Impact of introducing make-to-order options in a make-to-stock environment

Li Jiang, Joseph Geunes

Research output: Journal article publicationJournal articleAcademic researchpeer-review

11 Citations (Scopus)

Abstract

Firms engaged in consumer product sales often implement a strict make-to-stock approach, applying a single price to all customers. In such systems, customers can get the product at the given price upon availability on the shelf. However, consumers can often tolerate a delay between order placement and demand satisfaction under a price discount. Recognizing this phenomenon, a supplier may consider offering a menu of delivery-price options to consumers, where longer delay-time options imply lower prices. Demands from customers willing to wait provide advance demand information to the supplier. This paper studies strategies to exploit this additional information to improve profitability and service levels. Primarily assuming that delivery times are set exogenously, we determine optimal prices and stock levels under the new delayed demand satisfaction options. In addition, we develop analytical models to characterize the system performance gains under the new demand fulfillment option.
Original languageEnglish
Pages (from-to)724-743
Number of pages20
JournalEuropean Journal of Operational Research
Volume174
Issue number2
DOIs
Publication statusPublished - 16 Oct 2006
Externally publishedYes

Keywords

  • Inventory
  • Marketing
  • Pricing
  • Supply chain management

ASJC Scopus subject areas

  • Information Systems and Management
  • Management Science and Operations Research
  • Statistics, Probability and Uncertainty
  • Applied Mathematics
  • Modelling and Simulation
  • Transportation

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