Flexible optimization decision for product design agility with embedded real options

Abstract

One of the evolving trends in today’s marketplace is that consumers are demanding ever more innovative goods that are tailored to their specific needs. This requires that companies need to create products that either can be rapidly evolved or can be customized to meet specified personal requirements. On the other hand, the scale of economy brought by mass production is also desired. An approach called mass customization (MC) has been proposed to solve these two conflicting criteria. An important way to achieve MC is through modular product design and shared product platform development. In this paper, a flexible modular product design optimization decision model is proposed. To address the different attributes of customers’ demands, the optimization model is decomposed into profit, cost, value, and demand sub-models. In order to be adaptive to the changes in customer requirements two levels of flexibility are endowed within the model. The first level of flexibility consists in embedded options. Small adjustments to a product can be made using these options. When the customer demands a radical change to a product or there are several concurrent small changes that need to be made then the product design model needs an optimization decision route to guide the reconfiguration. This is the second level of flexibility that indicates an evolution within the scope of the overall structure of the product design. The flexible decision-making procedures are iterative in order to make the product design to evolve from one generation to another. A notebook computer example is used to illustrate the proposed concepts. Numerical experiments on mobile phone designs are used to verify the effectiveness of the proposed methods.