Analysis of the effect of commonality in multi-level inventory systems applying MRP theory [An article from: International Journal of Production Economics]

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Description:
Commonality, i.e. using the same type of component in different locations of product structure trees, is frequently encountered in manufacturing industries. It has long been known that using a common component can reduce the cost of safety stock. Basically, taking commonality into account can reduce the inventory level, shorten the time for reaching the market, decrease the set-up time, increase productivity, and improve flexibility. However, using the same component in different locations might require that the component is made more flexible and, therefore, more expensive as compared to choosing tailor-made items for its respective locations. The manufacturing cost of commonality items may therefore be much higher because of its greater number of functions. So, there may be a balance to be struck between the value of the advantage of commonality, and the cost of its disadvantage. This paper focuses on the effect of commonality in multi-level production-inventory systems, especially assembly systems. The basic balance equations of MRP theory, using input-output analysis together with the Laplace transform, are used for comparing the cases when commonality is disregarded, on the one hand, and when commonality is taken into account, on the other. Applying the net present value as the objective function, conclusions are derived in the form of conditions for when commonality is recommended, and when not.