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Price, capacity, and lead-time decisions for a make-to-order supply chain with two production modes

Author

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  • Tiaojun Xiao
  • Jing Shi

Abstract

This paper considers a supply chain consisting of one make-to-order (MTO) manufacturer and one retailer in a price and lead-time sensitive market. We develop a manufacturer-Stackelberg (MS) model with exogenous lead-time standard and a MS model with endogenous lead-time standard. We find that the endogenisation of the lead-time standard for the faster product may change the monotonicity of the equilibrium capacity for the faster product in the lead-time sensitivity and the cross effect of lead-time; and change the monotonicity of the price difference between the two products in the cross effect. We also consider a retailer-Stackelberg (RS) model to examine the effect of market power on equilibrium outcome. We find that: 1) the higher market power for the retailer expands demand rate differentiation as well as capacity differentiation between the two products; 2) the manufacturer has a lower incentive to differentiate its products under RS than under MS.

Suggested Citation

  • Tiaojun Xiao & Jing Shi, 2012. "Price, capacity, and lead-time decisions for a make-to-order supply chain with two production modes," International Journal of Applied Management Science, Inderscience Enterprises Ltd, vol. 4(2), pages 107-129.
    • Handle: RePEc:ids:injams:v:4:y:2012:i:2:p:107-129
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