A set-covering model for optimizing selection of portfolio of microcontrollers in an automotive supplier company

The sourcing decisions of microcontrollers in automotive industries are complex to manage largely due to the increasing complexity of products requirements, multiple suppliers, and the nature of microcontroller pricing structures. This paper presents a set-covering model that allows the user to select the most economical microcontrollers that meet all the critical product requirements while minimizing the total cost. The optimization process is carried out in two phases. The first phase deals with the construction of a buildable combination matrix by mapping out the critical product requirements against the microcontroller specifications. In the second phase, the model makes an optimal assignment of microcontrollers to each feasible or buildable product by utilizing economies of scales offered by large microcontroller volumes. Lot size constraints are used to handle the step function in the microcontrollers pricing structure. A case study from Visteon Corporation is used to demonstrate the application of the model. Pilot implementation of the model shows a potential saving of nearly two millions over a 4-year planning horizon.