New Product Planning Decisions Under Uncertainty

New product decisions often must be made with considerable uncertainty relating to sales, product and process development outcomes, manufacturing costs, etc. Purchasing commitments (long and short-term) and product and process development decisions are required at early points in the product life-cycle and usually involve large expenditures. The authors describe how Management Science techniques have been used to assist in new product purchasing and development decision-making, where the new product required significant technological innovation and was being introduced into a market in which there was little previous experience.

The project approach consisted of: (1) formulating deterministic economic and capacity models to simulate the consequences of alternative outcomes in the market and technical areas; (2) working closely with engineering, procurement, marketing and planning organizations to determine the range and likelihood of the input variables; (3) using the models to determine the sensitive variables and to place probabilistic ranges on the outcomes of interest; and (4) presenting the results to management so that decisions could be made relative to plant construction, purchase quantities, and alternative components/processes.

Emphasis is placed on methodology and the way management scientists can effectively work with and assist decision-makers, rather than on the models and techniques employed.