The Research of Decision Models That Production and Sales are Integrative for Production Switching

Abstract

This paper focuses on a strategy for determining the price and timing of a new product to be introduced into the market. Every product has its own life cycle; that is, birth, grow, maturity and death, and therefore, we have to decide when and how to stop production of the current product and start sales of the new product. To make a smooth product changeover, the pricing of both old and new products plays an important role. We developed the following heuristic optimization model to help managers decide this switching action and maximize profits in a market where the product has a short life cycle, like a personal computer. When thinking about the product demand, we considered three patterns : market growth, market retraction, unchanged market. For market growth, if is reasonable to think that the product's potential market size could be increased by new value being added through technological innovation of the product. In this paper, we propose a new model to help the manager's decision-making process regarding this switching action taking the maximization of profits at a given demand pattern into consideration. We approach the point using a planning base ranging from a few months to one year, not using long-term demand. This paper approaches development of a profit maximization model considering switch timing.