The optimal postponed decision of two-stage production under demand substitution

This paper has introduced the customization cost of postponed production model and established the two-stage programming model of demand substitution so as to find out the factors affecting the optimal profit of postponed production model and optimal production quantity of general intermediate product (GIP). Some conclusions are proved by the Kuhn Tucker theorem and backward reasoning method, such as the optimal output of GIP is negatively related to the customization cost, i.e. the more expensive the unit customization cost, the less the optimal output of the GIP in the first production stage. Besides, The optimal output of GIP is positively related to substitution degree of the two final products produced from the same GIP, i.e. the more the substitution degree, the more obvious the risk sharing effect of GIP, so it is more favorable to adopt the postponed production model. Finally, the optimal output of GIP is positively related to market uncertainty, i.e. the higher the uncertainty of external demand market, the greater the value of postponed production model.