Optimal replenishment policy to mitigate hi - tech products risks under declining market

The risks on supply chain have increased continuously in recent years. One such risk for Hi-tech products is the result of rapid technological innovation which results in a significant decline in the component cost, the selling price and the demand (due to newer products introduction). The Hi-tech products include computers and communication consumer’s products. From a practical standpoint, a more realistic replenishment policy is needed to consider the impact of the risk, especially when the shortage is partially backordered. In this paper, an economic lot size model with partial backordering in a finite planning horizon is developed for a buyer when the component cost, the selling price, and the demand rate to the end-consumer decline at a continuous rate. A numerical example is provided to illustrate two replenishment models with fixed and varying replenishment intervals. Sensitivity analysis is carried out to investigate the relationship between the decision variables and some important parameters.