Identifying variety-induced complexity cost factors in manufacturing companies and their impact on product profitability

Many manufacturing companies experience increasing product variety, which not only leads to significantly increased operations’ costs but also to an uneven distribution of these costs across product variants. To deal with this challenge, managers need to accurately quantify the costs of product variety-induced complexity to understand its impact on company revenues. However, quantifying complexity costs is no trivial task, as both the variety-related factors that generate more complexity and the costs implied by these factors are specific to each company. Therefore, we extensively reviewed the relevant literature to build a list of possible complexity cost factors generated by product variety, which are here named variety-induced complexity cost factors (VCCFs). This list is intended to be used by managers as a reference set of VCCFs to help identify and subsequently quantify the costs of product variety-related complexity in manufacturing companies and finally attribute them to end product variants. To evaluate the usefulness of this list, the identified VCCFs were examined in six companies using both the judgment of managers and data from their enterprise resource planning systems. This empirical examination not only provides evidence of the usefulness of this list but also data, rarely available in academic literature, on the costs of product variety-induced complexity and its proportion of company revenue. It also suggests that it is important to research effective ways to get, elaborate, and present data to calculate the costs of product variety-related complexity and reports a viable approach used in six companies.