DEMAND-SUPPLY INTERACTION AND INVENTORY BUILDUP STRATEGIES FOR SHORT LIFE CYCLE PRODUCTS

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 buildup strategies for short life-cycle products under different demand-supply scenarios. A modified Bass diffusion model is used to characterize 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 can be obtained by minimizing the total cost. We also investigate the benefit of an initial buildup of inventory before the product's sales period starts.