is itself a major
research area (Jiao et al., 1998; Huang et al., 2003).
The concept of Generic Bills of Materials (GBOM)
(Hegge and Wortmann, 1991; Jiao et al., 1998) is
readily and widely applied for this purpose. Essen-
tially, a GBOM is a tree consisting of AND/OR nodes.
OR nodes represent somewhat platform modularity
while AND nodes basically reflect platform common-
ality.
Fig. 1 shows an example of the GBOM of the
notebook product family considered in this paper. This
product family is comprised of two major sub-nodes—
one labelled ‘‘Subassembly’’ and another labelled
‘‘Dummy’’. The ‘‘Subassembly’’ node is an AND
node with several end nodes and an AND sub-node.
272 G.Q. Huang et al. / Journal of Operations Management 23 (2005) 267–290
This node reflects platform commonality such that
each product variant in the family possesses a
substructure represented by the ‘‘Subassembly’’ node.
The ‘‘Dummy’’ node, on the other hand, is an OR node
and represents platform modularity. That is, product
variants in the family possesses either a DVD drive or
a CD-RW drive. Therefore, the GBOM presented in
Fig. 1 has two product variants. They share five
common components and subassemblies, which
formulate their product platform. They are distin-
guished by one unique component: Notebook A with a
DVD drive and Notebook B with a CD-RW drive.
Commonality and modularity at the parametric levels
of individual nodes in the GBOM tree can also be
easily incorporated.
3.2. Network representation of flexible
supply chains
While it is common practice to represent a supply
chain as a network (Wu and O’Grady, 2001), the
formality of doing so varies widely from one
application to another. For practical purposes, this
paper represents the supply chain as a conceptual
multi-stage network. Nodes or stages of the network
represent suppliers of the materials while the directed
arcs represent the demand and supply relationships,
Fig. 2. Generic supply chain network of notebook family including variants A and B (GSC).
i.e. the flow of materials. Fig. 2 shows an example of
the supply chain network for the product family shown
in Fig. 1.
Three sets of nodes or stages are easily observed in
Fig. 2. One set includes the most upstream stages
without any further predecessors. This set of stages
perform procurement of raw material and are defined
as procurement stages (set R). Another set includes all
the most downstream stages without any further
successors. This set of stages represent market
demands of end customers and are defined as demand
stages (set E). The last set includes intermediate stages
with both up- and down-stream stages. They denote
internal manufacturing/assembling processes and are
defined as assembly stages (set P). These three kinds
of stages or nodes form the nodes set N ¼ R [ P [ E of
the directed graph G(N, A) which serves as the supply
chain network representation model, where A is the set
of directed arcs. A node where a common component
is combined with differentiating parts/components is
called a Differentiation Point (DFP), DFP 2 P. Node
10 in Fig. 2, for example, is a DFP.
Certain similarity can be observed by comparing
Figs. 1 and 2. Such similarity is largely due to the fact
that all components in the GBOM are assumed to be
bought from external vendors except for the three sub-
assemblies and the manufacturer is only responsible
 G.Q. Huang et al. / Journal of Operations Management 23 (2005) 267–290 273

Fig. 3. Instance supply chain networks for two variant notebook computers.

