Premium
Ordering, Pricing, and Lead‐Time Quotation Under Lead‐Time and Demand Uncertainty
Author(s) -
Wu Zhengping,
Kazaz Burak,
Webster Scott,
Yang KumKhiong
Publication year - 2011
Publication title -
production and operations management
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 3.279
H-Index - 110
eISSN - 1937-5956
pISSN - 1059-1478
DOI - 10.1111/j.1937-5956.2011.01289.x
Subject(s) - lead time , lead (geology) , newsvendor model , tardiness , product (mathematics) , order (exchange) , economics , microeconomics , build to order , set (abstract data type) , on demand , demand curve , business , computer science , operations management , marketing , production (economics) , commerce , finance , mathematics , supply chain , schedule , job shop scheduling , management , geometry , geomorphology , programming language , geology
In this article, we study the newsvendor problem with endogenous setting of price and quoted lead‐time. This problem can be observed in situations where a firm orders semi‐finished product prior to the selling season and customizes the product in response to customer orders during the selling season. The total demand during the selling season and the lead‐time required for customization are uncertain. The demand for the product depends not only on the selling price but also on the quoted lead‐time. To set the quoted lead‐time, the firm has to carefully balance the benefit of increasing demand as the quoted lead‐time is reduced against the cost of increased tardiness. Our model enables the firm to determine the optimal selling price, quoted lead‐time, and order quantity simultaneously, and provides a new set of insights to managers.