Component commonality in as sembled-to-stock systems

This paper quantifies the impact of component sharing in a two-echelon assembled-to-stock system consisting of several common components and end-products. Whereas there is a benefit from risk pooling when component sharing is allowed, there is also a component-mismatch problem due to the demand uncertainty for end-products. We study these conflicting effects by comparing a particular component sharing policy, namely the equal-fractile allocation policy, with a make-to-stock system which does not allow the allocation of common components. The probabilistic analysis shows that when each type of component is shared by at least two end-products, the equal-fractile allocation policy will always help to reduce the safety stock required to be held at a sufficiently high service level. We also look at a special scenario of the equal-fractile allocation policy which takes into account inventory cost considerations. We show that this problem can be formulated as a newsvendor problem.