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Effect of a lead time-dependent cost on lead time quotation, pricing, and capacity decisions in a stochastic make-to-order system with endogenous demand

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  • Sayid Albana, Abduh
  • Frein, Yannick
  • Hammami, Ramzi

Abstract

The research on lead time quotation in make-to-order stochastic systems with an endogenous demand generally considers a system modelled as an M/M/1 queue with a linear demand that is sensitive to lead time and price, and always assume a constant unit operating cost. It is known that firms can reduce the operating cost by quoting a longer lead time. The idea of this paper stems from this observation. Indeed, we extend the existing works by modelling the unit operating cost, not as a constant, but as a convex decreasing function of the quoted lead time, which significantly rises the analytical difficulty but offers opportunities for many insights. We study three settings: (i) lead time quotation model, (ii) lead time quotation and pricing model, and (iii) lead time quotation, pricing, and capacity decision model. For each setting, we provide the optimal policy and conduct experiments to derive insights. In particular, we analyze the new trade-offs raised by the consideration of a lead time-sensitive cost. Some of our results are not intuitive.

Suggested Citation

  • Sayid Albana, Abduh & Frein, Yannick & Hammami, Ramzi, 2018. "Effect of a lead time-dependent cost on lead time quotation, pricing, and capacity decisions in a stochastic make-to-order system with endogenous demand," International Journal of Production Economics, Elsevier, vol. 203(C), pages 83-95.
    • Handle: RePEc:eee:proeco:v:203:y:2018:i:c:p:83-95
    DOI: 10.1016/j.ijpe.2018.05.028
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    References listed on IDEAS

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    Cited by:

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    6. Zhai, Yue & Hua, Guowei & Cheng, Meng & Cheng, T.C.E., 2023. "Production lead-time hedging and order allocation in an MTO supply chain," European Journal of Operational Research, Elsevier, vol. 311(3), pages 887-905.
    7. Hammami, Ramzi & Frein, Yannick & Albana, Abduh S., 2020. "Delivery time quotation and pricing in two-stage supply chains: Centralized decision-making with global and local managerial approaches," European Journal of Operational Research, Elsevier, vol. 286(1), pages 164-177.
    8. Shi‐Woei Lin & Januardi, 2023. "Two‐stage pricing of perishable food supply chain with quality‐keeping and waste reduction efforts," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 44(3), pages 1749-1766, April.
    9. Liu, Jian & Chen, Jian & Bo, Rui & Meng, Fanlin & Xu, Yong & Li, Peng, 2023. "Increases or discounts: Price strategies based on customers’ patience times," European Journal of Operational Research, Elsevier, vol. 305(2), pages 722-737.
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