Innovative Product and Responsive Supply Chain Model

Abstract

Products can be classified into functional and innovative types according to the demand pattern. The lifecycle of the functional type is relatively long and daily demand is relatively stable. A traditional supply chain model, called efficient supply chain, can be applied to this type of product with cheaper management costs. On the other hand, the lifecycle of the innovative type is short, and the demand grows rapidly to reach a peak and then declines rapidly. If we apply the efficient supply chain to this innovative type of product, the model may result in a large number of shortages in the growth period, and high level of dead stock at the end of the product lifecycle. Our purpose of this research is to construct a quantitative supply chain model, called "responsive supply chain", which can react sensitively to the market changes, and therefore capture the opportunity of high profit exactly in the growth period with sufficient supply of product and reduce hackneyed costs at the end of the product lifecycle by adjusting the product supply quantity after peak demand is reached. In a particular numerical examination, applying the responsive supply chain model to an innovative-type products, we obtained large percentage reductions in average shortage and average inventory simultaneously, compared to applying the effective supply chain model to innovative-type products.