Inventory Policy for Dependent Demand Where Parent Demand Has Decreasing Pattern

When a product reaches its maturity in its life cycle, some innovations have to be put in that product in order to lengthen its life cycle. Otherwise, that product will be perceived as obsolete. It might affect the demand of that product i.e. the demand become decreasing. Based on the observation that we conducted over two smart phone brands, the phenomena that the demand has declining pattern really happened in the real situation. In addition, the observation shows that the product life cycle is getting shorter. This implies that the manufacturer has to deal with decreasing demand more often. A case study is presented in this paper, in which manufacturer experienced final product with decreasing demand pattern. Some lot sizing techniques, such as Lot for Lot, Silver Meal 1, Silver Meal 2, Least Unit Cost, Part Period Balancing, and Incremental, are tested to solve the inventory policy for both final product (parent) and its components (child). It is concluded that a company should not consider only one component or one level whenever deciding the inventory policy, i.e. production lot size. It is shown by the case study that the best lot sizing technique for a particular parent of product whenever the company only consider the parent is different with the best lot sizing technique whenever the company consider the parent and its child. For the case presented, it is shown that the smallest total cost of parent and child is most likely occurred whenever Silver Meal 2 lot sizing technique is applied in the parent with decreasing demand pattern.