Component commonality in a multiple-period inventory model with service level constraints

Abstract

It has been clearly demonstrated in the literature that introducing a common component that replaces a number of unique components reduces the level of safety stock required to meet service level requirements. It is not clear, however, that overall costs are reduced when the common component is more expensive than the components it would replace. Most recent work has used single-period models to investigate the cost savings (or losses) from commonality. This paper will develop a simple multiple-period model with service level constraints to compare the effect of commonality in the single-period and multiple-period case. Interestingly, the results are drastically different for these two cases. When the common component is more expensive than the components it replaces, commonality is often still beneficial in the single-period model, but almost never in the multiple-period model.

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