Dynamic Lead-Time Quotation for an M/M/1 Base-Stock Inventory Queue

Seçil Savaşaneril (), Paul M. Griffin () and Pınar Keskinocak ()
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Seçil Savaşaneril: Department of Industrial Engineering, Middle East Technical University, 06531, Ankara, Turkey
Paul M. Griffin: Harold and Inge Marcus Department of Industrial Engineering, Pennsylvania State University, University Park, Pennsylvania 16801
Pınar Keskinocak: School of Industrial and Systems Engineering, Georgia Institute of Technology, Atlanta, Georgia 30332

Operations Research, 2010, vol. 58, issue 2, 383-395

Abstract: We study a dynamic lead-time quotation problem in a base-stock inventory system characterized by lead-time sensitive Poisson demand and exponentially distributed service times. We show that the optimal profit is unimodal in the base-stock level. We compare the base-stock system with a make-to-order (MTO) system and show that the lead-time quotes are lower in an MTO system and that increasing the base-stock level does not necessarily decrease the expected number of customers waiting. Numerical results show that when customers are less sensitive to lead-time quotes, the benefit of quoting lead times with a higher precision is significant, whereas when customers are more sensitive to lead-time quotes, the benefit of holding inventory is significant.

Keywords: inventory/production policies; stochastic production systems; optimal control; order acceptance; due-date quotation; benefits of flexibility (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (9)

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