Ordering, pricing, and lead-time quotation under lead-time and demand uncertainty
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.
newsvendor problem, pricing, lead-time quotation, inventory, revenue management
Business Administration, Management, and Operations
Production and Operations Management
WU, Zhengping; Kazaz, Burak; Webster, Scott; and YANG, Kum Khiong.
Ordering, pricing, and lead-time quotation under lead-time and demand uncertainty. (2012). Production and Operations Management. 21, (3), 576-589. Research Collection Lee Kong Chian School Of Business.
Available at: http://ink.library.smu.edu.sg/lkcsb_research/3230