Title: Analysis of demand-supply interaction and inventory build-up strategies for products with short life cycles

Authors: Adriano O. Solis; Rong Pan; Bixler Paul; Letizia Nicoletti

Addresses: School of Administrative Studies, York University, Toronto, Ontario M3J 1P3, Canada ' School of Computing, Informatics, and Decision Systems Engineering, Arizona State University, Tempe, Arizona 85287-8809, USA ' Global Program Management, Dell Inc., Austin, Texas 78753, USA ' Department of Mechanical, Energy, and Management Engineering, University of Calabria, 87036 Rende, Cosenza, Italy

Abstract: Revenues and profits from short life cycle products will depend upon careful formulation and execution of production plans in response to demands in the marketplace. This research contributes to the development of the production and inventory build-up strategies for short life cycle products under different demand-supply scenarios. A modified Bass diffusion model is used to characterise the product demand pattern with consideration of demand-sales interaction. We develop cost models based on production costs, inventory carrying costs, backlog costs, and cost of lost sales for a number of different production scenarios. The optimal production rate is obtained by minimising the total cost. We also investigate the benefit of an initial build-up of inventory before the product's sales period starts.

Keywords: short life cycles; product life cycle; innovation diffusion; demand-supply interaction; inventory build-up; delayed product roll-out; Bass diffusion model; product demand pattern; cost modelling; production costs; inventory carrying costs; backlog costs; lost sales costs; production rate.

DOI: 10.1504/IJSPM.2013.057543

International Journal of Simulation and Process Modelling, 2013 Vol.8 No.2/3, pp.133 - 144

Received: 23 Nov 2011
Accepted: 10 Sep 2012

Published online: 08 Nov 2013 *

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