An Economic Order Quantity Model for New Products When Demand Follows Dynamic Innovation Process

Abstract

In this era of globalization and constant innovation, the life cycles of products are diminishing, which tends to cause dynamic behaviour in the system, and because of this, there is a constant introduction of new products in the market. Therefore, while developing inventory models for new products, it becomes necessary to consider dynamic parameters associated with the demand function and responsible for making the system dynamic, which are essential for economic ordering policies for such products. In this chapter, an economic order quantity model is developed in which the demand is time-dependent and innovation-driven. The parameters such as coefficient of innovation and potential market size associated with the demand function are considered dynamic over time to match the real feature of the system. The model is illustrated with a numerical example, and a comprehensive sensitivity analysis of the optimal solution with respect to different parameters is performed to know the utility of the model.