Kantatorn Tardthong
Decision scenarios / Illustrative applicationShared components / Cost and resilience

Shared components
Savings with a wider view.

When does a cheaper component create a more expensive disruption?

Explore the potential purchasing savings and supply exposure of using one component across several product lines. Change the assumptions and compare three decisions.

Explore the walkthrough
The business question

Sharing components can reduce unit cost and simplify purchasing. It can also connect several product lines to the same supplier failure. Management needs to see both sides of that decision.

Why I developed this scenario

Component-sharing strategies prompted this example. It extends the decision-support approach I have used in engagements into an illustrative application for comparing options and explaining potential outcomes to management.

Sourcing decisions
3 optionsSeparate, shared, or shared with a second supplier
Interactive comparison
Your assumptionsAdjust cost, demand, inventory, and recovery time
Scenario results
Potential outcomesIllustrative calculations, not achieved savings

01 / The approach

Make the trade-off explicit.

Keep assumptions visible and separate annual purchasing benefits from exposure in a disruption. Use the comparison to support a discussion rather than imply a single correct answer.

  1. 01

    Set the baseline

    Define product lines, demand, and current component costs.

  2. 02

    Explore sharing

    Set the assumed purchasing discount and examine the wider supplier exposure.

  3. 03

    Test disruption

    Compare inventory coverage with supplier recovery time.

  4. 04

    Discuss the decision

    Compare savings and mitigation costs, then identify what needs validation.

02 / Explore in practice

Compare cost and resilience scenarios.

Move the sliders, compare the options, and select a decision to see its implications for a management discussion.

This is a proposed application with fictional inputs and transparent assumptions. It is not a validated forecasting model, a record of achieved savings, or employer or client source data.

Change the assumptions. Compare the decisions.

One component per finished unit. Annual demand stays constant as you compare three sourcing options. All inputs and results are illustrative.

Your assumptions

The discount is an assumption you set, not a calculated economy of scale. Contribution margin means revenue less variable costs per finished unit.

Show formulas

With your current assumptions

Annual volume = 6 lines × 20,000 units = 120,000 units.

Shared unit cost = USD 50 × (1 − 15%) = USD 42.50.

Uncovered days = max(0, 35 − 21) = 14 days.

Shared-component savings = USD 6,000,000 − USD 5,100,000 = USD 900,000 per year.

Calculation method and assumptions

Annual volume = product lines × annual units per line. Shared unit cost = current unit cost × (1 − assumed discount). First-year savings = baseline annual purchasing cost − option annual purchasing cost − any one-off qualification cost.

Uncovered days = maximum of zero and disruption duration minus inventory coverage. Units at risk = annual units per line ÷ 365 × uncovered days × exposed lines × unserved share. Contribution at risk = units at risk × contribution per finished unit.

Separate components assume independent suppliers: one supplier failure affects one line. A shared component exposes all selected lines. The second-supplier option assumes an independent, already qualified supplier continues its existing 50% of volume throughout the event, charging 5% more per component. A USD 25,000 one-off qualification cost is included in first-year savings; annual purchasing cost excludes it.

Demand is uniform and each line has equal inventory coverage. Units at risk represent production potentially deferred or lost; contribution at risk is conditional exposure, not a forecast loss. No catch-up production, correlated failures, holding costs, redesign costs, or discount erosion from split volumes is modeled. Validate these assumptions before using the approach for an investment decision.

Inventory shortfall

14-day inventory shortfall

Inventory runs out after day 21, leaving 14 days of demand without full supply.

Coverage balance: −14 days · 21 days of inventory − 35 days of disruption

Sharing the component saves USD 900,000 in annual purchasing costs. A primary supplier disruption exposes 6 product lines, compared with one line when components have independent suppliers.

Savings and disruption exposure

Annual savings and contribution at risk from one disruption are separate measures. This model does not assign an event probability or calculate expected annual loss.

Purchasing savingsDisruption exposure

Keep separate components

Each product line uses its own component and an independent supplier. A supplier disruption affects one line, while purchasing costs stay at the baseline.

First-year savingsUSD 0
Contribution at risk / disruptionUSD 23,014

Share one component

All selected product lines use one common component from one supplier. The assumed volume discount lowers unit cost, but a disruption can affect every line.

First-year savingsUSD 900,000
Contribution at risk / disruptionUSD 138,082

Share with a second supplier

All selected product lines use one common component, with orders split equally between two independent suppliers. If one fails, the other maintains its existing half of supply. This option includes a price premium and qualification cost.

First-year savingsUSD 747,500
Contribution at risk / disruptionUSD 69,041
Compare the three options
DecisionAnnual purchasing costFirst-year savingsLines exposedUnits at risk / disruptionContribution at risk / disruption
Keep separate componentsUSD 6,000,000USD 01767USD 23,014
Share one componentUSD 5,100,000USD 900,00064,603USD 138,082
Share with a second supplierUSD 5,227,500USD 747,50062,301USD 69,041

Decision under discussion: Share one component. First-year savings are USD 900,000 relative to separate components; contribution at risk in the modeled disruption is USD 138,082.

The trade-off: The purchasing benefit comes with USD 115,068 more contribution at risk per modeled disruption than separate components.

Before committing: validate quotations, interchangeability, supplier independence, backup capacity, and inventory coverage with Procurement, Engineering, Finance, and Operations. Agree an owner and review date for the selected option.

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