IDEAS home Printed from https://ideas.repec.org/a/inm/ormnsc/v54y2008i6p1132-1146.html
   My bibliography  Save this article

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
    as

    Download full text from publisher

    File URL: http://dx.doi.org/10.1287/mnsc.1070.0836
    Download Restriction: no
    File URL: https://libkey.io/10.1287/mnsc.1070.0836?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
    ---><---

    References listed on IDEAS

    as
    1. Izak Duenyas & Wallace J. Hopp, 1995. "Quoting Customer Lead Times," Management Science, INFORMS, vol. 41(1), pages 43-57, January.
    2. Martin A. Lariviere & Jan A. Van Mieghem, 2004. "Strategically Seeking Service: How Competition Can Generate Poisson Arrivals," Manufacturing & Service Operations Management, INFORMS, vol. 6(1), pages 23-40, January.
    3. Guillermo Gallego & Garrett van Ryzin, 1994. "Optimal Dynamic Pricing of Inventories with Stochastic Demand over Finite Horizons," Management Science, INFORMS, vol. 40(8), pages 999-1020, August.
    4. Barış Ata, 2006. "Dynamic Control of a Multiclass Queue with Thin Arrival Streams," Operations Research, INFORMS, vol. 54(5), pages 876-892, October.
    5. Oecd, 2003. "Business Approaches to Combating Corrupt Practices," OECD Working Papers on International Investment 2003/2, OECD Publishing.
    6. Izak Duenyas, 1995. "Single Facility Due Date Setting with Multiple Customer Classes," Management Science, INFORMS, vol. 41(4), pages 608-619, April.
    7. James R. Bradley, 2004. "A Brownian Approximation of a Production-Inventory System with a Manufacturer That Subcontracts," Operations Research, INFORMS, vol. 52(5), pages 765-784, October.
    8. Maglaras, Constantinos & Van Mieghem, Jan A., 2005. "Queueing systems with leadtime constraints: A fluid-model approach for admission and sequencing control," European Journal of Operational Research, Elsevier, vol. 167(1), pages 179-207, November.
    9. Constantinos Maglaras, 2006. "Revenue Management for a Multiclass Single-Server Queue via a Fluid Model Analysis," Operations Research, INFORMS, vol. 54(5), pages 914-932, October.
    10. anonymous, 2003. "Eleventh District small business financing guide," Banking and Community Perspectives, Federal Reserve Bank of Dallas, issue 1, pages 6-7.
    11. Martin I. Reiman, 1984. "Open Queueing Networks in Heavy Traffic," Mathematics of Operations Research, INFORMS, vol. 9(3), pages 441-458, August.
    12. Erica L. Plambeck, 2004. "Optimal Leadtime Differentiation via Diffusion Approximations," Operations Research, INFORMS, vol. 52(2), pages 213-228, April.
    13. Naor, P, 1969. "The Regulation of Queue Size by Levying Tolls," Econometrica, Econometric Society, vol. 37(1), pages 15-24, January.
    14. Constantinos Maglaras & Assaf Zeevi, 2003. "Pricing and Capacity Sizing for Systems with Shared Resources: Approximate Solutions and Scaling Relations," Management Science, INFORMS, vol. 49(8), pages 1018-1038, August.
    15. Bradley, James R., 2005. "Optimal control of a dual service rate M/M/1 production-inventory model," European Journal of Operational Research, Elsevier, vol. 161(3), pages 812-837, March.
    16. Pinar Keskinocak & R. Ravi & Sridhar Tayur, 2001. "Scheduling and Reliable Lead-Time Quotation for Orders with Availability Intervals and Lead-Time Sensitive Revenues," Management Science, INFORMS, vol. 47(2), pages 264-279, February.
    17. Charnsirisakskul, Kasarin & Griffin, Paul M. & Keskinocak, Pinar, 2006. "Pricing and scheduling decisions with leadtime flexibility," European Journal of Operational Research, Elsevier, vol. 171(1), pages 153-169, May.
    18. anonymous, 2003. "Business Checking Freedom Act," Financial Update, Federal Reserve Bank of Atlanta, vol. 16(Q 2).
    19. Kenneth R. Baker, 1984. "Sequencing Rules and Due-Date Assignments in a Job Shop," Management Science, INFORMS, vol. 30(9), pages 1093-1104, September.
    Full references (including those not matched with items on IDEAS)

