Capacity reservation and time pacing of product introductions in hi‐tech manufacturing firms

Accelerating the New Product Development process has emerged as a key strategy for hi‐tech manufacturing firms to survive in the global markets. Hi‐tech manufacturing firms are often faced with a decision to trade‐off old product with new products vis‐a‐vis their rewards. In view of the above situation, it is in the firm's interest to a reserve capacity for the new products. It is quite evident that both time pacing of New Product Introduction (NPI) and capacity reservation problems are coupled. In this paper, we consider the problem of determining the best rate of introduction of new products in the presence of old products, and further address the problem of capacity reservation. Specifically, we present a stylised MMPP/GI/1 queuing model for analysing the dynamics of NPI, and propose and solve an attendant non‐linear optimisation problem for maximising the expected annual profit. We also provide several key managerial insights in this context.