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Optimal Planning Quantities for Product Transition
Author(s) -
Li Hongmin,
Graves Stephen C.,
Rosenfield Donald B.
Publication year - 2010
Publication title -
production and operations management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.279
H-Index - 110
eISSN - 1937-5956
pISSN - 1059-1478
DOI - 10.1111/j.1937-5956.2009.01091.x
Subject(s) - product (mathematics) , computer science , new product development , business , inventory cost , operations research , transition (genetics) , operations management , economics , supply chain , marketing , mathematics , geometry , biochemistry , chemistry , gene
The replacement of an existing product with a new one presents many challenges. In particular, uncertainties in a new product introduction often lead to extreme cases of demand and supply mismatches. This paper addresses inventory planning decisions for product upgrades when there is no replenishment opportunity during the transition period. We allow product substitution: when a company runs out of the old product, a customer may be offered the new product as a substitute. We show that the optimal substitution decision is a time‐varying threshold policy and establish the optimal planning policy. Further, we determine the optimal delay in a new product introduction, given the initial inventory of the old product.