Marketing/manufacturing trade-offs in product line management

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Abstract
A critical decision facing firms across industries is the selection of a mix of products to offer in the marketplace. Both in practice and in the academic literature, the product line design problem has typically been considered from a marketing perspective, with a focus on how alternative sets of products interact and compete in the marketplace. The operational implications of product line decisions have been largely ignored, even while the importance and complexity of interactions among products in the manufacturing environment increase with broadening product lines. Furthermore, consideration of manufacturing synergies among products in product line design is increasingly beneficial given efforts in many industries to improve co-ordination of manufacturing activities across products. In this work we examine the benefits of integrating marketing implications of product mix with more detailed manufacturing cost implications. Traditional product line models are extended to capture both individual product costs and relevant cost interactions among products. The relevant marketing and manufacturing elements are considered in a mathematical programming formulation that identifies a profit maximizing mix of products. The resulting normative model of the product line design problem is used to generate insights into important cross-functional issues in product line management. Specifically, we examine the impact of alternative manufacturing environment characteristics on the composition of the optimal product line.