Procurement Strategy Of Short Life-cycle Products Based On Demand Forecasting

Product's replacement speed is going faster as the rapid rate of innovation and fast changing consumer preferences. The shorter life cycle has become a significant feature of products in the society. For short life cycle products, due to its value deterioration, there will be more operation risk in the inventory control for operators. Therefore, how to correctly grasp the market demand, how to scientifically determine the product order times and the order time and how to reasonability control the inventory level has realistic meaning to reducing business costs and improving effectiveness of operation.Based on the characteristics of short life-cycle products, the twice procurement model of short life-cycle products based on the demand forecast is discussed. In the model, shortage is allowed and partly backlogging, the backlogging rate is related to the demand as the greater the demand, the more customers willing to wait, the bigger the backlogging rate. Value deterioration is occurred during the storage period, as the value of products will reduce with time but the quantity and quality of products will remain the same, and the value deterioration is also demand-related. Then, we discuss three procurement strategies based on the relationship of demand and inventory states, and they are Optimistic Order Strategy, Pessimistic Order Strategy, and Moderate Ordering Strategy. Finally, numerical example is provided to illustrate the solution procedure. We research the impacts of parameters to order policies of an enterprise, and analysis the ranges of parameters of each order strategy. Then a twice procurement strategy model of short life cycle products based on the dynamic demand forecast is discussed. Before the introduction, the first order is made based on the initial demand forecast according to the historical sales data of several similar products, and then the initial demand forecast is adjusted using the actual sales data by Bayesian updating method, after that the second order is made according to the adjusted demand forecast. Finally, numerical example is provided to illustrate the solution procedure.