Abstract：For innovative products with strong timeliness, relatively large fluctuations in demand, high inventory costs, this paper build consumer demand function based on the BASS model, using the least square-root estimate to determine the parameter values of the demand function, and analyze the sale peak period. Based on the demand function, the optimal inventory decision model for innovative products is build to determine the optimal order quantity. Finally, empirical analysis is for the proposed model.

Keywords：Innovative products, BASS model, demand function, inventory, order quantity.

1INTRODUCTION

With the development of science and technology, the product life cycle has become shorter. Especially for the innovative products which are strong timeliness, relatively large fluctuations in demand and high inventory costs, therefore, operational risks is relatively large, and research of inventory theory has very important significance.
Product demand pattern will affect the inventory decision in a large extent. The product demand function usually has three kinds, time-based, price-based and based on a combination of both. Time-based demand model can be divided into two types, linear and nonlinear demand. There is a lot of research about the inventory of nonlinear demand, such as Normal distribution demand, Poisson distribution demand and the fuzzy demand still.
Distinguished from other products, the innovative product because of its innovative, its demand function has some common features. At present, usually use the BASS model to forecast the demand of innovative products in theory and practice ^{[1, 2]}. However, the study for inventory under this type of demand function is rare. This paper puts forward inventory control model of the innovative product based on the demand forecast by the BASS model and the implementation of out-of-stock strategy.

2DEMAND FUNCTION

Since the last century 60's, emerge a large number of research works on quantitative analysis of the market diffusion process ^[3]. Among the diffusion models, Bass model is one of the relatively successful models ^[4]. The advantage of BASS model is good explanatory power by the use of simple concept architecture and parameters settings. Besides, BASS model can be made associated amendments in accordance with various characteristics of market products and economic theories, enhancing the prediction capacity of the demand function model.