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Dynamic Lead-Time Quotation for an M/M/1 Base-Stock Inventory Queue

Author

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  • Seçil Savaşaneril

    (Department of Industrial Engineering, Middle East Technical University, 06531, Ankara, Turkey)

  • Paul M. Griffin

    (Harold and Inge Marcus Department of Industrial Engineering, Pennsylvania State University, University Park, Pennsylvania 16801)

  • Pınar Keskinocak

    (School of Industrial and Systems Engineering, Georgia Institute of Technology, Atlanta, Georgia 30332)

Abstract

We study a dynamic lead-time quotation problem in a base-stock inventory system characterized by lead-time sensitive Poisson demand and exponentially distributed service times. We show that the optimal profit is unimodal in the base-stock level. We compare the base-stock system with a make-to-order (MTO) system and show that the lead-time quotes are lower in an MTO system and that increasing the base-stock level does not necessarily decrease the expected number of customers waiting. Numerical results show that when customers are less sensitive to lead-time quotes, the benefit of quoting lead times with a higher precision is significant, whereas when customers are more sensitive to lead-time quotes, the benefit of holding inventory is significant.

Suggested Citation

  • Seçil Savaşaneril & Paul M. Griffin & Pınar Keskinocak, 2010. "Dynamic Lead-Time Quotation for an M/M/1 Base-Stock Inventory Queue," Operations Research, INFORMS, vol. 58(2), pages 383-395, April.
    • Handle: RePEc:inm:oropre:v:58:y:2010:i:2:p:383-395
    DOI: 10.1287/opre.1090.0717
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    References listed on IDEAS

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    Cited by:

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    2. A. Baykal Hafızoğlu & Esma S. Gel & Pınar Keskinocak, 2016. "Price and Lead Time Quotation for Contract and Spot Customers," Operations Research, INFORMS, vol. 64(2), pages 406-415, April.
    3. A. Baykal Hafızoğlu & Esma S. Gel & Pınar Keskinocak, 2013. "Expected Tardiness Computations in Multiclass Priority M / M / c Queues," INFORMS Journal on Computing, INFORMS, vol. 25(2), pages 364-376, May.
    4. Sen Lin & Bo Li & Antonio Arreola-Risa & Yiwei Huang, 2023. "Optimizing a single-product production-inventory system under constant absolute risk aversion," TOP: An Official Journal of the Spanish Society of Statistics and Operations Research, Springer;Sociedad de Estadística e Investigación Operativa, vol. 31(3), pages 510-537, October.
    5. Myron Benioudakis & Apostolos Burnetas & George Ioannou, 2022. "Single versus dynamic lead-time quotations in make-to-order systems with delay-averse customers," Annals of Operations Research, Springer, vol. 318(1), pages 33-65, November.
    6. Secil Savasaneril & Ece Sayin, 2017. "Dynamic lead time quotation under responsive inventory and multiple customer classes," OR Spectrum: Quantitative Approaches in Management, Springer;Gesellschaft für Operations Research e.V., vol. 39(1), pages 95-135, January.
    7. Balcıõglu, Barış & Varol, Yãgız, 2022. "Fair and profitable: How pricing and lead-time quotation policies can help," European Journal of Operational Research, Elsevier, vol. 299(3), pages 977-986.
    8. 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.
    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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