Optimal Planning Quantities for Product Transition
Article first published online: 27 OCT 2009
© 2009 Production and Operations Management Society
Production and Operations Management
Volume 19, Issue 2, pages 142–155, March/April 2010
How to Cite
Li, H., Graves, S. C. and Rosenfield, D. B. (2010), Optimal Planning Quantities for Product Transition. Production and Operations Management, 19: 142–155. doi: 10.1111/j.1937-5956.2009.01091.x
- Issue published online: 8 MAR 2010
- Article first published online: 27 OCT 2009
- History: Received: November 2007; Accepted: April 2009, after 1 revision.
- inventory planning;
- product transition;
- new product introduction
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.