Abstract

As companies decide whereto allocate their new product and capacity development budgets in a tougheconomy, they need to focus on investments that will bring the most value—duringa downturn and beyond. The level of engagement of customers down stream isoften cited as the number-one factor in its ability to survive a downturn.Given this, companies require to evaluate collaboration strategies to properly managethe process of new product and capacity developments. There's no question thatmany high-tech manufacturing companies operate in a context of high process andmarket uncertainties due to shorter product life cycles. When introducing a newproduct, these companies must manage the cost of supply, including the cost ofcapacity and inventories, with revenues from the product’s demand over its lifecycle. However, in early phase of introduction after earlier buyers purchase,there might be a demand gap for a period followed by a sudden surge. Animportant decision when launching a new product is the sizing of the capacitybut to stay responsive and serve the market downstream after such gaps, collaborationis also a necessity. It is the intention of this paper to show that the chosenlevel of capacity does not effect significantly on the dynamic of gap in thedemand trajectory, while collaboration does help managing an extensive gap in anew high-tech product diffusion dynamics. We study the impact of differentcollaboration strategies like Vendor Managed Inventory (VMI), Jointly ManagedInventory (JMI), and a Collaborative Planning, Forecasting & Replenishment(CPFR) model using system dynamics based simulation and compare the resultswith a  non-collaborative chain. Our resultsyield insights into effectiveness of collaboration in managing the dynamics ofdemand gap.

1. Introduction

With business conditions steadilygetting tougher, companies have to be more cautious with the introduction ofnew products. While managing the limited budget, they must stay tuned andresponsive to the customers' needs. All high-tech products have certain shortlife cycles. During this period significant changes are made in the product demandbehavior in the market. Since an increase in profits is the major goal of anycompany that introduces a product into a market, understanding the demand gapsin product’s life cycle is very important. Some companies use strategiccapacity planning and others follow the basic rules of the different life cyclephases and decide about capacity, and adjust it later.

The shapeof traditionalproduct lifecycle usuallyhas rather short introduction time, quicklygrowing speed in the products’growthstage, long duration of theproducts’maturingstage and decliningstage.And thedecliningspeed isquite slow.