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Dynamic Pricing and Lead-Time Quotation for a Multiclass Make-to-Order Queue

Author

Listed:
  • Sabri Çelik

    (Department of Industrial Engineering and Operations Research, Columbia University, New York, New York 10027)

  • Costis Maglaras

    (Columbia Business School, Columbia University, New York, New York 10027)

Abstract

This paper considers a profit-maximizing make-to-order manufacturer that offers multiple products to a market of price and delay sensitive users, using a model that captures three aspects of particular interest: first, the joint use of dynamic pricing and lead-time quotation controls to manage demand; second, the presence of a dual sourcing mode that can expedite orders at a cost; and third, the interaction of the aforementioned demand controls with the operational decisions of sequencing and expediting that the firm must employ to optimize revenues and satisfy the quoted lead times. Using an approximating diffusion control problem we derive near-optimal dynamic pricing, lead-time quotation, sequencing, and expediting policies that provide structural insights and lead to practically implementable recommendations. A set of numerical results illustrates the value of joint pricing and lead-time control policies.

Suggested Citation

  • 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.
    • Handle: RePEc:inm:ormnsc:v:54:y:2008:i:6:p:1132-1146
    DOI: 10.1287/mnsc.1070.0836
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    References listed on IDEAS

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