Coordination of marketing and production for price and leadtime decisions

Pelin Pekgün; Paul Griffin; Pinar Keskinocak

doi:10.1080/07408170701245346

Coordination of marketing and production for price and leadtime decisions

Pelin Pekgün, Paul Griffin, Pinar Keskinocak

Marcus Department of Industrial and Manufacturing Engineering

Research output: Contribution to journal › Article › peer-review

80 Scopus citations

Abstract

We study a firm which serves customers that are sensitive to quoted price and leadtime, with pricing and leadtime decisions being made by the marketing and production departments, respectively. We analyze the inefficiencies created by the decentralization of the price and leadtime decisions. In the decentralized setting, the total demand generated is larger, leadtimes are longer, quoted prices are lower, and the firm's profits are lower as compared to the centralized setting. We show that coordination can be achieved using a transfer price contract with bonus payments. We also provide insights on the sensitivity of the optimal decisions with respect to market characteristics, sequence of decisions and the firm's capacity level.

Original language	English (US)
Pages (from-to)	12-30
Number of pages	19
Journal	IIE Transactions (Institute of Industrial Engineers)
Volume	40
Issue number	1
DOIs	https://doi.org/10.1080/07408170701245346
State	Published - Jan 2008

All Science Journal Classification (ASJC) codes

Industrial and Manufacturing Engineering

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10.1080/07408170701245346

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abstract = "We study a firm which serves customers that are sensitive to quoted price and leadtime, with pricing and leadtime decisions being made by the marketing and production departments, respectively. We analyze the inefficiencies created by the decentralization of the price and leadtime decisions. In the decentralized setting, the total demand generated is larger, leadtimes are longer, quoted prices are lower, and the firm's profits are lower as compared to the centralized setting. We show that coordination can be achieved using a transfer price contract with bonus payments. We also provide insights on the sensitivity of the optimal decisions with respect to market characteristics, sequence of decisions and the firm's capacity level.",

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