Recent business trends and advances in consumer behavior modeling have clearly shown that demand for goods and services, and in turn, the profits of companies and the satisfaction of their customers, are significantly shaped by price and lead time decisions. Numerous examples from practice as well as the literature have shown the potential of effective price and lead time quotation to influence demand, manage congestion, and improve customer service; however, studies that provide an integrated decision making framework for price, lead time, order selection, and inventory decisions is lacking.
The fundamental tradeoff in lead time quotation is between quoting short lead times and attaining them. Similarly, the tradeoff in price decisions is between quoting low prices to attract customers and achieving profitability. Ideally, a firm should take a global perspective and coordinate its decisions on price, lead time quotation, order acceptance, and inventory for increased profitability. In addition, if the decisions are made independently by different units, the firm would benefit from coordinating these decisions by setting the right incentives.
Our objective in this project is to employ integrated decision making models and understand the potential for (dynamically) setting prices and lead times to maximize profits and improve customer service. In particular, we will study and analyze (i) the factors that affect the performance improvement (in profits and customer satisfaction) through dynamic price and/or lead time quotation, (ii) the impact of making price and lead time decisions in a decentralized fashion (i.e., by different entities such as marketing and manufacturing divisions), (iii) the implications for the management of orders, production, and inventory decisions.
The proposed research is expected to have a number of broader impacts for research, industry, society, and education. It will result in novel formulations and theoretical contributions as well as practical insights and algorithms for real-time price and lead time quotation. The research activities will be integrated to a range of educational activities to promote training and learning by graduate and undergraduate students and industry professionals. Improvements in price and lead time decisions have significant potential to maximize profits, reduce congestion related costs, and improve customer satisfaction. In an age when more and more companies are moving towards make-to-order/build-to-order models and the service sector is growing at an astounding rate, the impact of effective pricing and lead time quotation can be tremendous.
