Process flexibility in the presence of product modularity: Does modularity help?

Abstract

One of the primary goals of supply chain management is to reduce supply–demand mismatch (SDM). Product variety explosion is a common occurrence across industries and is one of the primary sources of demand uncertainty, resulting in SDM and the associated costs. Researchers and practitioners have investigated the role of process flexibility in addressing SDM caused by product variety. This study investigates the impact of product modularity on the benefits of process flexibility. It answers the critical question: “Does introducing modularity in product structure lead to reduced process flexibility requirements?”. As flexibility investment is costly, the reduced requirement in the presence of product modularity positively impacts financially constrained manufacturing firms (e.g., those belonging to the SME sector or start-up ecosystem). Two stochastic optimization problems are formulated, one with two products and one with multiple products. The results show that in the presence of product modularity, the optimal production policy handles demand uncertainty better and thus reduces SDM cost more than the integrated product case. Further, the need for investment in process flexibility decreases in the presence of modularity. In the multi-product formulation, the researchers investigate the -chain process flexibility structure requirement. In the presence of product modularity, a 2-chain process flexibility structure is sufficient to almost achieve the performance of a full flexibility structure, in contrast to integrated product scenarios where at least 3 to 4-chains are required.