SBIR Phase II: Reducing Lead Time and Inventory by Using Optimized Product Configurations

This Small Business Innovation Research (SBIR) Phase II project addresses the impact of product variety on the customer order fulfillment process. It aims to help the manufacturers of highly configurable products with many possible "variants" or "configurations" to maximize product availability and order fill rates. Prior research by Emcien has created a methodology for representing product variants, modeling customer demand, and computing an optimal set of product configurations to maximize margins. These stockers are optimal in the sense of satisfying the most demand while maximizing profitability, but they assume unlimited product inventory. In previous research, Emcien built a prototype simulation model to determine how well these optimal stockers would perform in practice. The prototype simulation model was used successfully by two of Emcien's clients. The Phase II project will turn this prototype into production quality software that will become a part of Emcien's suite of products that address product variety. More manufacturers are moving in the direction of "mass customization", which means allowing each customer to choose the features and options they want. Mass production of a uniform product, or one with a small number of variants, is evolving into flexible production as more and more choices are offered to the customer. But customers not only want to customize their product, they also want to get it quickly. Pure build-to-order systems can result in unacceptably long customer lead times, especially when demand has seasonal ups and downs. This forces manufacturers to build partially finished or fully finished units for inventory, in order to smooth production and reduce customer lead time. This requires a delicate balance between the extra revenue and the extra costs of offering more variety. Emcien's mission is to help manufacturers profit from product variety as a competitive advantage, rather than being overwhelmed by the extra costs of supporting too much variety.