Dynamic programming approach for analyzing delayed product differentiation

Cutting down lead-time and expanding product variety are two essential means to improving customer service. To recognize the specific requirements of markets, many computer companies are adopting a build-to-order (BTO) policy. Under this policy, original equipment manufacturing (OEM) companies that are component suppliers for these computer companies are compelled to offer their components near the end-users within shortened lead-times. This forces the OEM companies to develop their branches and warehouses that can implement some assembly operations for the products that have been semifinished at the central company. The main problem faced by these OEM companies is determining the differentiation point of the production processes where the products are diversified at the central company. In this paper, a dynamic approach is proposed to construct an analysis framework for this problem. This approach can deal with situations that do not differentiate all products at the same time. This is especially relevant when the investment cost or processing cost for process normalization and modularization of process redesigning is dependent on products in common parts or sets or on their differentiation sequence. This approach is different from the results claimed in previous research. An example of a real case is then applied to illustrate the applicability of the model.