for assembling these bought-out components into sub-
assemblies and ultimately into the end-products. Such
similarity indicates that the GBOM platform repre-
sentation can be used and extended to form the
corresponding Generic Supply Chain (GSC) network
representation.
The GSC network for a product family in Fig. 2
can be decomposed into a set of two Instance
Supply Chain (ISC) networks at the Differentia-
tion Point(s), e.g. Node 10 in Fig. 2. The resulting
ISC networks, namely ISCA and ISCB for Notebook
A and Notebook B, are shown in Fig. 3a and b,
respectively.
3.3. Problem description
In this paper, we do not introduce a commonality
variable or index in the model. Instead, platform
274 G.Q. Huang et al. / Journal of Operations Management 23 (2005) 267–290
commonality is reflected by the supply chain network
representation model. We consider two extremes. For
the first extreme, we treat the two notebooks as two
variants in a product family with commonality and
their supply chains as jointly configured using the
GSC network shown in Fig. 2. For the other extreme,
we treat the two notebooks as a product family without
commonality and assume that the supply chains for the
two notebooks are configured independently using the
two corresponding networks ISCA and ISCB shown in
Fig. 3a and b, respectively. Hence, the ISC networks
for individual product variants assume null common-
ality while the GSC network for the product family
represents a certain degree of commonality. We
conduct separate experiments with respect to these
two extremes, after which we then compare and
contrast the experimental results.
As mentioned earlier, the optimization problem
we define focuses on two decisions: option selection
and service time. For each stage in our multi-stage
supply chain network, there are several alternative
options to select from, hence the option selection
decision. The type of options available is deter-
mined by the type of stage to which the options
belong. If stage i is a procurement stage, i.e. i 2 R,
the options of this stage are alternative external raw
material vendors; if stage i is a demand stage, i.e.
i 2 E, the options are alternative end-product
delivery modes; if stage i is an assembly stage,
i.e. i 2 P, the options are alternative manufacturing/
assembling processing methods. The option selec-
tion decision, therefore, includes the configuration
decisions of raw material vendor selection, end-
product delivery mode selection and manufacturing
process selection. However, in this paper, different
types of options are identified in the same way
through their production cost and processing lead-
time, and can, therefore, treated as one kind of
decision in the optimization model.
The second decision variable is that of service
time. With respect to this decision variable, we
assume that each stage guarantees a determined
service time to its immediate successors. Following
the terminology of Simpson (1958), service time is
the time span between the time when an order for an
item is placed and the order is filled. Accordingly,
we can see that the service time decision of each
stage determines the replenishment lead-time of its
corresponding stage. Therefore, we can equate the
service time decision to that of inventory location, or
more specifically AOH inventory location, and
choose, in this paper, to present the service time
decisions in terms of the results of AOH inventory
level of each stage in the supply chain because the
latter is more intuitive.
Other factors such as demands and demand
variances, inventory holding cost rates, and service
levels are treated as parameters whose values are given
as inputs into the optimization problem. Sensitivity
analysis is then conducted to investigate the impact of
these parameters under different level settings.
4. The mathematical model
This section develops a mathematical model to
quantify the relationships between the product plat-
form decisions (e.g. component commonality) and
supply chain decisions in terms of a chosen supply
chain performance indicator (e.g. total cost, inventory
level, etc.). Before developing the model, several
assumptions have to be stated as follows: (1) any
arriving order is processed immediately; (2) average
backorders are quite small (which will always happen
when service levels are chosen to be high) and,
therefore, the backorder cost is negligible; (3) capacity
is not restricted at each stage.
The objective function of the model is to minimize
the total supply chain cost consisting of inventory cost,
production cost, procurement cost and transportation
cost within the supply chain, as shown in Fig. 4. The
inventory cost at each stage of the multi-stage
production/inventory system, in turn, consists of
Average On-Hand (AOH) inventory and Work-In-
Process (WIP) inventory. Therefore, the aim of the
model is to determine the optimal option and service
time at each stage in order to minimize the total supply
chain cost presented in Fig. 4.
In this particular multi-stage production/inventory
system, all operations take place at stages. Raw
materials are purchased from outside suppliers at
procurement stages (set R). Assembly stages (set P)
transform raw materials into subassemblies and end-
products, after which end-products are transported to
regional distribution centres or customers through
demand stages (set E) in order to satisfy customer
 G.Q. Huang et al. / Journal of Operations Management 23 (2005) 267–290
Fig. 4. The structure of total SCC cost.
demands. In addition to performing specific opera-
tions, every stage also serves as a potential stock point
for the item finished at this stage. The optimal
inventory level of each stock point is determined by
the optimization model.
Customer demands only occur at demand stages
(set E). We assume that at each demand stage i 2 E, the
demand zi is stationary and follows a normal
distribution, that is, zi  Nðmi ; s i Þ, for i 2 E, and
demand zi is uncorrelated in time. Correlations
between customer demands are permitted and denoted
by the correlation coefficient rij (i, j 2 E, i 6¼ j).
This multi-stage production/inventory system
operates following a periodically reviewed base-stock
policy. At the beginning of each common review
period, demand stages (set E) review their local
inventory positions and place orders from their
immediate predecessors to bring the inventory
position up to a fixed base-stock level. For the
upstream stages, so-called dependent demands are
derived from the requirements of the BOM. Let nij
denote the number of items finished at stage i needed
to produce one unit of item at stage j. Hence, the
requirements of the BOM can be represented by nij
for i, j 2 N. Let E(i) denote the set of demand
stages which require the item produced at stage i.
For an upstream (procurement and assembly)
stage i 2 RP [ P, the demand is normally P distributed
¼ 2 ¼ 2 2
with
P m i P e 2 EðiÞ n ie m e and s i e 2 EðiÞ nie s e þ
e 2 EðiÞ j 2 EðiÞ;j 6¼ e nie nij s e s j rej :
One decision variable of the optimization problem
is service time. Each upstream stage i 2 R [ P
275
guarantees a service time Si to its immediate
successors. For demand stage i 2 E, the service time
Si is determined and given by the outside customer. If
it is equal to zero, the outside customer order has to be
satisfied immediately. Each stage i is also guaranteed
an input service time Sv(i) determined by its immediate
predecessors. The input service time Sv(i) is the time
period after which all the orders placed by stage i to its
immediate predecessors can be filled. We assume that
the quoted input service time for any procurement
stage i 2 R is zero. This happens when there is an
infinite supply of materials available to the outside raw
material suppliers. In practice, any assembly stage
i 2 P cannot start processing until all inputs are
available. Therefore, the quoted input service time Sv(i)
should be equal to the maximum service time of all its
immediate predecessors, that is,
SvðiÞ ¼ maxfSj g for i 2 P [ E; j 2 vðiÞ (1)
Another decision variable of the optimization
problem is option selection. For each stage i, several
alternative options (set S(i)) are available for selection.
We assume that every alternative option has a
deterministic production cost, namely CiOi (Oi 2 S(i))
and processing lead-time, namely TiOi (Oi 2 SðiÞ). Let
ci and Ti denote the production cost and processing
lead-time of each stage respectively. Once an option
selection decision has been made at stage i, Ti would
be set to TiOi ; ci would be set to CiOi . Thus, the
processing time and production cost of each stage are
deterministic too.
276 G.Q. Huang et al. / Journal of Operations Management 23 (2005) 267–290

Having defined the above variables and parameters, The WIP inventory level at stage i is simply given
we now discuss the cost terms of the optimization by
model. First, let us consider the AOH inventory at each
stage or stock point in the multi-stage production/ WIPi ¼ mi Ti for i 2 N (5)
inventory system. In order to do this, we have to The cumulative cost of an item finished and stored
introduce the notation of replenishment lead-time. The at stage i, which is denoted by Ci, can be calculated by
time span over which the stock point i can be refilled is 8
called the replenishment lead-time at stage i, which is < ci X for i 2 R
denoted by Li. It is clear that the replenishment lead- Ci ¼ ci þ Cj for i 2 P [ E (6)
:
time includes the waiting time for inputs and j 2 vðiÞ
processing time at the stage. So, we have
The cumulative cost of an item being processed at
Li ¼ SvðiÞ þ Ti for i 2 N (2) stage i, which is denoted by Wi, can be calculated as
follows:
The AOH inventory at each stage should cover and
8
guarantee the demand during a time span, called < ci for i 2 R
inventory coverage time, Ui, at a predetermined 1 X
Wi ¼ (7)
service level. For demand stages, the inventory : 2c i þ Cj for i 2 P [ E
j 2 vðiÞ
coverage time should include the common review
period, which is denoted by l. Thus, we have For stage i, the inventory cost can be written as

