Ordering, pricing, and lead-time quotation under lead-time and demand uncertainty

Zhengping Wu, Burak Kazaz, Scott Webster, Kum Khiong Yang

Research output: Contribution to journalReview article

29 Scopus citations

Abstract

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.

Original languageEnglish (US)
Pages (from-to)576-589
Number of pages14
JournalProduction and Operations Management
Volume21
Issue number3
DOIs
StatePublished - May 1 2012

Keywords

  • inventory
  • lead-time quotation
  • newsvendor problem
  • pricing
  • revenue management

ASJC Scopus subject areas

  • Management Science and Operations Research
  • Industrial and Manufacturing Engineering
  • Management of Technology and Innovation

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