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Integrating early sales with production decisions: analysis and insights

Integrating early sales with production decisions: analysis and insights Faster product development and increased competition in retail industries is resulting in shorter and shorter product life-cycles. This phenomenon is making it more difficult for a firm to accurately estimate random demand of such products and to plan their one-time order quantity accordingly. In this paper, we develop a model to assess the multiple effects of coordinated – i.e., joint – stocking and prior-sale discount decisions: (i) on the reduction of demand uncertainty; (ii) on maximization of the expected profit; and (iii) on the probability of achieving or exceeding it. We develop the joint optimal decisions that maximize the expected profit and discuss a procedure for computing the probability that the realized value of the (random) profit will exceed its maximum expected value. We present qualitative results on the varying effects of joint decisions on increasing the expected profit and the probability of achieving or exceeding it. We also describe a detailed numerical study examining the effects of varying parameter values on the percentage increase in expected profit with joint decision making. The paper concludes with extensions of the model that can deal with more general situations. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png IIE Transactions Springer Journals

Integrating early sales with production decisions: analysis and insights

IIE Transactions , Volume 31 (11) – Sep 30, 2004

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References (11)

Publisher
Springer Journals
Copyright
Copyright © 1999 by Kluwer Academic Publishers
Subject
Engineering; Mechanical Engineering
ISSN
0740-817X
eISSN
1573-9724
DOI
10.1023/A:1007671407701
Publisher site
See Article on Publisher Site

Abstract

Faster product development and increased competition in retail industries is resulting in shorter and shorter product life-cycles. This phenomenon is making it more difficult for a firm to accurately estimate random demand of such products and to plan their one-time order quantity accordingly. In this paper, we develop a model to assess the multiple effects of coordinated – i.e., joint – stocking and prior-sale discount decisions: (i) on the reduction of demand uncertainty; (ii) on maximization of the expected profit; and (iii) on the probability of achieving or exceeding it. We develop the joint optimal decisions that maximize the expected profit and discuss a procedure for computing the probability that the realized value of the (random) profit will exceed its maximum expected value. We present qualitative results on the varying effects of joint decisions on increasing the expected profit and the probability of achieving or exceeding it. We also describe a detailed numerical study examining the effects of varying parameter values on the percentage increase in expected profit with joint decision making. The paper concludes with extensions of the model that can deal with more general situations.

Journal

IIE TransactionsSpringer Journals

Published: Sep 30, 2004

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