Optimal Inventory And Timing Policy In Product Rollover

Product rollover is common in many industries nowadays,which refers to the process of introducing new products into the market and displacing the old ones from the market.With the continuous development of technology,the product life cycles in many industries are getting shorter and shorter,such as electronic products,fast-moving consumer goods and so on.Managing product rollover is also an important way of maintaining and improving the competitiveness for enterprises.Generally,the product rollover strategies are divided into two types: single rollover and dual rollover.The single rollover refers to simultaneous introduction of the new product and elimination of the old ones,and the dual rollover calls for a period of time between the introduction of new products and the elimination of the old,when there are two generations on sale.When to introduce the new products and withdraw the old products,and how to determine the prices and production of products in the whole process,are the concerns of the firms in product rollover.In real life,for many products updated frequently such as apparel and cell phones,the prices of the new products and the old generation have no obvious differences.However,with the increase of rollover frequency,a successful inventory management becomes more and more important to reduce the cost of production.From this angle,this paper introduces the EOQ(Economic Order Quantity)model to study the inventory and timing policy in product rollover under two rollover strategies respectively.This paper considers a finite horizon,and solves the optimal production and timing decisions under the assumption of constant demand rate,and discusses some insights for decisions finally.With regard to the production decision of new products in dual rollover,we consider two practical situations: production with equal amount and production with equal time interval.In single rollover,the optimal production of old products relates to the consumer loyalty to new products and the length of time to sell old products.The best choice of producing new products for the firm is production with equal amount,and the frequency depends on setup cost,holding cost and the consumer loyalty to old products.The optimal rollover timing will make the net profit of old products in unit time equal to the net profit of new products in the unit time.In dual rollover,if the firm chooses production with equal amount in the second and third stage respectively,the frequency is also related to the costs of production and consumer demand.However,if the firm chooses production with equal time interval,the frequency in the second stage is proportional to the total frequency of producing new products.