Li  S i for i 2 R [ P ðinventory costÞi ¼ hi ðCi AOHi þ Wi WIPi Þ
Ui ¼
Li  Si þ l for i 2 E
for i 2 N
For convenience, we assume that all the customer
orders are to be filled immediately, that is, Si = 0 for Let H denote the manufacturer’s time interval of
i 2 E. This assumption could be relaxed easily by interest. All other cost which may be production cost
setting the service time at the demand stages to be for assembly stages, or procurement cost for
larger than zero. Then, the calculation of Ui is derived procurement stages, or transportation cost for demand
to stages can be written as

Li  Si for i 2 R [ P ðproduction costjprocurement costjtransportation costÞi
Ui ¼ (3)
Li þ l for i 2 E ¼ Hci mi for i 2 N
At the beginning of each review period, the on- Thus, the total cost occurred at stage i, namely
hand inventory level at stock point i should be large SCCi, should be
enough to cover the average demand, miUi, over the
time span Ui. In the mean time, since demand is not SCCi ¼ ðinventory costÞi
constant, we may want to keep more inventories to þ ðproduction costjprocurement
hedge against demand deviation. With ai as the costjtransportation costÞi ¼ hi ðCi AOHi
service factor which denotes the service level at þ Wi WIPi Þ þ Hci mi for i 2 N
stage i, the base-stock
pffiffiffiffiffi level Bi can be set at
Bi ¼ mi Ui þ ai s i Ui . The total supply chain cost, namely SCCT, for
At the demand stages, the AOH inventory level can the entire multi-stage production/inventory system,
be evaluated as follows (van Ryzin, 2001) is the sum of SCCi of all the stages included in
1 pffiffiffiffiffi the supply chain network. Thus, SCCT can be
AOHi ¼ lmi þ ai s i Ui for i 2 E (4a) calculated by
2
X
For upstream (procurement and assembly) stages, SCCT ¼ ½hi ðCi AOHi þ Wi WIPi Þ þ Hci mi 
the AOH inventory level can be computed as i2N
pffiffiffiffiffi
AOHi ¼ ai s i Ui for i 2 R [ P (4b) for i 2 N
 G.Q. Huang et al. / Journal of Operations Management 23 (2005) 267–290 277

The objective, therefore, is to minimize the total fourth part includes the other cost (production cost
SCC cost, SCCT, e.g. plus procurement cost plus transportation cost)
incurred during the manufacturer’s time interval of
SCCP
X interest.
Min ½hi ðCi
AOHi þ Wi
WIPi Þ þ Hci mi  Constraints (8)–(10) apply to the processing time
i2N and production cost corresponding to the selected
for i 2 N option at each stage. Constraints (11)–(13) ensure that
the service times are integer and the inventory
With Eqs. (1)–(7), we can rewrite the optimization coverage times are nonnegative.
model as follows:
(
X pffiffiffiffiffiffiffiffiffiffiffiffiffiffi
SCCP Min hi ci ðai s i Ti  Si þ mi Ti Þ 5. Solution algorithms
i2R
20 1
X X The specific problem identified in this paper can
þ hi 4 @ c i þ Cj A be classified as a combinatorial optimization
i2P j 2 vðiÞ problem which is characterized by having a finite
qffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi number of feasible solutions. In principle, finding

ai s i SvðiÞ þ Ti  Si the optimal solution for a combinatorial optimiza-
0 1 3 tion problem can be done by enumeration. For
1 X example, Dynamic Programming (DP) is an effec-
þ @ ci þ C j A
mi T i 5 tive, but not necessarily efficient, enumerative
2
j 2 vðiÞ
20 1 solution algorithm for the specific problem in this
X X paper. However, real world problems are often very
þ hi 4@ci þ Cj A complicated and the enumeration method is fre-
i2E j 2 vðiÞ quently impractical to use because of the large
 qffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffiffi number of feasible solutions. For the specific
lmi

