Linking Product Variety to Order-Fulfillment Strategies

Providing a variety of attributes in products is an important way of attracting customers, but it often increases complexity and managerial cost. We drew on two data sets collected in the automotive sector to explore the link between external variety (the variety offered the customer) and internal variety (the variety involved in creating the product). We found that these two dimensions can be independent of each other. External variety is problematic for firms producing to forecast, and handling internal variety is challenging for firms building products to order. The effectiveness of strategies to mitigate variety's negative effects, such as modularity, mutability, late configuration, and option bundling, depends on the order-fulfillment strategy the firm follows.