Supply chain coordination in the new product launch

Abstract

In some industries, product components provided by key suppliers have a great impact on the performance of downstream manufacturers’ products. Therefore, downstream manufacturers should plan the launch times of their new products according to the technology upgrading routes of upstream suppliers. We consider a supply chain consisting of a supplier and a manufacturer. They introduce new products at regular intervals. First, the supplier decides its product launch cycle. Then, the manufacturer chooses to launch one new product (denoted as the single flagship strategy) or two new products at the staggered time (denoted as the staggered double flagship strategy) in the supplier’s product cycle. We find that the profit of the supplier is higher when the manufacturer adopts the staggered double flagship strategy. However, the profit of the manufacturer adopting the single flagship strategy is higher when the R&D cost of the manufacturer is high. The supplier can induce the manufacturer to adopt the staggered double flagship strategy by providing compensation. We show that as the manufacturer’s R&D cost increases, the supplier should prioritise extending the product cycle until the supply chain is coordinated, after which it continues to compensate the manufacturer through revenue sharing until the compensation becomes ineffective.