Lead-Time and Price Quotation

Oğuz Atan

Introduction

• Technological developments & Globalization

• Competition in business

• Customer satisfaction

• Introduction of new philosophies

• Total Quality Management (TQM)

• Time Based Competition (TBC)

• Just-in-Time

Make-to-Order environment

• orders arriving over time

• lead-times/prices are quoted

• lead-time/price sensitive customers

• submit or cancel the order?

Introduction

Problem of Lead-Time and Price Quotation

• Quoting a satisfactory lead-time

• Asking for a competitive, attractive price

• Maximizing profit / Minimizing total costs

Problem of Lead-Time and Price Quotation

Competition in service sector:

• guaranteed short delivery times in oil-change shops

• free lunch if your lunch is not served in 10 minutes

• you receive $5 if you wait more than 5 min. in bank queue

• “ 3 is a crowd ”, in a supermarket

new checkout counter is opened if more than 3 people in any queue

generally shorter lead-times are preferable

• accuracy?

• tardiness penalties

• intangible costs:

• loss of goodwill

• damaged company reputation

• decrease in market share

Problem of Lead-Time and Price Quotation

customer characteristics

• Price sensitive customers

• wait more to pay less

• number of customers is high

• capacity is an issue

• Lead-time sensitive customers

• impatient

• ready to pay more for quicker service

Problem of Lead-Time and Price Quotation

Real-life make-to-order environment

• dynamic & stochastic

• handling urgent jobs: more profitable

• schedule flexibility: inserted idle times, slack times

• setups

• common due-dates

• objective function

Problem of Lead-Time and Price Quotation

Price Quotation

• demand is downward sloping in price

d(p,l) = a - b1p - b2l

Palaka, Erlebacher, and Kropp, 1998

• demand rate of customer type z is strictly decreasing

d(z, p + c(z)W)

Lederer and Li, 1997

• higher prices for urgent orders

since you generally use extra capacity

may want to reserve capacity for urgent orders

Keskinocak, Ravi, and Tayur, 2001

• mean demand rate depends linearly on L and p

(p,L) = a - b1p - b2L where p = d- eL

therefore price is determined by the lead-time

(L) = a’ - b’L

Ray and Jewkes, 2003

Price Quotation

• price decision affects the market share

i = (Lipi-a ti

-b / Ljpj-a tj

-b)

where is market size, and Lipi-a ti

-b is attraction of firm i

So, 2000

• customer sensitivity in price

D(p,x) = p-a l-b

So and Song, 1998

Price Quotation

Lead-Time Quotation Procedures

Problem environment imposes various

assumptions & constraints:

• availability intervals

• urgency of jobs / relative importance of customers

• capacity of the shop

• amount of information used

• sequencing rule

• objective

Lead-Time Quotation Procedures

Time Window Based Models

• quote lead-times acc. to windows available for prod’n or delivery

Models that Include the Sequencing Decision

Dynamic Sequencing

put urgent order somewhere in front in the existing schedule

Periodical Sequencing

sequence the consolidated jobs together

better schedules achieved

Lead-Time Quotation Procedures

Assignment to Pre-Determined Due-Dates

•if prod’n possible in some predetermined periods due to preventive maintanence, allocation of M/C’s to other jobs

Models that Consider the Value of Shop Information

• use of full shop floor information leads better lead-time quotes

Models with Service Level Constraint

• this constraint is used to prevent quoting impossible lead-times

Lead-Time Quotation Procedures

Models with Controllable Processing Times

• processing times decreased via M/C parameters, up to a limit

• additional cost incurred, proportional to reduction amount

• provides flexibility

Objective of this research

• Analyzing various models that were considered in literature

• Comparing the approaches used for

attaining the optimal price & lead-time quotations

• Answering the question:

“What is the best strategy for companies in realizing quotations?”

• whether to consider two quotations together or independently

• what are the effects of different parameters on quotations

• arrival rates

• customer classes

• number of companies in the market

Directions for Future Study

• Studies that consider usage of new technology

• controllable processing times

• Business specific research capturing more detail, realistic

• Price quotation strategies

• Studies that are able to handle the intangible cost figures

Questions

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