þai s i SvðiÞ þ Ti þ l problem in this paper, when the number of supply
2
0 1 3 ) chain stages is as large as, say 100, an enumerative
1 X X algorithm is inefficient given the computational
þ@ ci þ Cj A
mi Ti 5þ Hci mi complexity. For his circumstance, heuristic methods
2 i2N
j 2 vðiÞ could serve as alternative solution algorithms since
subject to they search for only a portion of the solution space
X heuristically and give good quality, but not
TiOi yiOi  Ti ¼ 0 for i 2 N (8)
necessarily optimal, solutions. More specifically,
Oi 2 SðiÞ
X we employ Genetic Algorithm (GA), a heuristic
CiOi yiOi  ci ¼ 0 for i 2 N (9) method, to address the specific problem described
Oi 2 SðiÞ earlier.
8 GA, first introduced by Holland (1975), is
< 1 ifO is selected X
i now well-established and widely applied in
yiOi ¼ and yiOi ¼ 1
: 0 otherwise solving engineering and business problems, includ-
Oi 2 SðiÞ
ing supply chain optimization problems (e.g.,
for i 2 N (10) Chan and Chung, 2004; Yu et al., 2003). GA is a
Oi ; Si  0 and integer for i 2 N (11) stochastic search method that imitates the process
SvðiÞ þ Ti  Si  0 for i 2 P (12) of natural selection and natural genetics. It starts
with a population composed of a set of random
Ti  Si  0 for i 2 R (13) solutions called ‘‘chromosomes’’. The population
The objective function includes four parts. The first then evolves via successive iterations called ‘‘gen-
three parts constitute the overall inventory costs. The erations’’.
278 G.Q. Huang et al. / Journal of Operations Management 23 (2005) 267–290
Fig. 5. Representation schema of chromosomes.
5.1. Representation scheme
For the optimization problem formulated in Section
4, each solution is represented by one chromosome with
2jN j genes—i.e., two genes are considered for each
stage, where jN j is the number of stages. The first gene
contains the supplier option Oi to which the correspond-
ing stage i is assigned. The second gene contains the
selected service time Si for the corresponding stage i.
Fig. 5 illustrates the proposed representation scheme.
We can see by this representation that only one supplier
is selected for each stage and, therefore, constraint (10)
is satisfied automatically. Since the optimization
problem is a nonlinear integer programming problem
with nonnegative solutions, all genes are constrained to
nonnegative integers in the GA, satisfying constraint
(11) as a result.
In addition, the encoding sequence of stages in the
chromosome is very important. This is because there
are relationships between the two genes or service
time decisions of some stages. Hence, only the proper
encoding sequence would allow the GA to arrive at an
optimal solution. The sequence scheme in this study is
as follows.
Sequence scheme: The upstream stages should be
encoded before their corresponding downstream stages.
As an example, consider the supply chain network in
Fig. 2. The sequence shown by the labels in the
‘‘circles’’ is a proper sequence for this supply chain.
We will explain why the sequence scheme is
important and necessary later.
5.2. Feasible solution space
The total feasible solution space of the optimization
problem in this paper is defined by its constraints. As
stated before, constraints (10) and (11) are satisfied
through the encoding scheme. Therefore, we only need
to consider constraints (8), (9), (12) and (13). The first
two constraints define the solution space of the first gene
of each stage, while the latter two constraints define the
solution space of the second gene at each stage.
The first gene of each stage, as such, is clearly
bound on the lower side by one, the minimum number
of supplier option index, and on the upper side by the
supplier options’ number of the stage, i.e. jSðiÞj for
stage i. Once an option is selected at stage i, the
predetermined production cost and lead-time of this
option are imported as processing lead-time, Ti and
production cost, ci of this stage. By doing this,
constraints (8) and (9) are verified.
The solution space for the second gene is defined by
constraints (12) and (13). Constraint (13) indicates
that the service time of a procurement stage is no
greater than the production lead-time of this stage.
That is, for a procurement stage, the second gene is
bound by Ti for i 2 R. Constraint (12) indicates that the
service time of an assembly stage is no greater than the
production lead-time of this stage plus the input
service time of this stage. Therefore, for an assembly
stage, the second gene is bound by SvðiÞ þ Ti for i 2 P.
Now we can explain why we have to define the
sequence scheme as indicated before. This sequence
scheme of the chromosome can assure the availability
of the service times of an assembly stage’s all
upstream stages, and therefore assure the calculability
of Sv(i) through Eq. (1), i.e. the maximum service time
of all the upstream stages. Since the service times of
the demand stages are inputs provided by customers to
the model, and since we assumed that they are equal to
zero, we would always set the second gene of these
demand stages to zero in all chromosomes.
5.3. Initialization, evaluation and
pre-evaluation heuristic
The initialization process is very important in the
performance of any GA. In this process, a population
 G.Q. Huang et al. / Journal of Operations Management 23 (2005) 267–290
of chromosomes are generated randomly within the
solution space. We can see from the above discussion
that all the chromosomes in the initial population are
feasible.
When the population is formed, all the chromo-
somes should be evaluated by computing their fitness
value one at a time. The evaluation function here is the
same as the objective function of the optimization
model defined in Section 4.
However, before the population can be evaluated,
we first employ a simple heuristic algorithm, called
pre-evaluation heuristic. This heuristic focuses on the
second gene of each chromosome. The detail of the
heuristic is as follows.
Pre-evaluation heuristic: For each chromosome, at
each procurement stage j 2 v(i), we set the second
gene Sj to Sv(i) if Sv(i)  Tj, otherwise we set Sj to Tj; at
each assembly stage j 2 v(i), we set the second gene Sj
to Sv(i) if Sv(i)  Tj + Sv(j), otherwise we set Sj to
Tj + Sv(j).
This pre-evaluation heuristic, based on service
times, can in fact pre-optimize the chromosomes
before they are evaluated, and, therefore, improve the
performance of the GA. To clarify and without loss of
generality, consider again the supply chain in Fig. 2.
At this time, a feasible solution X for this supply chain
network has already been created randomly. First, we
consider the sub-network containing stages 1–5. Here,
we can have v(5) = {1, 2, 3, 4}. From the randomly
created solution X, we can get S1, S2, S3, S4 and
therefore Sv(5) by Eq. (1). Looking at the evaluation
function, we can see that S1, S2, S3 and S4 are only
related to the first item of the evaluation function and
that the value of the first item is not increasing in these
four service times. Therefore X can be optimized by
resetting S1, S2, S3 and S4 as large as possible but no
larger than Sv(5) since this is their maximum value.
Further, they also cannot be larger than the processing
lead-time of their corresponding stages because of
constraint (13). Consequently we can optimize X
through resetting each of these service times to the
smaller value of Sv(5) and the processing lead-time of
its corresponding stage.
Next, consider the sub-network containing stages
5–10. At this point, we have v(10) = {5, 6, 7, 8, 9}.
Among the five upstream stages of this sub-network,
there are four raw material stages. For these stages, our
explanation is similar to that for the previous sub-
279
network. The only intermediate stage in the upstream
stages of this sub-network is stage 5. We can see that
S5 is only related to the second item of the objective
function. By the same logic, we can optimize X by
resetting S5 to Sv(10) if Sv(10)  T5 + Sv(5), or T5 + Sv(5)
otherwise, according to constraint (12).
Any convergent sub-network in Fig. 2, conse-
quently, belongs to either the first or the second sub-
network discussed above. Hence, we can conclude that
the pre-evaluation heuristic optimizes the population
that have been created randomly.
