IDEAS home Printed from https://ideas.repec.org/a/eee/proeco/v203y2018icp83-95.html
   My bibliography  Save this article

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

Author

Listed:
  • 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
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0925527318302305
    Download Restriction: Full text for ScienceDirect subscribers only

    File URL: https://libkey.io/10.1016/j.ijpe.2018.05.028?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. 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.
    2. Qian, Li, 2014. "Market-based supplier selection with price, delivery time, and service level dependent demand," International Journal of Production Economics, Elsevier, vol. 147(PC), pages 697-706.
    3. 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.
    4. Tiaojun Xiao & Xiangtong Qi, 2016. "A two-stage supply chain with demand sensitive to price, delivery time, and reliability of delivery," Annals of Operations Research, Springer, vol. 241(1), pages 475-496, June.
    5. Gad Allon & Awi Federgruen, 2007. "Competition in Service Industries," Operations Research, INFORMS, vol. 55(1), pages 37-55, February.
    6. Sabri Çelik & Costis Maglaras, 2008. "Dynamic Pricing and Lead-Time Quotation for a Multiclass Make-to-Order Queue," Management Science, INFORMS, vol. 54(6), pages 1132-1146, June.
    7. Zhu, Stuart X., 2015. "Integration of capacity, pricing, and lead-time decisions in a decentralized supply chain," International Journal of Production Economics, Elsevier, vol. 164(C), pages 14-23.
    8. 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.
    9. 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.
    10. Ramzi Hammami & Yannick Frein, 2014. "A Capacitated Multi-echelon Inventory Placement Model under Lead Time Constraints," Production and Operations Management, Production and Operations Management Society, vol. 23(3), pages 446-462, March.
    11. Hammami, Ramzi & Nouira, Imen & Frein, Yannick, 2015. "Carbon emissions in a multi-echelon production-inventory model with lead time constraints," International Journal of Production Economics, Elsevier, vol. 164(C), pages 292-307.
    12. 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.
    13. Tamer Boyaci & Saibal Ray, 2003. "Product Differentiation and Capacity Cost Interaction in Time and Price Sensitive Markets," Manufacturing & Service Operations Management, INFORMS, vol. 5(1), pages 18-36, May.
    14. Ramzi Hammami & Yannick Frein & Bouchaib Bahli, 2017. "Supply chain design to guarantee quoted lead time and inventory replenishment: model and insights," International Journal of Production Research, Taylor & Francis Journals, vol. 55(12), pages 3431-3450, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Zhao, Jing & Zhang, Qin, 2021. "The effect of contract methods on the lead time of a two-level photovoltaic supply chain: revenue-sharing vs. cost-sharing," Energy, Elsevier, vol. 231(C).
    2. 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.
    3. Ramzi Hammami & Erfan Asgari & Yannick Frein & Imen Nouira, 2022. "Time- and price-based product differentiation in hybrid distribution with stockout-based substitution," Post-Print hal-03696900, HAL.
    4. Hammami, Ramzi & Frein, Yannick & Nouira, Imen & Albana, Abduh-Sayid, 2022. "On the interplay between local lead times, overall lead time, prices, and profits in decentralized supply chains," International Journal of Production Economics, Elsevier, vol. 243(C).
    5. 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.
    6. 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.
    7. Lee, Ching-Hung & Li, Li & Li, Fan & Chen, Chun-Hsien, 2022. "Requirement-driven evolution and strategy-enabled service design for new customized quick-response product order fulfillment process," Technological Forecasting and Social Change, Elsevier, vol. 176(C).
    8. 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.
    9. Hammami, Ramzi & Asgari, Erfan & Frein, Yannick & Nouira, Imen, 2022. "Time- and price-based product differentiation in hybrid distribution with stockout-based substitution," European Journal of Operational Research, Elsevier, vol. 300(3), pages 884-901.
    10. Chen, Xiangpeng & Wang, Rongxi & Gao, Jianmin, 2023. "An optimization framework for enterprise quality infrastructure system under coupling constraints," International Journal of Production Economics, Elsevier, vol. 262(C).