    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. Mustafa Akan & Barı ş Ata & Tava Olsen, 2012. "Congestion-Based Lead-Time Quotation for Heterogenous Customers with Convex-Concave Delay Costs: Optimality of a Cost-Balancing Policy Based on Convex Hull Functions," Operations Research, INFORMS, vol. 60(6), pages 1505-1519, December.
    2. Philipp Afèche & Opher Baron & Yoav Kerner, 2013. "Pricing Time-Sensitive Services Based on Realized Performance," Manufacturing & Service Operations Management, INFORMS, vol. 15(3), pages 492-506, July.
    3. Barış Ata & Tava Lennon Olsen, 2009. "Near-Optimal Dynamic Lead-Time Quotation and Scheduling Under Convex-Concave Customer Delay Costs," Operations Research, INFORMS, vol. 57(3), pages 753-768, June.
    4. 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.
    5. Erica L. Plambeck, 2004. "Optimal Leadtime Differentiation via Diffusion Approximations," Operations Research, INFORMS, vol. 52(2), pages 213-228, April.
    6. Erica L. Plambeck & Amy R. Ward, 2006. "Optimal Control of a High-Volume Assemble-to-Order System," Mathematics of Operations Research, INFORMS, vol. 31(3), pages 453-477, August.
    7. Slotnick, Susan A., 2011. "Order acceptance and scheduling: A taxonomy and review," European Journal of Operational Research, Elsevier, vol. 212(1), pages 1-11, July.
    8. Omar Besbes & Costis Maglaras, 2009. "Revenue Optimization for a Make-to-Order Queue in an Uncertain Market Environment," Operations Research, INFORMS, vol. 57(6), pages 1438-1450, December.
    9. Li, Xueping & Wang, Jiao & Sawhney, Rapinder, 2012. "Reinforcement learning for joint pricing, lead-time and scheduling decisions in make-to-order systems," European Journal of Operational Research, Elsevier, vol. 221(1), pages 99-109.
    10. Mor Armony & Erica Plambeck & Sridhar Seshadri, 2009. "Sensitivity of Optimal Capacity to Customer Impatience in an Unobservable M/M/S Queue (Why You Shouldn't Shout at the DMV)," Manufacturing & Service Operations Management, INFORMS, vol. 11(1), pages 19-32, June.
    11. Cemal AKTÜRK & Sevinç GÜLSEÇEN, 2018. "Sipariş Teslim Tarihi Problemi İçin Çok Kriterli ve Çok Yöntemli Karar Destek Sistemi Önerisi," Istanbul Management Journal, Istanbul University Business School, vol. 29(84), pages 65-78, June.
    12. Vibhanshu Abhishek & Mustafa Dogan & Alexandre Jacquillat, 2021. "Strategic Timing and Dynamic Pricing for Online Resource Allocation," Management Science, INFORMS, vol. 67(8), pages 4880-4907, August.
    13. Jiejian Feng & Liming Liu & Xiaoming Liu, 2011. "TECHNICAL NOTE---An Optimal Policy for Joint Dynamic Price and Lead-Time Quotation," Operations Research, INFORMS, vol. 59(6), pages 1523-1527, December.
    14. Slotnick, Susan A. & Sobel, Matthew J., 2005. "Manufacturing lead-time rules: Customer retention versus tardiness costs," European Journal of Operational Research, Elsevier, vol. 163(3), pages 825-856, June.
    15. 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.
    16. Vasiliki Kostami, 2020. "Price and Lead time Disclosure Strategies in Inventory Systems," Production and Operations Management, Production and Operations Management Society, vol. 29(12), pages 2760-2788, December.
    17. Myron Benioudakis & Apostolos Burnetas & George Ioannou, 2022. "Single versus dynamic lead-time quotations in make-to-order systems with delay-averse customers," Annals of Operations Research, Springer, vol. 318(1), pages 33-65, November.
    18. Tanja Mlinar & Philippe Chevalier, 2016. "Pooling heterogeneous products for manufacturing environments," 4OR, Springer, vol. 14(2), pages 173-200, June.
    19. Mark L. Spearman & Rachel Q. Zhang, 1999. "Optimal Lead Time Policies," Management Science, INFORMS, vol. 45(2), pages 290-295, February.
    20. 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.

    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:inm:ormnsc:v:54:y:2008:i:6:p:1132-1146. 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: Chris Asher (email available below). General contact details of provider: https://edirc.repec.org/data/inforea.html .

    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.