Competing on Time: An Integrated Framework to Optimize Dynamic Time-to-Market and Production Decisions

Abstract

This paper develops a comprehensive framework to optimize new product introduction timing and subsequent production decisions faced by a component supplier. Prior to market entry and production, the supplier performs process design activities, which improve manufacturing yield and the chances of getting qualified for the customer's product. However, a long delay in market entry and application for qualification allows competitors to enter the market and pass the customer's qualification process before the supplier, reducing the supplier's share of the customer's business. After entering the market and if qualified, the supplier also needs to decide how much to produce for a finite planning horizon by considering several factors such as manufacturing yield and stochastic demand, both of which depend on the earlier time-to-market and qualification process. To capture this dependency, we develop a sequential, nested, two-stage decision framework to optimize the time-to-market and production decisions in relation to each other. We show that the supplier's optimal market entry and qualification timing decision need to be revised in real time based on the number of qualified competitors at the time of market entry decision. We establish the optimality of a threshold policy. Following this policy, at the beginning of each decision epoch, the supplier optimally stops preparing for qualification and decides whether to enter the market by applying for qualification if her order among qualified competitors exceeds a predetermined threshold. We also prove that the supplier's optimal production policy is a state-dependent, base-stock policy, which depends on the time-to-market and qualification decisions. We quantify the value of a dynamic optimal time-to-market strategy and when such a policy significantly improves profits. We also identify market characteristics and operating conditions under which dynamic optimal qualification timing and production policy has a high pay-off.