Suboptimal and optimal order policies for fixed and varying replenishment interval with declining market

Jonas C.P. Yu, H.M. Wee, P.C. Yang and Simon Wu

International Journal of Systems Science, 2016, vol. 47, issue 8, 1828-1836

Abstract: One of the supply chain risks for hi-tech products is the result of rapid technological innovation; it results in a significant decline in the selling price and demand after the initial launch period. Hi-tech products include computers and communication consumer's products. From a practical standpoint, a more realistic replenishment policy is needed to consider the impact of risks; especially when some portions of shortages are lost. In this paper, suboptimal and optimal order policies with partial backordering are developed for a buyer when the component cost, the selling price, and the demand rate decline at a continuous rate. Two mathematical models are derived and discussed: one model has the suboptimal solution with the fixed replenishment interval and a simpler computational process; the other one has the optimal solution with the varying replenishment interval and a more complicated computational process. The second model results in more profit. Numerical examples are provided to illustrate the two replenishment models. Sensitivity analysis is carried out to investigate the relationship between the parameters and the net profit.

Date: 2016
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DOI: 10.1080/00207721.2014.955069

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