5.4. Genetic operations
The genetic operations used in the proposed GA are
crossover and mutation. Because the crossover
operation may produce an infeasible offspring, a
simple checking and amending (C&A) algorithm is
added after the crossover operation to find out and
amend the infeasible offspring. Similarly, the C&A
algorithm is used after the mutation operation because
it also may create an infeasible offspring. The
mutation algorithm used in the proposed GA is a
mixed algorithm including boundary mutation. The
reason why boundary mutation is introduced is
because of the extreme point property of the
optimization problem. A detailed discussion follows.
5.4.1. Crossover and C&A algorithm
The proposed GA uses a simple crossover
operation in which a random crossover point is
determined, and the second parts of the two selected
chromosomes are exchanged. If the random crossover
point is an even number, as shown in Fig. 6a, the
integrality of the stages in the two selected chromo-
somes remains, and the offspring is feasible as is its
parents.
If the random crossover point is an odd number, as
shown in Fig. 6b, the integrality of the selected stage is
damaged. That is, only the service times of the selected
stage in the two selected parents are exchanged. We can
see from the discussion of space range definition that the
feasible range of the second gene of a stage is affected by
its first gene. More specifically, the first gene of stage i
determines the Ti of this stage, and the second gene of
this stage cannot be larger than Ti or Sv(i) + Ti. Hence, the
solution space of the second gene of the selected stage
may change when a crossover like Fig. 6b happens.
280 G.Q. Huang et al. / Journal of Operations Management 23 (2005) 267–290
Fig. 6. Two kinds of crossovers.
In order to maintain feasibility of the offspring, a
C&A algorithm is added after a crossover operation
like Fig. 6b occurs. The detail of this algorithm is as
follows.
C&A algorithm: For each offspring, S0i or Si will be
checked as to whether it is within its new solution
space defined by Oi or O0i. If so, the algorithm will do
nothing; otherwise, the algorithm will create a new S0i
or Si randomly within its new solution space.
5.4.2. Mutation
In every chromosome selected for mutation, a gene
is selected randomly. If the selected gene is odd, or is
the first gene of the selected stage, the current value of
that gene is replaced with a random number selected
from its feasible solution space. In this condition, the
C&A algorithm described above should be added to
keep the offspring feasible because the solution range
of the gene after the selected gene, or the second gene
of the stage, may change.
If the selected gene is even, or is the second gene of
the selected stage, the current value of that gene is
replaced with the upper bound or the lower bound of
its solution space, which is called boundary mutation.
Using boundary mutation can significantly improve
the performance of the proposed GA given the
following reason.
Simpson (1958) studied a non-linear optimization
problem of a serial production/inventory system,
which can be regarded as a simplified form of the
specific problem addressed in this paper. He pointed
out that the optimal solution of his problem is largely
characterized by an extreme point property, wherein
the service time at each stage takes on either the lower
or the upper bound of its feasible solution range.
Considering the similarity between Simpson’s
problem and that of this paper, we choose a
boundary mutation when an even gene or Si is
selected for mutation. However, our boundary
mutation is mended because the problem we address
is more complex than Simpson’s. In our problem,
when Si is selected for boundary mutation, the whole
chromosome may not be affected because of the pre-
evaluation heuristic described in Section 5.3. There-
fore, after Si is selected and mutated to S0i , the second
genes of stage i’s sibling stages have to be checked
and revised. Here, a sibling stage of stage i has the
same immediate successor as stage i. For each
 G.Q. Huang et al. / Journal of Operations Management 23 (2005) 267–290
sibling stage of stage i, if the second gene is larger
than S0i , it would be set to S0i .
5.5. Selection
Once the evaluation function is used for the first
time, i.e. after the initial population is created and
evaluated, the proposed GA starts the selection and
genetic operations. Selection deals with the problem
of selecting the valuable chromosomes that will
survive and be passed to the next generation. The
selection process plays an extremely important role in
any GA.
In the GA, tournament selection process is
employed. First, a predetermined number of chro-
mosomes is selected randomly from the population.
Then the best the selected chromosomes is deter-
mined—i.e., the chromosome with the lowest fitness
value. Finally, the best chromosome will be inserted
into the new population. This procedure is repeated
until a new population has been created. In the
proposed GA, the tournament size, which indicates
the lowest selectivity pressure and is largely selected
by many experimental applications (Michalewicz,
1996), is set to 2.
5.6. Performance
The performance of our proposed GA solution
algorithm is favourable and promising. For the
example shown in Section 6.1, with a population of
500 and within 100 generations, the proposed GA can
normally converge to the best solution. The GA
solution is identical to the optimal solution obtained
from DP, within five experimental runs, although GA
does not guarantee the optimality of the so-called best
solution in every single experimental run. Moreover,
the average deviation of heuristic solutions from the
optimal solution obtained from DP for the five
experimental runs is almost negligible.
For the example shown in Section 6.1, only 1 or
2 min are required by the proposed GA to arrive at its
optimal heuristic solution while DP requires at least
5 min. We can expect, therefore, that, when the
number of options and stages in our optimization
problem increases to some extent, the proposed GA
algorithm would further outperform DP in terms of
computational efficiency.
281
6. Numerical results
To demonstrate how the proposed mathematical
model can be used as a decision support for
investigating the impact of product platform com-
monality on optimal SCC, we present and discuss a
specific case application involving a family of
notebooks.
6.1. Notebook computers
This particular case is concerned with the optimal
configuration of the supply chains shown in Figs. 2, 3a
and 3b. For the three supply chain networks, all
components in the generic BOM are bought from
external vendors except for the intermediate sub-
assembly and the end-products. For most components,
several alternative suppliers are available for choice
during the configuration process.
Table 1 lists the parameters of the alternative
options at each stage. The first two columns give the
index and name of each stage corresponding to that in
Fig. 2. The option column indicates a number of
options each with its own processing time and cost. An
option with a short processing time usually has a high
processing cost. Thus, at each stage, the options are
ranked in the decreasing order of processing time or
the increasing order of production cost.
We also assume that the product manager sets the
service level at 98% at each stage. Furthermore, the
manufacturer operates 360 days in a year, and the
annual holding cost rate is 40%.
The common review period for the three demand
stages (stages 15, 16 and 17) is equal to 1 day. The
daily demands at these three demand stages are given
in Table 2. The correlation coefficients between
different market demands are set to zero, i.e.
r1516 ¼ r1517 ¼ r1617 ¼ 0.
6.2. Configuration results
Using the mathematical model and solution
algorithm presented already, we obtain the optimal
configurations reported in Table 3.
Table 3 lists the configuration results of the three
kinds of supply chain networks: GSC, ISCA and ISCB.
The ‘‘supplier option selection’’ column lists the
option selection results of the three supply chain
282 G.Q. Huang et al. / Journal of Operations Management 23 (2005) 267–290

