Dynamic pricing, leadtime quotation and due date based priority dispatching

Miray Öner-Közen and Stefan Minner

International Journal of Production Research, 2018, vol. 56, issue 15, 5118-5130

Abstract: This study considers a profit-maximising make-to-order manufacturing firm that (i) dynamically quotes a price/leadtime pair to arriving prospective customers who then decide whether or not to place an order by trading off the price and leadtime and (ii) dispatches placed orders. We model the marketing–operations collaboration problem as a Markov decision process to obtain the optimal quotation and dispatching policy numerically. We further investigate the sub-optimality of several sequential approaches. Our numerical results show that sub-optimality is negligible when the tardiness penalty is proportional to tardiness and the customer sensitivities to price and leadtime quotes are similar. However, it is considerable when tardiness of orders is penalised with a fixed cost and the customers differ significantly in their sensitivity to price and leadtime. By joint optimisation, it is possible to make more appealing price/leadtime quotes to customers and at the same time reach a better service level. On the other hand, the joint optimisation can also suggest the lowering of a firm’s service level in order to achieve higher profits.

Date: 2018
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DOI: 10.1080/00207543.2017.1397791

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