Planning and managing manufacturing capacity when demand is subject to diffusion effects

When launching a new product, the manufacturing and marketing functions of a firm are required to jointly take critical decisions concerning the amoun t of manufacturing capacity to be acquired, and to elaborate policies for m anaging it over the product's life cycle. The time-varying demand profile c aused by new-product diffusion phenomena, together with learning effects, c ause the emergence of critical trade-off decisions among the options of inc reasing production capacity, delaying launch, increasing backlog or accepti ng a significant amount of lost sales. In this paper these trade-offs are s tudied by developing a simple Mixed-Integer Linear Programming model and by experimenting upon it with realistic data representing different scenarios . Optimal policies arising from the experiments are then compared and discu ssed. (C) 2000 Elsevier Science B.V. All rights reserved.