Table 1 Table 2
Alternative suppliers and their lead-times and production costs Demand parameters
Index Stage name Option Processing Production m s
time cost US demand—Notebook A 200 120
1 Parts w/8 week LT 1 40 $ 130.00 Europe demand—Notebook A 75 50
2 20 $ 133.25 US demand—Notebook B 125 80
3 10 $ 134.91
4 0 $ 136.59
2 Parts w/4 week LT 1 20 $ 200.00
2 10 $ 202.50
network and the ISCB network respectively while
3 0 $ 205.03 option 1 is selected for the GSC network; at stage 2,
option 3 and option 2 are configured for ISCA and
3 Parts w/2 week LT 1 10 $ 155.00
2 0 $ 156.93 ISCB respectively while option 2 is selected for the
GSC network; and at stage 3, option 2 is configured for
4 Parts on consignment 1 0 $ 200.00
5 Circuit board assembly 1 20 $ 120.00
the ISCA network while option 1 is selected for the
2 5 $ 150.00 ISCB network and the GSC network. These results
6 LCD display 1 60 $ 300.00
2 5 $ 350.00 Table 3
7 Miscellaneous 1 30 $ 200.00 Configuration results of the three kinds of supply chain networks
components Index Stage name Supplier Service time
8 Metal housing 1 70 $ 225.00 option
2 30 $ 240.00 selection
9 Battery 1 60 $ 40.00 GSC ISCA ISCB GSC ISCA ISCB
2 20 $ 45.00
1 Parts w/8 1 1 3 10 0 10
10 Subassembly 1 5 $ 120.00 week LT
2 2 $ 132.00 2 Parts w/4 2 3 2 10 0 10
week LT
11 CD-RW drive 1 40 $ 30.00
3 Parts w/2 1 2 1 10 0 10
2 5 $ 35.00
week LT
12 DVD drive 1 40 $ 15.00 4 Parts on 1 1 1 0 0 0
2 5 $ 16.50 consignment
5 Circuit board 1 1 1 0 0 30
13 Notebook A assembly 1 1 $ 30.00
assembly
14 Notebook B 1 1 $ 30.00
6 LCD display 1 1 1 0 0 30
assembly
7 Miscellaneous 1 1 1 0 0 30
15 US demand— 1 5 $ 12.00
components
Notebook A
8 Metal housing 1 1 1 0 0 30
2 1 $ 20.00
9 Battery 1 1 1 0 0 30
16 Europe demand— 1 15 $ 15.00 10 Subassembly 1 1 1 5 5 35
Notebook A 11 CD-RW drive 1 1 5 5
2 2 $ 30.00 (Notebook A)
12 DVD drive 1 1 5 35
17 US demand— 1 5 $ 12.00
(Notebook B)
Notebook B
13 Notebook A 1 1 6 6
2 1 $ 20.00
assembly
14 Notebook B 1 1 6 36
assembly
networks. Numbers in this column indicate the
15 US demand— 2 2 0 0
selected supplier options at each stage for each Notebook A
network. From this column, we can see that there are 16 Europe demand— 2 2 0 0
three discrepancies at stages 1, 2 and 3, which have Notebook A
been marked by a dashed ellipse for attention. At stage 17 US demand— 2 2 0 0
Notebook B
1, option 1 and option 3 are configured for the ISCA
 G.Q. Huang et al. / Journal of Operations Management 23 (2005) 267–290
show that suppliers with lower option indices have
been assigned in the GSC network. As mentioned
earlier, for each stage, the supplier options are ranked
in the decreasing order of processing time or the
increasing order of production cost. Hence, the index
of an option can indicate the option’s manufacturing
capability. The results of supplier option selection in
Table 3 show that product platform commonality
allows the manufacturer to source from raw material
vendors with lower capabilities.
The ‘‘Service Time’’ column of Table 3 lists the
service time configuration results of the three supply
chain networks. Numbers in the column indicate the
selected service times for each network’s stages.
Unlike the supplier option selection results, the service
time results are not so intuitive as to indicate some
clear implications. Recall from our discussion in
Section 3.3 that the service time decision is actually a
decision about optimal AOH inventory placement.
Hence, we can translate the service time configuration
results of Table 3 into Fig. 7, which shows the AOH
inventory levels of each stage of the three supply chain
networks.
From Fig. 7, we can see how the AOH inventory
level changes under the impact of product platform
commonality. Let us compare the two lines: GSC and
ISCA + ISCB.
The procurement stages can be divided into two
groups. One is the platform component stages which
are shared by ISCA and ISCB, i.e. stages 1–4 and 6–
9, and the other group includes component stages
which are unique in ISCA or ISCB, i.e. stages 11 and
12. For the platform component stages, the AOH
inventory levels in the GSC network are not always
Fig. 7. AOH inventory levels of each supply chain network.
283
lower than those in the ISCA + ISCB network as
expected from a risk-pooling effect. For example, at
stage 7, the AOH inventory level in the GSC network
is higher than that in the ISCA + ISCB network.
However, for the stages from end-product assembly
to customer demands, i.e. stages 13–17, the AOH
inventory levels in the GSC network are always no
higher than those of the ISCA + ISCB network. This
outcome shows that under the impact of product
platform commonality, the AOH inventories are
reallocated along the supply chain towards the
upstream stages.
As for unique component stages, the AOH
inventory levels are higher than those in the
ISCA + ISCB network. This is identical with the
results which Baker et al. (1986) have got through
analytical analysis.
Apart from the above stages, there exist several
assembly stages of the manufacturer in the supply
chain, i.e. stages 5 and 10. As we can see from Fig. 7,
at these stages, the AOH inventory levels in the GSC
network are higher than those in the ISCA + ISCB
network. The explanation should be the same as that
for procurement stages presented above.
In terms of the various cost components for the
resulting supply chain configurations in Table 4, we
can see that the AOH inventory cost of ISCA + ISCB ($
2,891,897) is significantly decreased to the AOH
inventory cost of the GSC network ($ 2,561,832) by
11.41% due to the effect of product platform
commonality. As for the total SCC cost, we find that
product platform commonality contributes to the
noticeable reduction of $ 426,768 in the total SCC cost
from the ISCA + ISCB network ($ 270,443,275) to the
284 G.Q. Huang et al. / Journal of Operations Management 23 (2005) 267–290

