Price and due date setting under service level constraints with contingent orders

Abstract

This paper extends the model of [Eur. J. Oper. Res. 116 (2) (1999) 305] that, optimizes pricing and lead time decisions for MTO firms with contingent orders under service level constraints. The respond function was modified to be of more practical by introducing the average service level to express the effect of delivery reliance on customers' decision. We describe a simple enumerative procedure to determine optimal quotations, then compare the results between under service level constraints or not. Our simple numerical examples show that, on the consideration of service level, our proposed method can increase the total long-term expected marginal revenue. We derive a number of managerial insights based on the analysis of the influence of service level requirement on optimal bidding quotation.