A stage-dependent economic order quantity model for high-tech products with a finite life cycle

Abstract

Due to the rapid development of technology, producers’ marketing strategies and changing the taste of customers, the life cycle of high-tech products has become shorter over time. In this paper, we develop a new stage-dependent economic order quantity (EOQ) model for lot sizing high-tech products that consider the demand variations over the life cycle. First, we identify three stages: (I) initial increase, (II) steady state and (III) final decrease, during the life cycle, and then we generate a three-piece linear approximation. Afterwards, we determine the optimal ordering policy of each stage such that the total inventory costs, including ordering and holding costs, are minimised. The findings indicate that the optimal order quantity in each period of the first stage (initial increase) is an even multiple of the order quantity in the first period. Under the assumption of constant demand rate in the second stage (steady state), the optimal order quantities in every period of this stage are the same. In addition, the optimal order quantity in each period of the third stage (final decrease) is less than that of the previous period. Finally, we solve a numerical example and perform a sensitivity analysis to illustrate the efficiency of the developed model.