Please use this identifier to cite or link to this item: http://hdl.handle.net/1942/30067
Title: Quality and pricing decisions in production/inventory systems
Authors: Jalali, Hamed
Carmen, Raisa
VAN NIEUWENHUYSE, Inneke 
Boute, Robert
Issue Date: 2019
Publisher: ELSEVIER SCIENCE BV
Source: EUROPEAN JOURNAL OF OPERATIONAL RESEARCH, 272(1), p. 195-206
Abstract: In this article, we consider the impact of finite production capacity on the optimal quality and pricing decisions of a make-to-stock manufacturer. Products are differentiated along a quality index; depending on the price and quality levels of the products offered, customers decide to either buy a given product, or not to buy at all. We show that, assuming fixed exogenous lead times and normally distributed product demands, the optimal solution has a simple structure (this is referred to as the load-independent system). Using numerical experiments, we show that with limited production capacity (which implies load-dependent lead times) the manufacturer may have an incentive to limit the quality offered to customers, and to decrease market coverage, especially in settings where higher product quality leads to higher congestion in production. Our findings reveal that the simple solution assuming load-independent lead times is suboptimal, resulting in a profit loss; yet, this profit loss can be mitigated by constraining the system utilization when deciding on quality and price levels. Our results highlight the importance of the relationship between marketing decisions and load-dependent production lead times. (C) 2018 Elsevier B.V. All rights reserved.
Notes: [Jalali, Hamed] NEOMA Business Sch, 1 Rue Marechal Juin, F-76825 Mont St Aignan, France. [Carmen, Raisa; Van Nieuwenhuyse, Inneke; Boute, Robert] Katholieke Univ Leuven, Dept Decis Sci & Informat Management, Res Ctr Operat Management, B-3000 Leuven, Belgium. [Van Nieuwenhuyse, Inneke] Hasselt Univ, Res Grp Logist, B-3590 Diepenbeek, Belgium. [Boute, Robert] Vlerick Business Sch, Technol & Operat Management, B-3000 Leuven, Belgium.
Keywords: Management; Operations Research & Management Science;Inventory; Quality and pricing decisions; Make-to-stock; Production-marketing; Load-dependent lead time
Document URI: http://hdl.handle.net/1942/30067
ISSN: 0377-2217
e-ISSN: 1872-6860
DOI: 10.1016/j.ejor.2018.06.013
ISI #: 000447084800016
Category: A1
Type: Journal Contribution
Validations: ecoom 2019
Appears in Collections:Research publications

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