The impact of demands' correlation on the effectiveness of component commonality

Abstract

A relatively new approach which simplifies the management and control of inventory and also reduces inventory is component commonality. Due to its promising results both companies and academicians found interest in this approach. A common assumption made in previous studies is that the demands of the various products are independent. However, it is not uncommon for companies to offer products that are complementing or substituting each other. In this paper the assumption of independent demands is relaxed and the effect of products' demands correlation (positive or negative) on the performance and attractiveness of component commonality is studied. In order to obtain closed form solutions a correlation between uniform distributions is introduced. This work shows that when component commonality is being considered, demands' correlation should not be neglected due to its significant effect.

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