Table 4
Configuration costs
ISCA ISCB ISCA + ISCB GSC Reduction (%)
AOH inventory cost $ 1912891 $ 979006 $ 2891897 $ 2561832 11.41
WIP inventory cost $ 8334430 $ 3719458 $ 12053888 $ 12619675 4.69
Production cost $ 176189040 $ 79308450 $ 255497490 $ 254835000 0.26
Total SCC cost $ 186436361 $ 84006915 $ 270443275 $ 270016507 0.16
Time to market 78 77 78a/77b
a
For Notebook A.
b
For Notebook B.

GSC ($ 270,016,507) network. We see also that WIP
inventory cost of GSC increases by 4.69% and the
production cost of the GSC network decreases by
0.26% because the lower capability options at stages
1–3 are selected in the GSC network. When the
lower capability options are selected, the processing
times of the corresponding stages increase while the
production costs of the corresponding stages
decrease. As a result, the WIP inventory cost, which
is closely related with the processing time of each
stage, increases and the overall production cost,
which is closely related with production cost of each
stage, decreases. Product platform commonality,
therefore, appears to have a significant effect on
AOH inventory cost reduction and a noticeable
effect on total SCC cost reduction.
Finally, we can see from Table 4 that the times to
markets of each product variant in the GSC network
are the same as those in the ISCB and ISCB networks.
This implies that product platform commonality does
not delay the time to market.
6.3. Sensitivity analysis under different
holding cost rates
The holding cost rate is an important strategy
parameter used by product managers to estimate the
risk of holding inventories on-hand and in the pipeline.
Through this holding cost rate, production cost and
inventory cost can be balanced. If the holding cost
were to be set high, the inventory cost of the supply
chain would be large relative to the production cost,
and, as such, the manufacturer would not prefer to
hold inventories.
Figs. 8 and 9 display the AOH inventory cost and
total SCC cost for the GSC and ISCA + ISCB networks
as a function of the holding cost rate. In these two
figures, we can see how product platform common-
ality impacts AOH inventory cost and total SCC cost
under different holding cost rates. Also, we can see
that as the holding cost rate increases, product
platform commonality contributes more to the
reduction in AOH inventory cost and total SCC cost.

Fig. 8. AOH inventory cost as a function of the holding cost rate.

 G.Q. Huang et al. / Journal of Operations Management 23 (2005) 267–290 285

Fig. 9. Total SCC cost as a function of holding cost rate.

Table 5
Supplier option configuration results of each kind of supply chain network under different holding cost rates
Index Stage name SL
20% 30% 50% 60% 70% 80%
GSC ISCA ISCB GSC ISCA ISCB GSC ISCA ISCB GSC ISCA ISCB GSC ISCA ISCB GSC ISCA ISCB
1 Parts w/8 week LT 1 1 1 1 1 1 4 4 4 4 4 4 4 4 4 4 4 4
2 Parts w/4 week LT 1 1 1 1 1 1 3 3 3 3 3 3 3 3 3 3 3 3
3 Parts w/2 week LT 1 1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2
4 Parts on 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
consignment
5 Circuit board 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 2
assembly
6 LCD display 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
7 Miscellaneous 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
components
8 Metal housing 1 1 1 1 1 1 1 1 1 1 1 2 2 2 2 2 2 2
9 Battery 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1 1
10 Subassembly 1 1 1 1 1 1 1 1 1 1 1 1 2 2 1 2 2 2
11 CD-RW drive 1 1 1 1 1 1 1 1 1 1 1 1
(Notebook A)
12 DVD drive 1 1 1 1 1 1 1 1 1 1 1 1
(Notebook B)
13 Notebook A 1 1 1 1 1 1 1 1 1 1 1 1
assembly
14 Notebook B 1 1 1 1 1 1 1 1 1 1 1 1
assembly
15 US demand— 1 1 2 2 2 2 2 2 2 2 2 2
Notebook A
16 Europe demand— 1 1 2 2 2 2 2 2 2 2 2 2
Notebook A
17 US demand— 1 1 2 1 2 2 2 2 2 2 2 2
Notebook B
286 G.Q. Huang et al. / Journal of Operations Management 23 (2005) 267–290

Fig. 10. AOH inventory levels of each supply chain network under different holding cost rates.

Table 5 presents the supplier option configuration
results of the three supply chain networks, under
holding cost rates 20%, 30%, 50%, 60%, 70% and
80%. In each column, the discrepancies between the
three supply chain networks are marked by a dashed
ellipse just as in Table 3. Looking at Table 5, we can
find that for the holding cost rate of 30% and 70%, at
stage 17, (an end-product delivery stage), and stage 10
(the generic product assembly stage), an option with
higher index (i.e. higher capability with lower
 G.Q. Huang et al. / Journal of Operations Management 23 (2005) 267–290 287

