Dynamic simulation assessment of collaboration strategies to manage demand gap in high-tech product diffusion

There is no question that many high-tech supply chains operate in a context of high process and market uncertainties due to shorter product life cycles. When introducing a new product, these supply chains must manage the cost of supply, including the cost of capacity and inventories, with revenues from the product's demand over its life cycle. However, in early phase of introduction after earlier buyers purchase, there might be a demand gap for a period followed by a sudden surge. To stay responsive and serve the market downstream after such gaps, two important decisions must be made: (a) the sizing of the capacity, and (b) the level of collaboration. It is the intention of this paper to show that the chosen level of collaboration effects significantly on managing the gap in the demand trajectory in new high-tech product diffusion. We study the impact of different collaboration strategies like vendor managed inventory (VMI), jointly managed inventory (JMI), and a collaborative planning, forecasting & replenishment (CPFR) model using system dynamics based simulation and compare the results with a non-collaborative chain. Our results yield insights into effectiveness of collaboration in managing the dynamics of demand gap. (C) 2010 Elsevier Ltd. All rights reserved.