Optimal replenishment policy for Hi-tech industry with component cost and selling price reduction

Abstract

Due to rapid technological innovation and global competitiveness, the component cost, the selling price and the demand rate of Hi-tech industries (such as computers and communication consumer's products) usually decline significantly with time. From a practical viewpoint, there is a need to develop a replenishing policy with finite horizon when the component cost, the selling price and the demand rate are reduced simultaneously. A numerical example and sensitivity analysis are carried out to illustrate this model. Two cases are discussed in this study: Case A considers fixed replenishment interval, Case B considers varying replenishment interval. From Case A, the results show that decreasing component cost leads to smaller replenishment interval. However, decreasing sensitive parameter of demand leads to larger replenishment interval. When both the component cost and the sensitive parameter decline-rates decrease simultaneously, the replenishment interval decreases. The solutions by Case A and B are sub-optimal and optimal respectively. The net-profit percentage difference between Case A and B is 0.060% approximately, while the computational process of Case A is easier than that of Case B. © Springer-Verlag Berlin Heidelberg 2007.