Timing and ordering decisions under single and dual product rollover strategies

Abstract

In many industries, firms replace products that have been introduced to the market and that are in advanced stages of their life cycles. The process of introducing a new product and eventually displacing an old one is referred to as product rollover. In planning for new product introduction, it is very important that careful business decisions are made for phasing out the old product, as the related costs may be significant. In this thesis, we study the ordering and timing decisions of a supplier for successive generations of a product under two different strategies: single product rollover and dual product rollover. In both cases, we present models explicitly accounting for inventory holding costs, salvage value, lost sale cost, demand uncertainty of both the products and product cannibalization. We report the results of an extensive numerical study to investigate the structural properties of the expected profit function, and how the optimal timing and ordering decisions change under different settings.