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Integrated Production Planning and Pricing Decisions in Congestion-Prone Capacitated Production Systems

In: Essays in Production, Project Planning and Scheduling

Author

Listed:
  • Abhijit Upasani

    (Terra Technology)

  • Reha Uzsoy

    (North Carolina State University)

Abstract

In many industries both the pricing of a product and its delivery lead time to the customer are significant factors affecting demand. However, it is well known from queuing models that the lead time increases nonlinearly with the utilization of capacitated resources. Hence when customer demand is sensitive to delivery lead times, firms must take a broader view: A large reduction in price may increase demand to the point that it cannot be met in a timely manner with available capacity, which can adversely affect customer satisfaction and reduce future sales. In this chapter we develop an integrated model for dynamic pricing and production planning for a single product under workload-dependent lead times. This allows us to capture interactions between pricing, sales and lead times that have generally not been considered in the past. We present numerical examples to demonstrate these interactions, as well as analytical results showing that the proposed model behaves quite differently from conventional models that ignore congestion.

Suggested Citation

  • Abhijit Upasani & Reha Uzsoy, 2014. "Integrated Production Planning and Pricing Decisions in Congestion-Prone Capacitated Production Systems," International Series in Operations Research & Management Science, in: P. Simin Pulat & Subhash C. Sarin & Reha Uzsoy (ed.), Essays in Production, Project Planning and Scheduling, edition 127, chapter 3, pages 29-68, Springer.
    • Handle: RePEc:spr:isochp:978-1-4614-9056-2_3
    DOI: 10.1007/978-1-4614-9056-2_3
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