IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article or follow this journal

Demand modeling of stochastic product diffusion over the life cycle

  • Qin, Ruwen
  • Nembhard, David A.
Registered author(s):

    Planning during the product life cycle (PLC) poses a number of challenges for managers due to the pace of change and uncertainties in the marketplace. The ability to better understand, predict, and make decisions based on manifestations of demand forms a set of important operational problems that ultimately affect the profitability of enterprises. This paper models the stochastic diffusion of a product in the market as a geometric Brownian motion (GBM) process that has a time-varying drift rate. The model is calibrated such that model parameters are able to feature different product types and diffusion conditions. Imperfect information on the expected peak demand is treated as model uncertainty, and a Bayesian approach is employed to update knowledge on it. The demand model demonstrates robust performance over a wide range of conditions despite model uncertainty. It provides both qualitative and quantitative information for manufacturers and service providers to design strategies for stochastic PLC conditions as well as dynamic production planning.

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL: http://www.sciencedirect.com/science/article/pii/S0925527312000291
    Download Restriction: Full text for ScienceDirect subscribers only

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Article provided by Elsevier in its journal International Journal of Production Economics.

    Volume (Year): 137 (2012)
    Issue (Month): 2 ()
    Pages: 201-210

    as
    in new window

    Handle: RePEc:eee:proeco:v:137:y:2012:i:2:p:201-210
    Contact details of provider: Web page: http://www.elsevier.com/locate/ijpe

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

    as in new window
    1. Merton, Robert C., 1975. "Option pricing when underlying stock returns are discontinuous," Working papers 787-75., Massachusetts Institute of Technology (MIT), Sloan School of Management.
    2. Pindyck, Robert S, 1988. "Irreversible Investment, Capacity Choice, and the Value of the Firm," American Economic Review, American Economic Association, vol. 78(5), pages 969-85, December.
    3. Dangl, Thomas, 1999. "Investment and capacity choice under uncertain demand," European Journal of Operational Research, Elsevier, vol. 117(3), pages 415-428, September.
    4. Jan A. Van Mieghem, 2003. "Commissioned Paper: Capacity Management, Investment, and Hedging: Review and Recent Developments," Manufacturing & Service Operations Management, INFORMS, vol. 5(4), pages 269-302, July.
    5. Qin, Ruwen & Nembhard, David A., 2010. "Workforce agility for stochastically diffused conditions--A real options perspective," International Journal of Production Economics, Elsevier, vol. 125(2), pages 324-334, June.
    6. Avinash Dixit, 1992. "Irreversible Investment with Uncertainty and Scale Economies," STICERD - Theoretical Economics Paper Series /1992/240, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
    7. Cox, John C. & Ross, Stephen A., 1976. "The valuation of options for alternative stochastic processes," Journal of Financial Economics, Elsevier, vol. 3(1-2), pages 145-166.
    8. Eberly, Janice C. & Van Mieghem, Jan A., 1997. "Multi-factor Dynamic Investment under Uncertainty," Journal of Economic Theory, Elsevier, vol. 75(2), pages 345-387, August.
    9. Heston, Steven L, 1993. "A Closed-Form Solution for Options with Stochastic Volatility with Applications to Bond and Currency Options," Review of Financial Studies, Society for Financial Studies, vol. 6(2), pages 327-43.
    10. Mark Broadie & Jerome B. Detemple, 2004. "ANNIVERSARY ARTICLE: Option Pricing: Valuation Models and Applications," Management Science, INFORMS, vol. 50(9), pages 1145-1177, September.
    11. Vijay Mahajan & Eitan Muller & Frank M. Bass, 1995. "Diffusion of New Products: Empirical Generalizations and Managerial Uses," Marketing Science, INFORMS, vol. 14(3_supplem), pages G79-G88.
    12. Christophe Van den Bulte, 2000. "New Product Diffusion Acceleration: Measurement and Analysis," Marketing Science, INFORMS, vol. 19(4), pages 366-380, June.
    13. John R. Birge, 2000. "Option Methods for Incorporating Risk into Linear Capacity Planning Models," Manufacturing & Service Operations Management, INFORMS, vol. 2(1), pages 19-31, August.
    14. Christophe Van den Bulte & Stefan Stremersch, 2004. "Social Contagion and Income Heterogeneity in New Product Diffusion: A Meta-Analytic Test," Marketing Science, INFORMS, vol. 23(4), pages 530-544, July.
    15. Rink, David R. & Swan, John E., 1979. "Product life cycle research: A literature review," Journal of Business Research, Elsevier, vol. 7(3), pages 219-242, September.
    16. Polli, Rolando & Cook, Victor, 1969. "Validity of the Product Life Cycle," The Journal of Business, University of Chicago Press, vol. 42(4), pages 385-400, October.
    17. Chou, Yon-Chun & Cheng, C.-T. & Yang, Feng-Cheng & Liang, Yi-Yu, 2007. "Evaluating alternative capacity strategies in semiconductor manufacturing under uncertain demand and price scenarios," International Journal of Production Economics, Elsevier, vol. 105(2), pages 591-606, February.
    18. Avinash Dixit, 1992. "Irreversible investment with uncertainty and scale economies," LSE Research Online Documents on Economics 19372, London School of Economics and Political Science, LSE Library.
    19. Richard J. Giglio, 1970. "Stochastic Capacity Models," Management Science, INFORMS, vol. 17(3), pages 174-184, November.
    20. Irwin, Douglas A & Klenow, Peter J, 1994. "Learning-by-Doing Spillovers in the Semiconductor Industry," Journal of Political Economy, University of Chicago Press, vol. 102(6), pages 1200-1227, December.
    21. Frank M. Bass, 1995. "Empirical Generalizations and Marketing Science: A Personal View," Marketing Science, INFORMS, vol. 14(3_supplem), pages G6-G19.
    22. Parker, Philip M., 1994. "Aggregate diffusion forecasting models in marketing: A critical review," International Journal of Forecasting, Elsevier, vol. 10(2), pages 353-380, September.
    23. Peter N. Golder & Gerard J. Tellis, 2004. "Growing, Growing, Gone: Cascades, Diffusion, and Turning Points in the Product Life Cycle," Marketing Science, INFORMS, vol. 23(2), pages 207-218, December.
    24. Frank M. Bass, 1969. "A New Product Growth for Model Consumer Durables," Management Science, INFORMS, vol. 15(5), pages 215-227, January.
    25. Nicolas P. B. Bollen, 1999. "Real Options and Product Life Cycles," Management Science, INFORMS, vol. 45(5), pages 670-684, May.
    26. Chien, Chen-Fu & Chen, Yun-Ju & Peng, Jin-Tang, 2010. "Manufacturing intelligence for semiconductor demand forecast based on technology diffusion and product life cycle," International Journal of Production Economics, Elsevier, vol. 128(2), pages 496-509, December.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:eee:proeco:v:137:y:2012:i:2:p:201-210. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.