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

• Main Authors: WU, Zhengping, Kazaz, Burak, Webster, Scott, YANG, Kum Khiong
• Format: text
• Language: English
• Published: Institutional Knowledge at Singapore Management University 2012
• Subjects: newsvendor problem; pricing; lead-time quotation; inventory; revenue management; Business Administration, Management, and Operations
• Online Access: https://ink.library.smu.edu.sg/lkcsb_research/3230; https://onlinelibrary.wiley.com/doi/10.1111/j.1937-5956.2011.01289.x/abstract
• Institution: Singapore Management University

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.