Backordering policy for hi-tech products with price and demand uncertainty during the pandemics

Document Type : Article

Authors

1 Department of Distribution Management, Takming University of Science and Technology, Taipei 114, Taiwan, ROC

2 School of Digital Economics, Changzhou College of Information Technology, Science Education City, Changzhou, Jiangsu 213164, China

3 Institute of Industrial Management, National Central University, 300 Zhongda Road, Zhongli District, Taoyuan City, Taiwan, 32001, ROC

4 Department of Industrial and Systems Engineering, Chung Yuan Christian University, Zhongli District, Taoyuan City, Taiwan, 320314, ROC

5 Industrial Engineering Department, Chung Yuan Christian University, Taoyuan city, Taiwan

6 Marketing and Logistics Management Department, St. John’s University, Tamsui, Taipei 25135, Taiwan, ROC

Abstract

The decline phase of a high-tech product's life cycle often causes variations in production schedules due to over or under production. To address this challenge, we propose a production-inventory model that considers decreasing demand and prices during pandemics. Our model aims to optimize replenishment, dispatching, and backordering policies, ultimately maximizing total profit for high-tech industries. Our proposed solution procedure derives optimal policies, taking into account the unique demands during the pandemics. We suggest adopting either a last-in-first-out (LIFO) or first-in-first-out (FIFO) backordering policy depending on whether profit or fairness is the primary concern. We have provided a numerical example and conducted a sensitivity analysis to demonstrate the practical application of the proposed model. By optimizing the replenishment, our model enables high-tech industries to maximize total profit, even in the face of declining demand and prices during the pandemics. Overall, our model represents a valuable tool for high-tech industries seeking to better manage production and inventory, and we believe it has the potential to increase product profitability during the declining phase of a product's life cycle.

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