Optimal lot-sizing, pricing, and product intergenerational lifestyle decisions for the case of disruptive innovations in fashion

The objective of this dissertation is to determine production schedules, production quantities, selling prices, and new product introduction timing to fulfill deterministic price-dependent demand for a series of products in such a way as to maximize profit per period. In order to accomplish the above task, some main assumptions are made. First, it is assumed that the series of products being considered are associated with sequential non-disruptive innovations in technology as well as disruptive innovations in fashion. That is to say, the products represent subsequent generations in the same family of products in an industry that experiences repeated minor technological innovations and in which product success is due in part to fashionability (Fisher, 1997). Second, it is assumed that the planning horizon is sufficiently long and product lifecycles are sufficiently short that several generations of the product family are planned. Third, it is assumed that the producer is following a solo-product roll strategy (Billington, Lee, & Tang, 1998). This means that the inventory of one product iteration is exhausted at the same time that the next product iteration is introduced and ready for sale. Fourth, it is assumed that demand for each product iteration is governed by a modified version of the Bass (1969) diffusion model that incorporates price. Fifth, it is assumed that the various demand and cost characteristics being considered do not change from one product iteration to the next. Sixth, it is assumed that no backlog of demand is maintained and that any unmet demand is lost. Seventh, it is assumed that the manufacturer is a monopolist or at least the dominant member of a market that is made up of it and smaller competitors that are not large enough to affect the market in a meaningful way. The formulated profit maximization problem uses the Thomas (1970) model which in turn depends in its solution on theorems first presented by Wagner and Whitin (1958a). An extensive numerical study that aims at examining the sensitivity of the planned product lifecycle length and profit per period to changes in model parameters is performed using software developed especially for that purpose. The results of the analysis reveal that the above two measures are more sensitive to changes in market-oriented parameters than to changes in operations-oriented parameters. Managerial implications of the research findings are discussed