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Study of Client Reject Policies under Lead-Time and Price Dependent Demand

Author

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  • Abduh Sayid Albana

    (G-SCOP_GCSP - Gestion et Conduite des Systèmes de Production - G-SCOP - Laboratoire des sciences pour la conception, l'optimisation et la production - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - CNRS - Centre National de la Recherche Scientifique - UGA [2016-2019] - Université Grenoble Alpes [2016-2019])

  • Yannick Frein

    (G-SCOP_GCSP - Gestion et Conduite des Systèmes de Production - G-SCOP - Laboratoire des sciences pour la conception, l'optimisation et la production - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - CNRS - Centre National de la Recherche Scientifique - UGA [2016-2019] - Université Grenoble Alpes [2016-2019])

  • Ramzi Hammami

    (ESC [Rennes] - ESC Rennes School of Business)

Abstract

Delivery lead-time has become a factor of competitiveness for companies and an important criterion of purchase for the customers today. Thus, in order to increase their profit, companies must not focus only on price but also need to quote the right delivery lead time to their customers. Some authors to find a way in quoting the right delivery lead-time while considering an M/M/1 system. In M/M/1, all customers are accepted. This can lead to longer lead times in the queue. Firms can react by quoting longer lead times in order to cope with this situation. However, this leads to lower demand and revenue. Starting from this observation, we investigate in this paper whether a customer rejection policy can be more beneficial for the firm than an all-customers' acceptance policy. Indeed, our idea is based on the fact that rejecting some customers might help to quote shorter lead time for the accepted customers, which might lead to higher demand and profit. We model this rejection policy based on an M/M/1/K system. We analytically determine the optimal firm's policy (optimal price and quoted lead time) in case of M/M/1/1 system. Then, we compare the optimal firm's profit under M/M/1/1 with the optimal profit obtained by M/M/1. Two situations are considered: a system without holding and penalty costs and a system where these costs are included.

Suggested Citation

  • Abduh Sayid Albana & Yannick Frein & Ramzi Hammami, 2016. "Study of Client Reject Policies under Lead-Time and Price Dependent Demand," Working Papers hal-01250835, HAL.
    • Handle: RePEc:hal:wpaper:hal-01250835
    Note: View the original document on HAL open archive server: https://hal.univ-grenoble-alpes.fr/hal-01250835v5
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    References listed on IDEAS

    as
    1. Liming Liu & Mahmut Parlar & Stuart X. Zhu, 2007. "Pricing and Lead Time Decisions in Decentralized Supply Chains," Management Science, INFORMS, vol. 53(5), pages 713-725, May.
    2. Teck H. Ho & Yu-Sheng Zheng, 2004. "Setting Customer Expectation in Service Delivery: An Integrated Marketing-Operations Perspective," Management Science, INFORMS, vol. 50(4), pages 479-488, April.
    3. So, Kut C. & Song, Jing-Sheng, 1998. "Price, delivery time guarantees and capacity selection," European Journal of Operational Research, Elsevier, vol. 111(1), pages 28-49, November.
    4. Ray, Saibal & Jewkes, E. M., 2004. "Customer lead time management when both demand and price are lead time sensitive," European Journal of Operational Research, Elsevier, vol. 153(3), pages 769-781, March.
    5. Roman Kapuscinski & Sridhar Tayur, 2007. "Reliable Due-Date Setting in a Capacitated MTO System with Two Customer Classes," Operations Research, INFORMS, vol. 55(1), pages 56-74, February.
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    Cited by:

    1. Abduh Sayid & Yannick Frein & Ramzi Hammami, 2017. "Optimal firm's policy under lead time-and price-dependent demand: interest of customers rejection policy," Papers 1708.07305, arXiv.org.
    2. Abduh Sayid & Yannick Frein & Ramzi Hammami, 2016. "Optimal firm's policy under lead time-and price-dependent demand: interest of customers rejection policy," Post-Print hal-01576828, HAL.

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