Optimal supply chain configuration for new and short life cycle products

Abstract

Introduction: Exciting as they might be for consumers, new product launches are some of the most stressful times for managers in charge of them. Apart from the minutest of details that need to be worked out, one of the biggest challenges the managers face is forecasting demand for the product. Though we may think of high uncertainty being prevalent in the launch of only radical new products, the fact remains that forecasting demand even for products with just revamped packaging, or a new variant is extremely difficult. Add to this the short life cycle of a product such as a fashion good, and the prospect of being left with huge amounts of unsold goods with negligible salvage value, and the problem becomes even more complicated. Since forecasting demand is inherently difficult, managers need to get the most out of their supply chains under the given conditions. However, even as the demand is highly uncertain in the initial periods, it reduces quite quickly; so demand forecasts incorporating the observed sales / demand figures for the initial period tend to be more and more accurate. The graphs below, taken from Fisher’s paper in Harvard Business Review (1994) illustrate this forecast improvement with incorporation of realized demand data. Fig. 1. Initial forecast without any demand data (Fisher, 1994) 0 500 1000 1500 2000 2500 3000 3500 0 500 1000 1500 2000 2500