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Variety and costs - the effects of product variety on costs and costing system accuracy
Citation Link: https://doi.org/10.15480/882.15153
Publikationstyp
Doctoral Thesis
Date Issued
2025
Sprache
English
Author(s)
Advisor
Referee
Title Granting Institution
Technische Universität Hamburg
Place of Title Granting Institution
Hamburg
Examination Date
2025-03-24
Institute
TORE-DOI
Following the microeconomic objective of profit maximization, firms offer their products on heterogeneous markets characterized by individual customer needs, different legal restrictions, competitor products, or cultural factors. Limited in influencing the external complexity, as it is outside their control, firms can decide how to respond by offering a specific product variety. While a large product variety has the advantage of addressing customer needs more precisely, it comes with downsides for firms, such as increased costs, higher lead times, poorer quality, or higher errors in product costing systems. Although research investigated these effects, existing studies are either on a conceptual level or investigate a single cost effect in isolation. Therefore, the latest studies call for operationalizing the various and complicated cause-effect relationships between internal complexity and its economic consequences. Following these calls, this work investigates the effects of internal complexity on total costs and product costing system accuracy on an operational level. Numerical experiments are chosen as a research method as they allow for creating observations that are difficult to gain in practice, such as the product family design or full information environments. A simulation model for creating product family designs, estimating costs, and combining those designs with various product costing systems is introduced. This model comes with a set of validated measures, operationalizing internal complexity. Large-scale numerical experiments reveal the moderating effect of component commonality and overdesign on costs. Overdesign and, as a result, the increased component commonali-ty are levers to offer product variety cost-efficiently. However, too much overdesign increases costs as the increased economies of scale cannot compensate for additional material costs. Therefore, overdesign and costs form a U-shaped curve where the apex indicates the optimal degree of overdesign (component commonality). This work further finds that the cause-effect relationships are much more complicated, as suggested by conceptual studies. As a result, local minima exist along the U-shaped cost curve. A second experiment investigates the effects of internal complexity on product costing accu-racy. It is observed that component commonality is not only a lever to reduce costs but also a lever to increase costing system accuracy since it leads to more homogenous resource consumption patterns. A product-level analysis highlights characteristics of products with highly biased product costs under different product costing systems. This work is placed between engineering design and cost accounting, aiming to strengthen interdisciplinary research. By using numerical experiments, empirical observed cause-effect relationships are generalized. This work is a further step toward an increased understanding of design decisions’ economic consequences, which is crucial for decision-making within firms. In practice, these consequences are difficult to observe since cost assignment and cost occurring differ, and the cost advantages of increased commonality mainly affect the indirect costs.
Subjects
product commonality
product design
numerical experiments
engineering design
axiomatic design
cost accounting
DDC Class
658.5: Of Production
338.5: Microeconomics
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Name
Messerschmidt_Ole_Jan_Variety-and-Costs-The-Effects-of-Product-Variety-on-Costs-and-Costing-System-Accuracy.pdf
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4.85 MB
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Adobe PDF