Strategies for integrating lead time and customer-order decisions

Abstract

Make-to-order manufacturers are facing unprecedented challenges to fill their customer orders quickly and to reduce their operating costs. In this paper, we first describe and discuss order taking and lead time quoting practice in a real world make-to-order manufacturing system. We then develop a model for this practical problem to study the conflicting objectives, of delivering customized orders quickly and maximizing expected profit. The primary goal of this paper is to develop a general model for studying the trade-offs and the interrelationships among the following manufacturing performance measures: manufacturing flow times, quoted lead time reliability (earliness and tardiness), throughput (or demand) rates, inventory levels, resource utilization, and expected profits. These and other related managerial issues are explored. Our structural results yield insights into basic choices between filling customer orders quickly and maximizing expected profit.