    11. Ramzi Hammami & Yannick Frein & Abduh Albana, 2020. "Delivery time quotation and pricing in two-stage supply chains: Centralized decision-making with global and local managerial approaches," Post-Print hal-02898219, HAL.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. 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.
    2. Ramzi Hammami & Yannick Frein & Abduh Albana, 2020. "Delivery time quotation and pricing in two-stage supply chains: Centralized decision-making with global and local managerial approaches," Post-Print hal-02898219, HAL.
    3. Hammami, Ramzi & Frein, Yannick & Nouira, Imen & Albana, Abduh-Sayid, 2022. "On the interplay between local lead times, overall lead time, prices, and profits in decentralized supply chains," International Journal of Production Economics, Elsevier, vol. 243(C).
    4. Zhao, Jing & Zhang, Qin, 2021. "The effect of contract methods on the lead time of a two-level photovoltaic supply chain: revenue-sharing vs. cost-sharing," Energy, Elsevier, vol. 231(C).
    5. 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.
    6. Zhu, Stuart X., 2015. "Integration of capacity, pricing, and lead-time decisions in a decentralized supply chain," International Journal of Production Economics, Elsevier, vol. 164(C), pages 14-23.
    7. Jayaswal, Sachin & Jewkes, Elizabeth & Ray, Saibal, 2011. "Product differentiation and operations strategy in a capacitated environment," European Journal of Operational Research, Elsevier, vol. 210(3), pages 716-728, May.
    8. Sharafali, Moosa & Tarakci, Hakan & Kulkarni, Shailesh & Razack Shahul Hameed, Raja Abdul, 2019. "Optimal delivery due date for a supplier with an unreliable machine under outsourced maintenance," International Journal of Production Economics, Elsevier, vol. 208(C), pages 53-68.
    9. Huang, Yeu-Shiang & Chen, Si-Hen & Ho, Jyh-Wen, 2013. "A study on pricing and delivery strategy for e-retailing systems," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 59(C), pages 71-84.
    10. Weixin Shang & Liming Liu, 2011. "Promised Delivery Time and Capacity Games in Time-Based Competition," Management Science, INFORMS, vol. 57(3), pages 599-610, March.
    11. Sun, Yiqi & Wu, Zhengping & Zhu, Wanshan, 2022. "When do firms benefit from joint price and lead-time competition?," European Journal of Operational Research, Elsevier, vol. 302(2), pages 497-517.
    12. Zhang, Jian & Nault, Barrie R. & Tu, Yiliu, 2015. "A dynamic pricing strategy for a 3PL provider with heterogeneous customers," International Journal of Production Economics, Elsevier, vol. 169(C), pages 31-43.
    13. 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.
    14. Zhai, Yue & Cheng, T.C.E., 2022. "Lead-time quotation and hedging coordination in make-to-order supply chain," European Journal of Operational Research, Elsevier, vol. 300(2), pages 449-460.
    15. Jalili Marand, Ata & Li, Hongyan & Thorstenson, Anders, 2019. "Joint inventory control and pricing in a service-inventory system," International Journal of Production Economics, Elsevier, vol. 209(C), pages 78-91.
    16. Qian, Li, 2014. "Market-based supplier selection with price, delivery time, and service level dependent demand," International Journal of Production Economics, Elsevier, vol. 147(PC), pages 697-706.
    17. Ülkü, M. Ali & Bookbinder, James H., 2012. "Optimal quoting of delivery time by a third party logistics provider: The impact of shipment consolidation and temporal pricing schemes," European Journal of Operational Research, Elsevier, vol. 221(1), pages 110-117.
    18. Hu, Yinan & Guan, Yongpei & Liu, Tieming, 2011. "Lead-time hedging and coordination between manufacturing and sales departments using Nash and Stackelberg games," European Journal of Operational Research, Elsevier, vol. 210(2), pages 231-240, April.
    19. Xiao, Tiaojun & Choi, Tsan-Ming & Cheng, T.C.E., 2016. "Delivery leadtime and channel structure decisions for make-to-order duopoly under different game scenarios," Transportation Research Part E: Logistics and Transportation Review, Elsevier, vol. 87(C), pages 113-129.
    20. 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.

    Corrections

    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:eee:proeco:v:203:y:2018:i:c:p:83-95. See general information about how to correct material in RePEc.

    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.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with 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.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/ijpe .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.