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Platform flexibility strategies: R&D investment versus production customization tradeoff

Abstract : Product platforms are assets that are shared by multiple products. We study the optimal investment in platform flexibility. Each platform type is characterized by its functionality that determines its R&D investment and unit production cost, as well as the customization cost to produce the end products from the platform. The firm can invest in a portfolio of specialized platforms that align with the functionalities of a specific product and flexible platforms that cover the functionalities of a product range at lower customization cost. We characterize the optimal platform portfolio strategy using an ex-ante investment versus ex-post production customization tradeoff curve and show comparative statics of these costs, demand forecast, and the decision maker’s regret and risk attitude. Flexible platforms provide operational hedging for risk-averse decision makers who thus should invest more than risk-neutral counterparts. In contrast to manufacturing flexibility, the regret of sub-optimal investments increases as demand is more negatively correlated.
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https://hal.archives-ouvertes.fr/hal-02570884
Contributor : Isabelle Celet <>
Submitted on : Tuesday, May 12, 2020 - 2:30:43 PM
Last modification on : Wednesday, September 30, 2020 - 3:19:13 AM

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Maud van den Broeke, Robert Boute, Jan van Mieghem. Platform flexibility strategies: R&D investment versus production customization tradeoff. European Journal of Operational Research, Elsevier, 2018, 270 (2), pp.475-486. ⟨10.1016/j.ejor.2018.03.032⟩. ⟨hal-02570884⟩

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