Costis Maglaras

Revenue Management for a Multiclass Make-to-Order Queue

Abstract:
Consider a make-to-order manufacturer that offers multiple products to a market of price and delay sensitive users. This paper studies the problem of maximizing its long-run average expected profits for a model that captures three aspects of particular interest: first, the joint use of dynamic pricing and leadtime quotation controls to manage customer demand; second, the presence of a dual sourcing mode that can be used to expedite orders at a cost; and third, the interaction of the aforementioned demand controls with the operation decisions of sequencing and expediting that the firm must employ to optimize revenues and satisfy the quoted leadtimes. Using an approximating diffusion control problem we derive near-optimal dynamic pricing, leadtime quotation, sequencing, and expediting policies that provide structural insights and lead to practically implementable recommendations. A set of numerical results illustrates the value of joint pricing and leadtime control, as well as the performance of the proposed set of policies.

Source: Operations Research
Exact Citation:
Maglaras, Costis. "Revenue Management for a Multiclass Make-to-Order Queue." Operations Research (forthcoming).
Date: 2010