Dynamic Lead-Time Quotation for an M/M/1 Base-Stock Inventory Queue

SAVAŞANERİL TÜFEKCİ S., Griffin P. M., Keskinocak P.

OPERATIONS RESEARCH, vol.58, no.2, pp.383-395, 2010 (SCI-Expanded) identifier identifier

  • Publication Type: Article / Article
  • Volume: 58 Issue: 2
  • Publication Date: 2010
  • Doi Number: 10.1287/opre.1090.0717
  • Journal Name: OPERATIONS RESEARCH
  • Journal Indexes: Science Citation Index Expanded (SCI-EXPANDED), Social Sciences Citation Index (SSCI), Scopus
  • Page Numbers: pp.383-395
  • Middle East Technical University Affiliated: Yes

Abstract

We study a dynamic lead-time quotation problem in a base-stock inventory system characterized by lead-time sensitive Poisson demand and exponentially distributed service times. We show that the optimal profit is unimodal in the base-stock level. We compare the base-stock system with a make-to-order (MTO) system and show that the lead-time quotes are lower in an MTO system and that increasing the base-stock level does not necessarily decrease the expected number of customers waiting. Numerical results show that when customers are less sensitive to lead-time quotes, the benefit of quoting lead times with a higher precision is significant, whereas when customers are more sensitive to lead-time quotes, the benefit of holding inventory is significant.