Product Hardware Complexity and Its Impact on Inventory and Customer On-Time Delivery

This paper studies the impact of a reduction in hardware complexity on the supply-chain inventory against various customer on-time delivery alternatives and manufacturing environments. Different methods of reducing hardware complexity are proposed, and their impact on total supply-chain inventory and customer serviceability quantified. An analytical inventory optimization scheme taking into account multistage supply networks, product structure, forecast accuracy, lead-time variability, and supplier reliability is used to determine optimal inventory levels in a stochastic modeling environment. The analysis is based on a business case for an IBM midrange computer family consisting of more than 200 models and upgrades with hundreds of features. We investigate different hardware complexity reduction strategies, including low-usage feature reduction, low-volume feature reduction, and feature substitution, as well as quick response and postponement mechanisms. Our computational results show that, in a fabrication-fulfillment center environment, reducing hardware complexity results in significantly higher inventory savings than in an integrated manufacturing environment. The results presented in this paper were used to reduce hardware complexity in IBM's midrange computer division.