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    Platform flexibility strategies: R&D investment versus production customization tradeoff

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    Publication type
    Vlerick strategic journal article
    Author
    Van den Broeke, Maud
    Boute, Robert
    Van Mieghem, Jan
    Publication Year
    2018
    Journal
    European Journal of Operational Research
    Publication Volume
    270
    Publication Issue
    2
    Publication Begin page
    475
    Publication End page
    486
    
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    Abstract
    Product platforms are assets that are shared by multiple products. We study the optimal investment in platform flexibility. Each platform type is characterized by its functionality that determines its R&D investment and unit production cost, as well as the customization cost to produce the end products from the platform. The firm can invest in a portfolio of specialized platforms that align with the functionalities of a specific product and flexible platforms that cover the functionalities of a product range at lower customization cost. We characterize the optimal platform portfolio strategy using an ex-ante investment versus ex-post production customization tradeoff curve and show comparative statics of these costs, demand forecast, and the decision maker's regret and risk attitude. Flexible platforms provide operational hedging for risk-averse decision makers who thus should invest more than risk-neutral counterparts. In contrast to manufacturing flexibility, the regret of sub-optimal investments increases as demand is more negatively correlated.
    Keyword
    Manufacturing, Product Development, Platform, Flexibility, Newsvendor Networks
    Knowledge Domain/Industry
    Operations & Supply Chain Management
    DOI
    10.1016/j.ejor.2018.03.032
    URI
    http://hdl.handle.net/20.500.12127/5933
    ae974a485f413a2113503eed53cd6c53
    10.1016/j.ejor.2018.03.032
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