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 amount of manufacturing capacity to be acquired, and to elaborate policies for managing it over the product's life cycle. The time-varying demand profile caused by new-product diffusion phenomena, together with learning effects, cause the emergence of critical trade-off decisions among the options of increasing production capacity, delaying launch, increasing backlog or accepting a significant amount of lost sales. In this paper these trade-offs are studied 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 discussed. (C) 2000 Elsevier Science B.V. All rights reserved.