Is More Less? Benefits and Costs of High-Variety Production in Nonassembled Manufacturing

Abstract

While many studies have characterized the costs of product variety in assembly production, there is little research detailing the sources and costs of increased product variety on a nonassembled (fabrication) production line, despite nonassembled products accounting for over 50% of U.S. manufacturing. Our research examines the production-level costs, benefits, and margins associated with producing a variety of nonassembled products, and how design attributes affect these outcomes. We propose a theoretical framework of nonassembled product variety, identifying five general design attributes of nonassembled products that influence product-variety outcomes, and identify potential sources of variety costs and benefits. We then conduct a case study of a plant that produces a large variety of unique products in a single year. We develop a new process-based cost modeling (PBCM) technique to capture the impacts of product variety. Leveraging design of experiments (DOE), we model fourteen representative products, altering the mix of products to focus on each design attribute. In our case study, which has relatively large lot sizes, less customized designs, and less flexible equipment, we find that cost increases related to changeovers between product designs are small relative to cost benefits derived from sharing equipment and labor. We provide a framework illustrating how these results generalize to other contexts, which shows that changeover costs will dominate sharing benefits in environments with more customized designs, produced in smaller lot sizes, and processed on flexible equipment.