Integrated Production Planning and Pricing Decisions in Congestion-Prone Capacitated Production Systems

Abhijit Upasani () and Reha Uzsoy ()
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Abhijit Upasani: Terra Technology
Reha Uzsoy: North Carolina State University

Chapter 3 in Essays in Production, Project Planning and Scheduling, 2014, pp 29-68 from Springer

Abstract: Abstract In many industries both the pricing of a product and its delivery lead time to the customer are significant factors affecting demand. However, it is well known from queuing models that the lead time increases nonlinearly with the utilization of capacitated resources. Hence when customer demand is sensitive to delivery lead times, firms must take a broader view: A large reduction in price may increase demand to the point that it cannot be met in a timely manner with available capacity, which can adversely affect customer satisfaction and reduce future sales. In this chapter we develop an integrated model for dynamic pricing and production planning for a single product under workload-dependent lead times. This allows us to capture interactions between pricing, sales and lead times that have generally not been considered in the past. We present numerical examples to demonstrate these interactions, as well as analytical results showing that the proposed model behaves quite differently from conventional models that ignore congestion.

Keywords: Lead Time; Delivery Time; Price Promotion; Revenue Function; Linear Demand Function (search for similar items in EconPapers)
Date: 2014
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Persistent link: https://EconPapers.repec.org/RePEc:spr:isochp:978-1-4614-9056-2_3

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DOI: 10.1007/978-1-4614-9056-2_3

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