Title: A strategic range split problem
Authors: Degraeve, Zeger
Jans, Raf
Issue Date: 2000
Publisher: K.U.Leuven
Series Title: DTEW Research Report 0006
Abstract: This paper describes a real life case of a joint production-marketing decision problem at a large international manufacturer. The range of products considered in this study is split up into product families. All the models within each product family make use of some common basic components. The company wants to redesign the products. The goal of the redesign is to increase quality and reliability and boost benefits for the customers in addition to lowering production costs. The cost reduction enables the firm to lower the price. Consequently, the redesign is of strategic importance. This redesign implies a proposal of a new range split, i.e. determine which range of end products will make use of the same common components. The range split has a direct impact on the development costs of the common components, the production costs of the end products and hence also on the sales price and the number of units sold. The problem is to find the most economical split. In order to solve the problem, we will need to integrate information from different functional areas such as production, marketing and accounting. The range split problem is essentially an assortment problem at subassembly level, which leads to component commonality. We propose a mixed integer nonlinear optimization model that is gradually extended with additional industrial considerations, price optimization and demand uncertainty. The management of the company was satisfied with our solution and they decided to implement the proposal.
Publication status: published
KU Leuven publication type: IR
Appears in Collections:Research Center for Operations Research and Business Statistics (ORSTAT), Leuven

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