IDEAS home Printed from
   My bibliography  Save this article

Price and Lead Time Quotation for Contract and Spot Customers


  • A. Baykal Hafızoğlu

    () (School of Computing, Informatics and Decision Systems Engineering, Arizona State University, Tempe, Arizona 85287)

  • Esma S. Gel

    () (School of Computing, Informatics and Decision Systems Engineering, Arizona State University, Tempe, Arizona 85287)

  • Pınar Keskinocak

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


We study price and lead time quotation decisions in a make-to-order system with two customer classes: (1) contract customers whose orders are practically always accepted and fulfilled based on a contract price and lead time agreed on at the beginning of the time horizon, and (2) spot purchasers who arrive over time and are quoted a price and lead time pair dynamically. The objective is to maximize the long-run expected average profit per unit time, where profit from a customer is defined as revenues minus lateness penalties incurred because of lead time violations. We model the dynamic quotation problem of the spot purchasers as an infinite horizon Markov decision process, given a fixed price and lead time for contract customers. We analyze the impact of customer preferences (e.g., price and lead time sensitivity) on the optimal price and lead time decisions for spot purchasers and characterize the optimal policy. We explore the benefits of dynamic quotation compared to the use of fixed price and lead times, and provide recommendations for firms. Finally, we analyze the optimal contract terms given the dynamic quotation strategy for spot purchasers and discuss the profit improvements offered by the optimal mix of spot and contract customers.

Suggested Citation

  • 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.
  • Handle: RePEc:inm:oropre:v:64:y:2016:i:2:p:406-415

    Download full text from publisher

    File URL:
    Download Restriction: no


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:inm:oropre:v:64:y:2016:i:2:p:406-415. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Mirko Janc). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.