Date Added: Aug 2009
The paper considers a firm that produces multiple variants of a product. Products are assembled using a combination of common and dedicated components. The paper characterizes the optimal assortment and derives the optimal inventory levels for the common and dedicated components under various bill-of-material configurations. The paper investigates the effect of commonality on product variety and compares its benefits under different demand characteristics. While commonality always leads to increased profits, its effect on the level of product variety depends on the type of commonality. If all common components are used for the production of the entire set of products, then the optimal variety level increases relative to the system with no commonality.