Dynamic lead-time quotation for an M/M/1 base-stock inventory queue

Seçil Savaşaneril, Paul M. Griffin, Pinar Keskinocak

Research output: Contribution to journalArticlepeer-review

24 Scopus citations

Abstract

We study a dynamic lead-time quotation problem in a base-stock inventory system characterized by lead-time sensitive Poisson demand and exponentially distributed service times. We show that the optimal profit is unimodal in the base-stock level. We compare the base-stock system with a make-to-order (MTO) system and show that the lead-time quotes are lower in an MTO system and that increasing the base-stock level does not necessarily decrease the expected number of customers waiting. Numerical results show that when customers are less sensitive to lead-time quotes, the benefit of quoting lead times with a higher precision is significant, whereas when customers are more sensitive to lead-time quotes, the benefit of holding inventory is significant.

Original languageEnglish (US)
Pages (from-to)383-395
Number of pages13
JournalOperations Research
Volume58
Issue number2
DOIs
StatePublished - Mar 2010

All Science Journal Classification (ASJC) codes

  • Computer Science Applications
  • Management Science and Operations Research

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