Product Hardware Complexity and its Impact on Inventory and Customer On-time Delivery

This paper studies the impact of hardware complexity reduction on supply chain inventory against various customer on-time delivery alternatives and manufacturing environments. Different methods of hardware complexity reduction are proposed, and their impacts on total supply chain inventory and customer serviceability are quantified. An analytical inventory optimization scheme taking into account multi-stage 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 two hundred 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, implementing a hardware complexity reduction mechanism results in significantly higher inventory savings than in an integrated manufacturing environment. The results presented in this paper were used to implement hardware complexity reduction in IBM's midrange computer division.