A delayed product customization cost model with supplier delivery performance

• We model the costs and benefits of delayed product customization with supplier delivery performance.
• The optimal position of the customization point depends on the boundary of the supplier delivery window.
• The choice of the service level at the customization point affects the total operating cost.
• Keeping the boundary of the delivery window fixed will decrease the customization point.
• A non-constant service level impacts the customization point.

The concept of delayed product differentiation has received considerable attention in the research literature in recent years. However, few analytical models explain and quantify the benefits of delayed product differentiation strategy with additional consideration of supplier delivery performance. This paper proposes a delayed product differentiation model in which a supply of raw materials is integrated at the beginning of the production process to match uncertain demand in a cost-effective way given the constraint of lead time delivery window. It develops insights regarding a delayed product differentiation strategy and shows that with respect to delivery windows, supplier delivery performance plays an important role in the determination of the optimal point of differentiation. This study also shows that when the “on-time” and the “late” portions of the delivery window are constant, the proposed cost function coincides with similar models found in the literature. An extension of this work also reveals that when the customer service level varies across various production stages, its choice affects the decision to delay or postpone the customization point. A mini industrial case involving the customization of a personal desktop computer is used to illustrate the applicability of the resulting framework.