Design for Cost: Module-Based Mass Customization

The assemble-to-order (ATO) production strategy considers a tradeoff between the size of a product portfolio and the assembly lead time. The concept of modular design is often used in support of the ATO strategy. Modular design impacts the assembly of products and the supply chain, in particular, the storage, transport, and production are affected by the selected modular structure. The demand for products in a product family impacts the cost of the supply chain. Based on the demand patterns, a mix of modules and their stock are determined by solving an integer programming model. This model cannot be optimally solved due to its high computational complexity and, therefore, two heuristic algorithms are proposed. A simulated annealing algorithm improves on the previously generated solutions. The computational results reported in this paper show that significant savings could be realized by optimizing the composition of modules. The best performance is obtained by a simulated annealing combined with a heuristic approach.