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Developing a two stage stochastic programming model of the price and lead-time decision problem in the multi-class make-to-order firm

Chaharsooghi, S. K ; Sharif University of Technology

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  1. Type of Document: Article
  2. DOI: 10.1016/j.cie.2011.06.022
  3. Abstract:
  4. Pricing coordination and due-date management are managerial challenges in today's competitive marketplace. Segmenting orders into classes and allocating resources based on their sensitivity to time and price can increase a firm's profit and its capacity utilization. In addition, other parameters such as production policy, inventory holding and delivery system should be considered in pricing and due-date decisions. In this paper, we consider the role of flexibility in price, lead-time and delivery in the make-to-order environment, where limited production capacity under a stochastic demand function is allowed. We develop a two-stage stochastic programming model to determine the price, lead-time and production amount jointly in each period. The difficulty of continuous distributions is avoided by using a scenario-based approach for stochastic demand. Through numerical analyses, we indicate the benefits of flexibility in delivery, price and lead-time in various environments
  5. Keywords:
  6. Lead-time ; Pricing ; Production ; Two-stage stochastic programming ; Capacity utilization ; Competitive marketplace ; Continuous distribution ; Decision problems ; Delivery systems ; Inventory holding ; Leadtime ; Make to order ; Make-to-order environment ; Multi-class ; Production capacity ; Production policy ; Stochastic demand ; Computer programming ; Costs ; Functions ; Image segmentation ; Numerical analysis ; Profitability ; Stochastic programming ; Stochastic systems ; Stochastic models
  7. Source: Computers and Industrial Engineering ; Volume 61, Issue 4 , 2011 , Pages 1086-1097 ; 03608352 (ISSN)
  8. URL: http://www.sciencedirect.com/science/article/pii/S0360835211001720