Managing Complexity in Variant-Oriented Manufacturing: A System Dynamics Approach

This paper proposes a System Dynamics (SD) approach to support decision-making to manage variety induced complexity. Offering product variety leads to increasing internal complexity, which results in higher inventory and increasing setup processes. Managing the trade-off between marketing-, logistics-and product management complicates the decision process in offering sufficient variety to the market. This leads to numerousness of stock keeping units (SKUs), all of which are required to maintain various key performance indicators and inventory levels. Managing this variety induced complexity to optimize the overall business success requires an understanding of its System Dynamics behavior and interrelation. The reviewed literature reveals that existing metrics do not capture the necessary dynamic system behavior sufficiently to measure the impact of long-term strategies. The proposed model combines System Dynamics and the portfolio-fitness index (PFI) metric to capture the required dynamic system behavior. Applying scenarios to a national electronics company through a case study demonstrates the ability to manage complexity using System Dynamics and the PFI metric. The outcome of this research is a System Dynamics model that can manage variety induced complexity by offering scenario analysis to support decision-making. The findings in the case study suggest that reducing the complexity does not automatically lead to competitive advantages. Understanding the dynamic behavior of complexity impacts forms a basis for decision-making. Thus, the model's findings provides insights to manage complexity in the most efficient manner.