Table 6 platform commonality would allow the product

Time to market of each supply chain network under different
manager to choose an external raw material vendor
holding cost rates
with lower capability (i.e. with lower production cost
SL
and longer processing lead-time). On the other hand,
20% 30% 50% 60% 70% 80% at the generic product assembly stage and demand
ISCA 91 78 78 78 65 65 stages, higher capability (i.e. with higher production
ISCB 81 81 77 67 67 64 cost and shorter processing lead-time) options are
GSC 91a/81b 78a/77b 78a/77b 78a/77b 65a/64b 65a/64b
often chosen in the GSC network. This finding implies
a
For Notebook A. that under the impact of product platform common-
b
For Notebook B.
ality, the manufacturer’s supply chain would become
more agile with regard to the course of production
production cost and longer processing lead-time) is from product assembly to customer orders.
selected in the GSC network than that in the ISCB Third, the AOH inventory levels at unique
network, while the option selected in ISCA is the same component and assembly stages are found to increase
as that in the GSC network. constantly, while the AOH inventory levels at stages
As discussed earlier, the service time configuration from end-product assembly to customer demand
results are not intuitive to understand for individual always decrease in the GSC network. This finding
stages, and are actually decisions affecting optimal implies that product platform commonality would
AOH inventory placement. Therefore, we will not lead to an increase of inventories of unique
present the service time configuration results here. components and semi-finished products and a reduc-
Instead, we translate the service time configuration tion of inventories of finished products.
results under different holding cost rates into Fig. 10, Fourth, another interesting finding about the AOH
which shows the AOH inventory levels of each supply inventory is that, at common component stages, the
chain network under different holding cost rates. From AOH inventory levels do not always decrease under the
this figure, we see similar results as have been impact of product platform commonality. This finding
observed from Fig. 6. leads us to conclude that the risk-pooling effect would
Table 6 presents the time to market of each supply not always dominate the inventory levels for platform
chain network under different holding cost rate. products. In fact, platform component commonality
reduces the overall inventory cost by reallocating
6.4. Managerial implications inventories to upstream stages towards raw materials
because the holding costs for raw materials are much
Based on the computational results and analyses lower than those of finished products.
presented above, we can advance a general proposition Finally, time-to-market for the GSC network does
that product platform commonality does have sig- not seem to vary much from that of each of the ISC
nificant impacts on both the performance and the networks. This implies that product platform com-
configuration decisions of the respective supply monality would not increase time-to-market.
chains. There are several managerial implications
that can be derived from this general proposition.
First, we observe that the AOH inventory cost is 7. Conclusions and future work
reduced significantly while the total SCC cost is
reduced to a noticeable extent in the GSC network. In this paper, we have made several contributions to
Moreover, this impact becomes larger when the the research literature with respect to integrated
holding cost rate increases. This finding indicates that optimal configuration of supply chains and platform
product platform commonality would generally products. Foremost, we have identified the optimal
reduce supply chain costs. configuration of platform products, manufacturing
Second, we find that suppliers with lower option processes and supply sourcing in the flexible supply
indices are often assigned at procurement stages in the chain as an important area for rigorous and systematic
GSC network. This finding implies that product research. More importantly, through a specific
288 G.Q. Huang et al. / Journal of Operations Management 23 (2005) 267–290
scenario, we have demonstrated an approach to the
development of decision supports for investigating the
mutual impacts between the decisions of supply chain
configuration and platform product development.
As another contribution, we have formulated a
mathematical decision model for optimizing the
sourcing, manufacturing process and end-product
delivery configuration, and AOH inventory placement
decision in the supply chain considering commonality
among variants in a product family. After proposing the
mathematical model, we proposed and developed the
use of Genetic Algorithm to solve our optimization
problem. From the computational results we observed
that the GA performs well in terms of the quality of the
best solution as it is consistent with the optimal solution
obtained from Dynamic Programming (DP), while GA
outperforms DP in terms of computational efficiency.
The model and the GA-based heuristic procedure may
be used by managers as a decision support tool, as well
as for conducting sensitivity analysis.
In this paper we also furthered understanding and
knowledge about the mutual impacts of the config-
uration decisions through a series of sensitivity
analyses using the proposed model and algorithm.
We have derived a number of interesting general
observations and managerial implications from the
specific case application and simulations.
An immediate extension of this paper would be to
incorporate more manufacturing process and supply
chain parameters and variables that are sensitive to
product platform commonality. More sensitivity ana-
lyses could then be conducted using these additional
parameters and variables. In this paper, we deliberately
focused our attention on a limited number of decision
variables. The resulting model, however, does not
exclude the consideration or the future inclusion of other
aspects such as backorder cost, quantity discount,
pricing policies, marketing strategies, setup and
changeover costs, etc. More ambitiously, stationary
demands can be replaced by non-stationary demands.
Likewise, some constraints can be modified or relaxed.
For example, the unlimited capacity assumption can be
replaced by a capacity constraint at each stage. The
solution heuristic of the model would then have to be
modified according to these revised constraints. If the
configuration were extended to product design, then
platform development and customization costs should
also be considered in the model. However, it should be
noted that the added complexity may not necessarily
gain additional insights and any addition should be
closely related to the purpose of the model and the
analysis.
In addition, the case application examined only one
performance indicator—supply chain cost. Multiple
criteria are ideally and practically desirable. Other
performance indicators such as total supply chain
profit, total supply chain cycle time, etc. may be more
appropriate for certain applications.
Also, in the case application, the decision model
was built for the manufacturer while alternative supply
sources were treated as the domains of the supplier
selection decision variable. The decision model would
require extension if suppliers themselves are con-
sidered as ‘‘manufacturers’’ who use the same or
similar decision models. Once suppliers are treated as
individual business entities, they would have their own
individual business objectives. Such extended model
considering suppliers’ suppliers would allow us to
investigate different supply chain coordination and
integration strategies such as full integration, partial
coordination, common objective, competition, lead-
follower, shared information, etc.
Finally, other platform strategies such as mod-
ularity may be considered in the model. This extended
model would become an integrated decision support
for integrated optimal configuration of platform
products and flexible supply chains. The problem
formulation and especially the solution algorithms
would have to be significantly revised. With this
extended model, the impact of decision parameters
and variables related to modularity on the supply chain
performance could then be examined.
Acknowledgement
The authors acknowledge the CRCG of the
University of Hong Kong and NSFC (Grant No.:
70371023) for partial financial support for this
research. They thank the reviewers for their critical
but constructive comments.
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