The impact of dual-market on supply chain configuration for new products

Abstract

Given a firm’s supply chain network, the key objective of supply chain configuration (SCC) is to determine a subset of supply chain partners to be involved in development, sourcing, production, distribution and support of a new product at the highest level of efficiency and expected responsiveness. Current literature on SCC realises the importance of considering the demand dynamics associated with the new product diffusion (NPD). However, these studies assume one-segment market for new products, a single homogenous consumer segment. Recent research in marketing indicates that such simplification might be fatal because a diverse and significant number of product categories may experience a dual-market structure, namely early and main markets, and generate a different demand dynamics. The objectives of this study are to: (i) develop a hybrid optimisation model, capturing both SCC decisions and the demand dynamics of dual-market NPD process; (ii) based on real-world data for a host of electronic product categories, various SCC networks and NPD demand dynamics, examine the new integrated optimisation model under one- and two-segment market; and (iii) present relevant managerial implications and guidelines for supply chain and marketing managers. Our extensive comparative computational experiment with 26 categories of consumer electronic products show that on average the relative net profit may improve significantly, when the market is considered as two-segment.