Modeling process-switching decisions under product life cycle uncertainty

Abstract

We address the process-switching decision of a firm that adopts a mixed process strategy with respect to a new product in the context of product life cycle uncertainty. A mixed process strategy uses a flexible process in the early stages of the product's life cycle and later switches to a dedicated process to gain cost economies. We present a model that captures uncertainty through alternative life-cycle demand functions to guide the process-switching decision. We develop a dynamic decision rule that can be used with any uncertainty-resolution scheme and demonstrate its application and robustness using an illustrative numerical example.